Europe’s corporate brokers critical in chain but challenged to raise game
The Risk Distribution Survey project is an independent survey that is currently being carried out by the CRE editorial team through a series of in-depth interviews with leading European risk managers, brokers and insurers.
The project, supported by Lloyd’s and Aon, is designed to find out what both risk managers and insurers want and need from their brokers and how the brokers themselves plan to deliver what their customers demand over the coming years.
Apart from interviews with the risk managers and insurers, CRE will canvass a sample of 70 of Europe’s top corporate insurance brokers that have been identified by CRE readers across the continent.
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Based on initial interviews, it is clear that insurance buyers still highly value the brokers’ ability to find capacity, in particular for difficult to place risks in markets such as London and Bermuda. The buyers also place a high value on the input from the brokers to help them build effective and compliant global programmes and with the design and placement of their programmes in general.
But the brokers need to sharpen up their act to remain relevant to larger risk managers in particular. Many leading insurance buyers feel that the brokers need to invest more heavily in expertise and the delivery of truly effective and innovative global solutions for their increasingly international exposures.
Interestingly the risk managers interviewed so far are not so interested in pure consulting services and technology solutions from the brokers, despite a general effort among them to move away from a transactional insurance-based strategy to more of an enterprise-wide approach. They are, however, keen to see more useful benchmarking tools and information so long as they are not charged for them.
The big insurers value the brokers’ ability to help them seek out new business in local markets and help them understand and assess risks and therefore find accurate pricing and effective risk transfer solutions for major clients.
This is increasingly important for all parties in the risk transfer chain as risks become more diverse, complex and global and regulators show an ever-higher interest in how local insurance markets interact with international markets.
European risk managers and, to a lesser extent, the insurers commonly say that they are prepared to pay for the value added by the brokers when they help find solutions to such difficult risk management and transfer problems. Most recognise that the brokers have become a lot more transparent and up-front about how they are paid for such work and there is only a minority support for a wholesale change to the charging model, such as to adopt a fully net pricing approach. There does not appear to be a big problem with the way brokers are remunerated currently among the risk managers, though insurers are clearly not happy with recent efforts by the brokers to seek more money for the services they carry out for them.
Overall, it is clear that Europe’s risk managers and insurers would like to see further clarification about the role that brokers play in the chain, what they could and should charge for and further clarity about who they actually work for.
More broadly, both risk and insurance buyers and the leading insurers believe that the brokers must work harder to add value to the risk transfer chain to justify their cost.
Those surveyed believe that brokers need to continually invest in training so that they can offer the right level of expertise and experience to help deliver innovative solutions for difficult risks.
The bigger global brokers must follow through claims of a global service with a truly consistent and seamless offering. Likewise the networks of so-called ‘independent’ brokers must work harder to convince the biggest risk managers that they can truly deliver a seamless global service.
Above all, the brokers need to focus more on the demands of their customers rather than ‘feeding their own complex structures and cost bases’ as one leading risk manager told CRE.
It is clear that insurance buyers will continue to use the big global brokers to help them manage their increasingly diverse risks as they expand into new emerging markets. For some leading risk and insurance managers an owned global network is essential to help them consistently manage their increasingly international spread of risks.
But some risk managers interviewed by CRE expressed frustration that the big brokers are still unable to really offer a seamless and consistent global service led by a skilled and trusted individual or team with the full backing of the international network.
Some risk managers still believe that, despite the best efforts of head offices to impose a single global culture and structure upon what was a collection of merged national champions, work still has to be done to deliver the goods. These risk and insurance managers say that if the big brokers fail to deliver what they want and need they will increasingly look to niche specialist local brokers combined with leading national brokers to help them find the right coverage on the right terms.
“I am happy with the service offered by my brokers and it is better than five years ago, certainly not worse probably because I am more demanding,” one Dutch risk manager, who only uses two of the global brokers, told CRE during the recent Narim conference in Noordwijk.
“I use only the two global brokers because they have the network capabilities and professionalism and if one big client comes along I know that they will not reduce the service for my account while they service that account. So there is less disruption in service. In tenders, I inform them that they are being reviewed more on quality and professionalism than on price,” he continued.
“I cannot say that we need different or new services. Keep up the good work! But, in general, I always want the proactive approach. I don’t like my broker to always agree with me. I want them to challenge and criticise me and this is particularly relevant for the upper middle market because insurance managers in these companies may not be so knowledgeable. So the brokers need to be skilled and experienced above all and I would like to see the term ‘producer’ deleted from all broker job titles,” added the risk manager.
One risk manager with a UK-based multinational told CRE that he values knowledge and expertise above all to help him manage and transfer his risks in what is a highly regulated and high risk sector.
He said that he uses one of the ‘big three’ global brokers to place and service his complex global programme because it’s geographical ‘footprint’ most closely matches his. He said, however, that he also uses one of the leading London brokers that is part of an ‘independent’ global network for strategic advice too because it boasts the best experts in his sector.
“We work with one of the big three because they have a similar global spread and we use their local people as foot-soldiers because it is still worthwhile to have local follow up. All brokers need to listen more closely to their customers and deliver the service they really need and not run their own agenda. Often they seem to go off and advise what serves them,” he said.
Another Dutch risk manager at Narim stressed how brokers need to really focus on their clients.
“I say to the CEO of our global brokers if you want us a client for a big joint venture on an infrastructure project you work for us and not the others. If they cannot say this then I will go to a niche broker that I know in Rotterdam who will only work for us,” he explained.
The insurers are also in search of excellence and a more tailored solution and service than was perhaps available in the past.
“Being one of the smallest of the global insurers we need to rely on the brokers and they do quite well. We expect the brokers to deliver detailed knowledge of their clients’ risk exposures and we cannot play without that information. We are always demanding more information on risks from the brokers and they continuously tell us that the other insurers do not demand as much. It varies around Europe and often depends upon the individuals and set up in that country. But always we look for brokers that have a great relationship with their clients and have a technical approach rather than purely transactional,” said the CEO of one of Europe’s fastest-growing corporate insurance companies.
“Where do the brokers need to improve? Well definitely around duplication of activity. We all need to concentrate on what we are good at. The brokers are very good generally at what they do but the critical part is whether they have the skill to transform that knowledge to the benefit of the customer’s operation. This is why the secret for me is the technical approach and ensuring that they add value for the customers and the carriers. We see lots of brokers pushing back on information that is vital so they are doing a disservice to their customers. Don’t try to duplicate what the customers and carriers are doing and focus on what is needed to underwrite the risk,” he continued.
The full Risk Distribution Survey, supported Lloyd’s and Aon, will be published with the September issue of CRE. Please contact Editor Adrian Ladbury on [email protected] to set up an interview.