Time to cross the Rubicon?-Comment

The brokers are of course the natural whipping boys of the risk and insurance management industry as they are in other parts of the financial services industry. Insurance managers and the insurers themselves almost automatically raise their eyebrows knowingly when the role of the broker is brought up, especially if the topic of how they are paid is added to the mix. The problem is of course that no-one actually likes paying an intermediary for anything because they actually think they could have done the job themselves just as well. Insurance managers use intermediaries because it is generally more cost effective to do so. The exception to the rule in this market is of course the captive or in-house broker model that is common in Germany, the Netherlands and Scandinavia.hideWe did ask the brokers, insurance managers and insurers that took part in this survey if they thought that the captive broker concept would start to spread to other parts of Europe. This was based on the reasonable assumption that the credit crunch and subsequent economic downturn has raised the profile of and perception of value of risk and insurance within most European companies and it would seem logical that they may look to the German model to as a potential way to more closely and effectively manage and transfer the insurable risk. But no-one who took part in the survey thinks that companies in the UK and France will be falling over themselves to set up German style in-house brokers soon. Indeed, even those German insurance managers interviewed who run their own insurance operations said that they happily use the services of brokers and will continue to do so in future as a complement to, not in competition with, their in-house activity. Rather it seems that the brokers face growing opportunities in the corporate risk and insurance management market as the European and global economy continues its rapid evolution. First, companies of all types continue to extend and expand their activity—sales and production—across borders to Asia, Latin America and increasingly now Africa. This creates ever more risk that needs to be managed and existing and generally small corporate risk and insurance departments need more help not less as CFOs will be loathe to authorise more spend currently. Enter the brokers. Second, there is a fast growing number of smaller companies that suddenly find themselves thrust onto the global stage, having to meet ever stricter corporate governance standards, new rules such as the Environmental Liability Directive and find solutions to tricky problems such as cyber risk. Smaller companies simply cannot afford to hire a dedicated risk or insurance manager to sort all this out but it still needs to be sorted. Again, enter the broker. The insurers could of course try and fill that gap themselves but they remain more than happy for the brokers to bridge the gap, even in the more commoditised SME market. This is simply because it just does not make economic sense for them to send out thousands of agents into the market to try and sell complex commercial solutions that they don’t really understand and will fall on deaf ears anyway. Far better to allow the SMEs to outsource the risk and insurance management function to the broker and distribute the risk to the insurers through them. Thus while the insurers and insurance managers wear that knowing smile and moan about having to pay the brokers anything in industry publications and during events, they are both fully aware that the brokers provide an invaluable service at a fair price and need to be encouraged to build their businesses not wind them down. The big opportunity for the brokers is to fully grasp this opportunity produced by the financial and economic crisis while it looms large and perhaps even use it to wade through the Rubicon into the promised land of risk consultancy and the purely fee-based future that would finally lay the conflict of interest argument to waste. Risk Distribution has been sent free to each qualified reader of Commercial Risk Europe. If you are not a regular reader or wish to receive extra copies of the survey please contact Hugo Foster, HFoster@commercialriskeurope.com, to request further copies.

Time to cross the Rubicon?-Comment

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