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At BIBA one of the key things we stand for is raising awareness and educating the public and businesses about the benefits of using a broker. For those in the industry those benefits might seem obvious - but in a crowded marketplace it’s an ongoing challenge to encourage buyers to put brokers first.
I want to highlight today one of those broker benefits and its one that our members have flagged as perhaps potentially dwindling.
I’m talking of course about choice - and specifically about the choice of capacity - where a broker places a risk. That decision and the advice about the choice that a broker can provide their client with is their ‘raison d’etre’. This is one of the key pieces of value they add.
We know that brokers will always face challenges regarding which markets they use. Not every client has a risk that fits the appetite of a galactico big five insurer name. Sometimes a broker for very good reason will choose a more unusual insurer; perhaps capacity that is passported in.
Brokers also have the option to use MGAs (Managing General Agents), expanding client choice but also calling additionally on a broker’s understanding of the market they are using, what and where the capacity is and what additional considerations might be appropriate. The choices made for particular risks can be key in sourcing an effective programme of insurance and with the market seemingly in a state of flux a broker’s ongoing appreciation of the market is essential.
Undoubtedly the general insurance market is changing. For some time, we have seen brokers respond to changing client demand arising from the changing nature of risk, for example terrorism, the rise of cyber-crime and the use of technology. All of these considerations have resulted in some evolution of insurance covers and sometimes a change to the markets in which they are placed. Now, however, insurance brokers are facing some new challenges from the capacity supply end of the protection equation.
Brexit has taken up many insurance firms’ time and energy leaving little in the tank for day to day underwriting. Regulation in the form of Solvency II has had an impact on many capacity providers - Lloyd’s has also been considering some of its portfolio backed capacity. The potential severity of a claim, or the propensity for some claims to occur more frequently, mean that some insurers do not wish to accept certain risks in some classes. Some of the most challenging risk types brokers report on include: design and construction risks; professional indemnity for cladding and civil engineers; credit hire and micro SMEs in high flood risk areas.
Smaller brokers are reporting that changes in market practice are creating a non-competitive environment for many of them, as well as for start-up brokers. Some insurers will only allow them to transact business electronically and some choose only to deal with larger brokers who can commit to significant commercial support that smaller brokers cannot satisfy, so reducing the choices they have.
Some might say that the perfect storm of new risks, new solvency requirements, some catastrophic claims from outside the UK, Brexit and more onerous regulation has led to a more risk-averse approach to what has traditionally been a large appetite to the transference of risk. The market needs to work together to find insurance solutions for all types of difficult risk. After all, those gentlemen in Lloyd’s coffee shop weren’t put off by the development of larger faster ships with more valuable cargoes and the increased propensity for them to sink as seafarers ventured on longer, more dangerous routes.
That is why in 2019 BIBA will be calling for insurers to commit to working with us to improve access and competitive capacity for all brokers.
