Magazine article Risk Management

Can Brokers Meet Tougher Demands of Clients?

Magazine article Risk Management

Can Brokers Meet Tougher Demands of Clients?

Article excerpt

Can Brokers Meet Tougher Demands of Clients?

What are the changes taking place in the broking business today? Or is it the same business fluctuating with highs and lows of the insurance cycle? If it is business as usual, what are the prospects for future profitability and how are brokers adapting to the changing needs of risk managers?

Insurance premiums are a natural reference point for forecasting growth; market changes hint at future profitability. As brokers are currently suffering from the repercussions of a soft market, there inevitably awaits the hardening of commercial lines prices. There seems to be no reason why, over the next ten years, revenue of the larger brokers should not continue to increase at an average of 10 percent to 15 percent each year. Premium advances traditionally outstrip inflation and GNP increases. The big brokers have also shown in recent years that they can increase market share through new business gains. The increasing demand from clients for complex technical and geographically support in a service only the major brokers can provide, augurs well for their future business efforts.

By most accounts, the financial picture does not look bad for brokers. The questions seems to lie in whether brokers can continue to match the growing technological capability, professionalism and financial might of their clients. There is no doubt that in the not too distant past corporate insurance buyers were a raw and undemanding bunch. Now they are a sophisticated group and brokers are looking to ensure they still have the services insurance buyers cannot provide themselves.

Can they continue for much longer? Although their future probably depends on it, some of the stories one hears raise doubts. At a recent conference on captives in Singapore, Lloyd's casualty underwriter, Don Carey, recounted his own experiences of how London brokers behaved during the last hard market:

"In 1986, the broker's sole objective was to complete his client's order at any terms. The broker accepted a switch to claims-made policies without, in many cases, having the slightest idea what the concept meant or being able to explain the advantages or disadvantages to his client. In 1986, my syndicate produced a claims-made wording because clearly there was a need as the majority of risks were now switching to this basis. In London, which would like to feel it is the most sophisticated insurance market in the world, the major insurance brokers accepted that wording without any argument or discussion and without any request for alterations or explanations. Egotistical I may be, but even I do not believe that I can produce a totally new wording which is perfect in every way at first draft. …

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