Jose Manuel Dias da Fonseca, president of Portuguese broker MDS, chairman of broking network Brokers Link and a non-exec director of Cooper Gay Swett & Crawford, answers Post Europe’s questions.
How do you see your firm's position in the European insurance market?
10 years ago MDS was a captive broker of retail group Sonae, which held 100% shares at the time, and we had 17 people working in Porto. Now it is the leader by far in the Portuguese corporate broking market, which is unique in the world as usually it is Aon, Marsh and Willis. We are above them by some way. In Brazil we are third largest corporate broker and CSGC is the fourth in the world.
What is the state of the Portuguese market at the moment?
Portugal is an open economy and investment is always coming and going. There is no real estate problem like in Ireland and Spain, but debt is beginning to appear and there are problems with mortgage related products.
Portugal is suffering from deficit and liquidity issues, and there are very high interest rates and questions about whether we need international support. There is a political crisis as well and there has been a tough budget. It is a fragile country and it is dependent on exports and has huge debts. In 2008/09 there was a lot of public investment as the government was trying to fight this but now there is contraction to reduce the deficit.
On the insurance side, the last two years have seen non-life products decreased like in other markets and there is competition. Bancassurance is strong and good and there is a strong trust in banks. The main problems with banks is with lending and credit, so people still buy insurance from them. Financial Services also has a strong reputation. The main insurer belongs to the state bank but is owned by the government and has 30% of the market share. Otherwise we have Axa, Allianz, Generali, Zurich and Liberty. It is difficult for international players sometimes as being local is important.
Why is MDS involved in Brokers Link?
The Portuguese market is mature but not as sophisticated as some others. In order to help expansion MDS needed support from other countries and partnerships around the world. It was not just to grow but also to help rasie brand awareness as we are not well known. Our competitors were always 'the big three' and they can say they are global and have expertise and access to markets. We wanted to be able to say this too but through local brokers. This was the reason Brokers Link was born.
It started in Porto in 2004 and now we have 60 countries with 70 members. Sometimes it is just a marketing tool but it is nice to be able to say it. This is a different model to the big corporate brokers. We wanted to fill the gap between us and the big corporate brokers. Global brokers can place business in London and if they need a special guy in construction they can bring him in. In 2007 we bought a share of Cooper Gay so we can do insurance and reinsurance in London and specialise. It is key for us to be big in Portugal and then internationally.
What do you think of your local regulator?
The regulator is well respected and has a strong reputation, it is an authority. The relationship with insurers is good. We have a good and skilled regulator.
Regulation should always consider the local flavour, I agree there needs to be European legislation but it can't be blind to local problems, climates and clients - these can be very different. It needs to adapt always. Stages of development are also different.
There needs to be European Union regulation but also some freedom to adopt as appropriate. Our regulator is completely independent from the bank, which is good. I am against a single regulator are we are two different industries and, therefore, two completely different business models. Banking has a short-term model and insurance has a long-term one. In some markets bankers see themselves as superior. This is natural but dangerous. Banks are important for the economy so it is easy to do. However, we should be seen as equals.
How is recruitment in Portugal?
When graduates leave university they have stock exchange knowledge but no insurance knowledge - they learn this through doing. If someone chooses a career it would be banking but banking is now all about IT and it is a commodity, but insurance is a more sophisticated business. We also pay better for entrants to insurance. I prefer insurance to banking and I have done both. It is sophisticated and is close to people, nature, society and even god. We need to take care of people and there are even factors we can dependent on that are nothing to do with us.
What is the biggest challenge facing European insurers in 2011?
Economic conditions are the biggest challenge but we have a competitive and good market with good brokers. However, there is the need to diversify portfolios and lines and distribution. We have launched an affinity branch, auto specialists (for commercial manufacturers and garages) and bought 50% into the biggest Iberian manufacturer. We are also launching a wholesale broker and we have kiosks in supermarkets. We even have stores within the two biggest hypermarkets in Portugal.
What development are being seen in the market?
Risk management is improving a lot and we are seeing demand for engineers. There are no strong aggregators but there are some online and direct channels for motor. People like to talk to people and even when we have a kiosk it has a phone. Our brand is trusted. Insurers sell the final price but brokers can do business. We have a very capable market.
Is M&A a big topic for this year?
We have seen consolidation and some smaller brokers are selling the bigger brokers' products with some shared resources, as agents.
Is there a claims culture in Portugal across Europe?
We are not really litigious, we have improved a lot. When looking at consumer rights there always used to be complaints about insurance but now it is almost always credit cards. Claims mangers are better. We are not litigious and as a culture we believe it is easier to negotiate that fight.
What are your plans for the future?
By the end of the year we hope to have revenues of €20m and we ultimately want to be one of the biggest brokers in Europe.
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