Blog: How independent brokers should deal with uncertainties

Uncertainty question marks

  • Political upheavals contribute to short-termism
  • Independent brokerages may be tempted to be bought off
  • An alternative vision is emerging with owners investing in their succession

In an uncertain climate, the owners of independent brokerages need to plan their succession, urges Brokerbility chairman Ashwin Mistry, arguing this is for the long-term health of the whole insurance industry.

Shakespeare praised ‘the uncertain glory of an April day’, but how would he have coped with uncertainty all the year round, uncertainty as a way of life?

With every day comes news of another political, social or economic upheaval – terror attacks in Manchester and London, the snap election and its outcome, the defection of the US from the Paris Climate Change agreement, the potential breakup of the UK. And as a backdrop to it all, there is the two-year hiatus we will have to live through before we even begin to know the full cost of the divorce from Europe or its impact on our economy and security.

Little wonder then that short-termism reigns. Confused consumers duck and dive to find the cheapest options; businesses take a highly conservative approach to managing costs and cash flow, with little appetite for investment or much needed improvement in productivity.

Within this context, the insurance industry presents an interesting paradigm. Investment money is flooding in, attracted by the perception that insurance is a relatively safe haven and the broker market is witnessing its second major wave of consolidation. Meanwhile, with reinsurance treaties going nowhere and high liquidity in the market, insurance rates continue to spiral down.

So the squeeze is on for brokers, caught between rising staff, training and marketing costs and the understandable reluctance of providers to pay higher commissions. In turn, insurers face an equally difficult dilemma. Who do they back from the multitude of distribution channels? The nationals? Managing general agents? The new consolidators? Independent brokers? Or alternatively do they simply walk away?

With consolidators putting pressure on providers to offer higher commissions, it appears to come down to a question of who blinks first. On one hand, Aviva has showed its teeth by cancelling agencies of commission-chasing brokers, but anecdotally other insurers have moved to pick up more business on higher commissions.

This is a particularly tricky time for independent brokerages including mine. With many owners in their late fifties or early sixties, there is a strong temptation, faced with an extended era of profound uncertainty and struggle, to put up the white flag and take the consolidator’s buck. But at a recent conference, entitled ‘Independents Day’, there was strong support for an alternative vision. A growing belief is emerging in the importance of fighting for the independents’ traditional space in the market.

Under the banner ‘KYP’ (know your place), many owners are investing in the next tier of management and designing a succession strategy that enshrines the core values of their business. This continued faith in the principles that independent brokers have stood by all their working lives has found support from many providers that are reluctant to see an upward spiralling of commission rates driven by the new entrants into the market and instead prefer to commit to a longer term relationship that delivers higher quality business.

With the dynamics of the market changing constantly and goalposts ever on the move, it’s too early to say whether the new money or the old values will prevail. It’s likely for the foreseeable future that the only certainty will be uncertainty and there will be plenty of examples of opportunists exploiting the insecurity of the market. New money will continue to cherry-pick existing businesses and online start-up ventures and turn a profit by taking the cost out of them and continuing to squeeze insurers. But now there is an alternative vision that is attracting serious thinkers committed to the long-term health of the industry.

That vision needs all the help it can get, from insurers, industry bodies and even the regulator. But it’s an initiative that inspires hope and it’s where my money lies.                   

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