The following opinion piece is written by Elliott Hayes (pictured), sales director, Close Brothers Premium Finance.
For many of us, the pandemic has ushered in the era of doing business virtually. Zoom and Teams calls are standard practice in broking.
Virtual meetings enabled businesses to continue throughout the lockdown, and now that we are in sight of a return to more normalised working, there is every chance that Zoom and Teams will remain as much a part of business life as the traditional office commute, maybe more so.
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Broking finance directors have found that they are making big savings on their travel and entertainment budgets because so many client meetings are now taking place on computer screens.
Supporters of virtuality also point out that account executives can meet many more clients each day without leaving their home office. Added to that, account executives have replaced the daily grind of commuting with a home office or desk, reducing their miles and helping the planet too.
Virtual business has proved itself useful for keeping costs down, and keeping up with clients, but it has also added to the challenges brokers have faced this year, sometimes in an unforeseen manner.
For example, brokers seeking to place more complex risks have sometimes found it harder to get cover, and those writing specialist lines like professional indemnity, leisure and hospitality, or larger commercial risks, have found it especially tough. Risk placement has become a big issue for brokers this year.
It is partly down to the fact that the pandemic has encouraged insurers to continue to tighten their risk appetite, something that was already happening before 2020, and partly because underwriters have become more risk averse because they have had to weigh up their decisions and make judgements largely on their own.
The pandemic has caused all of us to focus more of our attention on minimising risk, and underwriters are no different. Working alone, without the benefit of being able to speak quickly to senior colleagues, makes turning business down the easier option.
As a result, risk-averse behaviour in underwriting has impacted two broader market issues; a harder market and lack of underwriting capacity. These were both cited as concerns by brokers when Close Brothers surveyed them at the beginning of 2021.
In our survey, 63% of personal and commercial lines brokers said the hardening market and lack of underwriting capacity (59%) were significant challenges to growth.
Some business lines (such as construction, or PI) were already putting rate through prior to COVID-19, while parts of the market experienced a capacity squeeze before 2020 after several non-rated, off shore insurers stopped trading.
At the present time, we don’t have the data to know how these factors have affected growth plans among our broking partners, despite there being a good deal of optimism at the start of 2020 while the UK was in virtual lockdown.
In January 2021, 45% of brokers said they expected their business to grow between five- and 20% during this year (a further 15% forecast 20%+ growth). Only 21% said their businesses would tread water or contract.
The two areas brokers said would power their growth were adding new clients to their books, and rising premiums.
Commercial premiums have, of course, continued to rise this year as a result of the harder market, while personal lines home and motor premiums have been static or even falling, as the market readies itself for the impact of the new FCA pricing regime from 2022.
Hard markets increase churn, because commercial clients are more likely to shop around if their existing provider quotes a significant increase in premiums. Some construction risks, for example, have seen premiums increase by 100% or more.
In a previous commentary on dealing with the impact of a hard market, we advised brokers to communicate the issues early and openly to their clients, and to work with them to balance the price and level of cover, including offering finance to spread the cost of their insurance premium.
Brokers with trusted relationships who have managed client expectations will ensure the client knows they’re getting the best deal.
Of course, brokers are natural optimists, and there are plenty of signs that broking continues to hold up well even during these unprecedented circumstances.
It will, however, be interesting to see whether that optimism about growth is justified when new performance data becomes available at the start of 2022.
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