Slice it up or Work Harder – Commercial Lines Insurance

If you’re a broker dealing with commercial lines then you’ll be only too aware of the endless softening of rates recently. The recession and serious competition are eating into margins voraciously. Carriers are pushing hard to exploit both professional indemnity and the directors and officers space too.

The latter (D & O) has seen softening of up to 10% in Q2 of this year already. That’s not good news for brokers who find themselves chasing smaller and smaller shares of the market. D&O’s beating is almost certainly down to the large amounts of additional regional level capacity that’s been added by groups like AXA, Allianz, and RSA. Previously most underwriting was handled in the city and that meant far less variation in pricing than we’re seeing today.

What’s to be done?

The first solution is the tried and tested formula of working harder. That’s bringing in more clients than ever before. The only trouble with this strategy is that there’s only so many resources you can allocate to chasing new business. The other issue with this is that it’s exactly what all your competitors are doing.

There are some good fundamentals for this approach of course. Companies that traditionally fell outside of the professional indemnity market are often being forced in to it by contractual obligations to larger businesses. There are also some niches, particularly in emerging sectors, that offer not just new sales potential but the opportunities for higher margins as risk evaluations aren’t yet formalized.

However, it’s still fighting over scraps and everyone’s playing the same game. In the long run, it’s a zero sum race to the bottom. It’s not so much that you should ignore new business, it’s an essential part of running a successful brokerage but it is that you shouldn’t forget what you have in hand.

Lightning does strike twice and so do smart brokers. Photo by Phatman @ Flickr

Adding Value to Existing Business

A better way to approach things is the second solution; the value add. Focusing on your existing clients, particularly in the D &O sector, and looking at the breadth of new product portfolios out there. D & O might be dropping in price, but there’s potential to look at a range of other options to make up the shortfall.

Think about criminal cover, pension fund trustee cover, employer practice liability, etc. If you offer each product with a different and separate level of indemnity rather than just a small amount as part of a larger whole, you can find sensible uses for clients insurance budgets that bring real value.

For once the irritating cliché of “work smarter, not harder” seems to be true. If you consider that most brokers are moving to new business directed strategies. It makes sense to work smarter with existing accounts not just to improve revenues but to protect them from the predators at your door.

Every industry discovers that in the long run, retention strategies pay better than new sales make sure you don’t find out the hard way.


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