Brokers must up their game to keep business

A group of leading European risk managers have warned that brokers need to act fast if they are to remain relevant to clients in the future.

The value of brokers is being tested by the hardening insurance market and the new challenges faced by insureds in finding the right coverage at the right price, according to award-winning risk managers who met to discuss the role of the broker in today’s insurance climate as part of our new broking survey.

All winners at the European Risk Management Awards 2020, the group agreed that overall brokers have done a good job, but there are challenges risk managers ultimately might not forgive.

Commercial Risk Europe has partnered with Sompo International to launch an important annual survey of Europe’s leading commercial and corporate insurance brokers. The Future of Risk Distribution survey will seek insight from brokers on how they are tackling ever-changing customer requirements, and how they are investing in technological and people enhancements to deliver the products their customers need in an effective and efficient manner. Brokers can take part in the survey by clicking: www.surveymonkey.co.uk/r/risk-distribution-21

As a first step in the survey process, we talked to a group of risk managers from across Europe to gain their views of the broker sector.

Lene Ritz, chief risk officer at Energinet, said brokers have, in general, lacked the innovation to deal with the hardening market.

Many risk managers and brokers have been warning that renewals would take far longer than previously, so Athina Pehrman, group risk manager at Electrolux Professional Group, said she started the process early and found brokers ready and willing to do battle on her behalf.

“I called for a meeting with my brokers in November last year for renewals on 1 April, because I could see problems ahead. It gave us time to prepare and has allowed us to see which brokers are skilled and experienced,” she said.

“Experience and knowledge count now – previously everything was about price. Anyone could call themselves a broker. But I definitely see who is the true broker today, versus who was a broker before. They have done a fantastic job for us – but that’s because we started early,” she added.

Rohini de Waard, global insurance manager at Royal Vopak, agreed: “We could see that brokers were a little surprised by what we encounter right now, but a good broker knows how to handle the situation.”

Gerold Knight, who recently moved to become chief risk officer at Coca-Cola Bottlers Japan, believes brokers did a good job through his recent renewals in Europe, although he was less impressed by the pricing offered by insurers.

“The challenge was in trying to sell the business as a good risk rather than facing general across-the-board increases,” he said.

While the overall experience has not been too bad, François Malan, chief risk and compliance officer at Eiffage, said brokers were “sometimes overwhelmed and their young teams were not always experienced to face this new situation”.

“They didn’t have the power to influence in a decisive way the decision of an insurer,” he said. This view was supported by Ms Ritz.

And Pauline Davoust, a member of the board at Swiss risk association SIRM, added that there is definitely a lack of experience of dealing with the hard market among brokers. In all, the school report would have read: ‘Brokers did well and were trying hard but there is plenty of room for improvement.’

Ms Davoust pointed out that Covid-19 exclusions were submitted to risk managers on a ‘take it or leave it’ basis at renewals, and sometimes at the last minute. “I would have expected more involvement and coordination from brokers towards both sides – insurers and risk managers. In addition, the lack of contact due to the pandemic and face-to-face meetings may have also contributed to reduced dedication and commitment,” she said.

Ms Pehrman said it was a surprise to see so many insurers simply withdraw from certain lines of business completely. “We didn’t really anticipate that. We expected the change in pricing and that terms would be narrower, but I don’t think anyone was prepared for insurers actually pulling the plug on so many lines. Suddenly there weren’t five insurers to choose between, but only one or not even one,” she explained.

But Carl Leeman, chief risk officer at Katoen Natie, said some risk managers should not have been surprised to lose the appetite of insurers. “Those who change insurers every year to save 5% are now getting what the insurers think they deserve,” he suggested. However, the bigger issue for him is that local decision-makers appear to have disappeared.

“All decisions have moved up the chain,” he said. “The advantage of attending the major risk management conventions, such as Rims and Ferma etc, is to be able to meet in person the more senior people within the insurance companies and, once they know you, it makes it easier for them to accept your file as they understand it better and there is the human element. Now, many of the decision-makers are operating on a different continent and it is not always possible to have those relationships.”

The risk managers agreed that relationships have been key to help insurers understand risk, and a good broker will facilitate that. However, the group felt this was another area where brokers could add more further by investing more heavily in understanding their businesses.

Mr Leeman suggested it would be an advantage if brokers were to reflect business structures more accurately and become specialists on, say, petrochemicals or automotives, rather than expecting to be able to deal with all elements of business.

He said this might also help at a time when insurers are cutting costs and inevitably commoditising insurance cover. “Large companies tend to need very specific coverage and understanding from insurers, and I think brokers have a real opportunity to offer real value to the transactions. Manuscript wordings don’t match the commoditisation and that is a big problem brewing for the future. We have such different risks, however insurers want standard policies. The corporate insureds are difficult to handle and bring the bulk of the large losses,” he said.

Ms Pehrman also called for brokers to become more innovative. “Many of us have limited resources and are dependent on our brokers for expertise, so I think they need to be more innovative. A property policy has looked the same for 30 years.”

She also warned that the new mega-broking businesses will need to up their game or risk more focus on specialist brokerages.

“If we are going to have two or three ‘dragons’ on the broker side, they need to come up with something or else we will see people leaving the brokerage and starting up with speciality brokerages,” she said.

The risk managers warned that the giant brokers “need to start delivering on their promise”.

“For us, the negative is that the bigger they get the less attention we get, which means customers will be unhappy and will start leaving too,” said Ms Pehrman.

There was also concern from other risk managers that as the mergers go through, brokers will be concentrating on keeping their jobs and internal survival, at the expense of focusing on their clients. One predicted a “bloodbath” as mergers result in whole teams becoming redundant.

Ms Ritz worried that sometimes brokers have not made the distinction between risk management and insurance management.

Some still consider all risk managers to be insurance managers, instead of understanding the broader, often strategic, role risk managers will have within a business. Brokers need to find their own role and work out where they really belong in the value chain, she suggested.