Networks: the big broker alternative–comment

Recently, one of these broker networks, Brokerslink, said that brokers and broker networks must adapt in order to address global challenges or face an uncertain future. Speaking at the Third Asia Insurance Brokers’ Summit in Kuala Lumpur, the chairman of Brokerslink, Jose Manuel Fonseca, said that insurance buyers were the ultimate losers in the race for critical mass as consolidation reduced choice when selecting a new broker.

He said broker consolidation also had an impact of on underwriters. “Even insurers, who rely on brokers for their product distribution, are often heard lamenting the fact that the ‘alphabet’ brokers, in particular, control too much of the world premium volumes,” he told the summit.

Mr Fonseca said clients should question whether the local office of a large global broker enjoys the same leverage as its parent company, and whether the concept of a one stop skills shop within brokers is best for clients.

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“The global nature of the economy and rising wealth in emerging markets is fuelling the desire of brokers and their clients to be close to the action. Every broker needs to get as close to their client as possible. People want to deal with local businesses that understand their needs, speak their language and have in-depth knowledge of local laws and culture. If we fail to do this, we will lose out,” he said.

He explained that some broker networks are suffering as moves by global brokers to acquire or invest in local entities has seen the number of potential independent members diminish, once again leading to a lack of choice for the ultimate insurance buyer.

“While broker networks remain attractive to clients and their risk managers, the underlying business fundamentals need to change radically if they are to survive,” said Mr Fonseca.

“There are alternative business models, which not only allow addressing the shortcomings of both mega brokers and networks, but that will do so with growing levels of effectiveness. Aspects such as the fee structure, membership criteria and ownership structure deserve rethinking. In the future, the generation of inward premium income, selective membership and giving members an equity stake may be among the features to seek. Adapting a broking business is not easy, but the extinction alternative is unthinkable.”

It’s not in anyone’s interests to have severely limited choice, reduced competition, and only the option of huge corporations. Smaller brokers must improve and adapt their networks to offer an effective alternative – for buyers’ and their own sake.