Independent Broking: Back to basics


With tough times facing the industry, insurers and brokers have to embrace their traditional roles to be successful

The relationship between brokers and insurers is akin to global warming: just when you think you’ve got to grips with the immense scale of the problem, something worse comes along.

Insurers’ third-quarter results for 2012 triggered the realisation among many major carriers that reserves are fast disappearing and they can no longer sustain combined operating ratios above 100%. This quickly translated into a more forensic analysis of the data, which led to many major insurers being more selective of mainstream markets.

Choice is being eliminated before our very eyes, and shortly a tipping point will be reached to the detriment of the consumer as markets disappear – and with them democratic choice.

A book could be written on precisely why this has happened, but the short answer lies in the recent blurring of boundaries between insurers and brokers. The rise in online purchasing, and the rapid growth of networks and managing general agents, changed the distribution scene beyond recognition. This put an immense strain on traditional models and insurers are now facing a perfect storm of excessive commission rates and a backlog of claims, with fears of a resulting collapse of profitability. The inevitable backlash threatens to produce an even more dysfunctional model.

Tales from the archive: 2010
Brokerbility managing director Ian Stutz is not the only industry professional calling for a return to the traditional clear divide between insurers and brokers. In July 2010, Allianz’ Chris Hanks said that a rise in managing general agents was damaging consumer trust (

Allianz commercial general manager Chris Hanks has slammed managing general agents for failing to “inspire trust and confidence among customers”.

Speaking at the Chartered Insurance Institute’s panel debate on professionalism at the British Insurance Brokers’ Association conference, Hanks claimed insurers and intermediaries need to focus on their traditional areas of business to retain credibility among policyholders.

Hanks said: “We have lost our way in what we are trying to achieve and are failing to inspire trust and confidence among customers.

“We need to get back to basics and focus on what we are really about. MGAs are blurring the distinction between brokers and underwriters.”

He added: “We have too many companies wanting to do underwriters’ jobs and we have too many underwriters downsizing because they cannot afford the costs.”

However, Brian Russell, chief executive of underwriting agency APC Insure, said that MGAs with specialist underwriting expertise are capable of offering a professional service to policyholders.

Russell commented: “That is exactly what an MGA brings to the table. It brings a quality service, knowledge and the skillset to look after the end client. There are quality agencies out there that can write a profit from big books of income. Certain insurers just try to grab premium income and that is not underwriting.

Russell, who is on the working committee of the fledgling Managing General Agents Association, added: “Taking underwriting back to basics is the core of what the MGAA is trying to do. The MGAA will promote agencies that have the quality to underwrite.”

Russell welcomed Axa’s decision to reduce its exposure to MGAs by 75%, arguing that the move would benefit “quality MGAs”..


Battle for supremacy
This raises the question of whether there is an alternative to the traditional battle for supremacy tilting back and forth from brokers to insurers. There is and it hinges on the independent broking model. This is founded on the old-fashioned belief that the pen must stay firmly in the hand of the insurer.

However, given the critical nature of the current market, the industry has to go much further than merely refusing to blur the distinction between the roles of insurer and broker, and to start building a true strategic partnership. Indeed, both parties must share the pain as well as the gain.

By communicating as partners – from board level to the individual management strata – insurers and brokers can gain an understanding of each other’s strategic direction. Regular meetings should be highly structured with a focus on both effectiveness and profitability, based on shared data.

Frequent dialogue builds a mutual understanding. Transparency should be taken to its logical conclusion with a joint business plan with each partner. There is nothing cosy about these relationships. Sharing the pain and the gain may mean taking hard decisions if a partner falls below acceptable standards but it also means rallying behind key markets to support our partners.

Professionalism is another area in which brokers and insurers need to sing from the same hymn sheet. At Brokerbility, 20 out of the 35 companies are chartered and we’ve set a target of the end of 2014 for all our group companies to be chartered. Insurers must strive for the same to create a powerful joint platform for learning, development and mentoring initiatives including job sharing and mutual training workshops.

There are many other areas in which it is necessary for brokers and insurers to find synergy. One of the most remarkable features of working in insurance is that when clients walk through the door on a policy renewal date, firms know precisely what they want, when they want it and how much they want to spend, based on an intimate knowledge of their business. Companies such as Marks & Spencer or Mercedes-Benz would kill for that sort of certainty, but to turn this opportunity to their advantage brokers need the support of insurers in convincing clients of the merits of the product and of a long-term relationship.

Client retention should be a major focus, as should joint marketing and shared appetite for risk. While recognising that insurers have to take corrective action and that their first priority is profitability, brokers must position with them based on mutual benefit rather than constant battle.

Some insurers already buy into this approach fully and want to work with brokers to inspire customers to do business. It is a long-term vision but without it the insurance market faces an unpredictable and dangerous future.

Ian Stutz, managing director, Brokerbility

This article was published in the 18 July 2013 edition of Post 

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