The way brokers relate to their biggest corporate clients is changing, partly because of the growing sophistication of corporate risk managers but also because the risk profile of global businesses is becoming more dynamic and more complex.
Johan Willaert, who is president of the European risk manager association Ferma, believes that brokers will continue to provide a crucial service to the 4,700 big businesses that make up Ferma’s membership.
“I think that the insurance buyers who always worked closely with their brokers in the past continue to do so, no more or no less. Meanwhile, those buyers that used to deal direct with the insurance market continue to do so,” he told Reactions. “But in the last couple of years change has taken place. Before, clients would leave the broker to do all the work and simply receive the finished technical solution to their requirements for sign off.”
Today, the broker is more likely to consult with the client and the client, together with the broker, is involved in negotiations with the corporate insurer, Willaert said: “This is the future for the large brokers: working with buyers that already have strong links with insurers, who know as much as the broker about the technical issues involved. The added value brought by the broker is in their knowledge of the changing
The trend towards closer tripartite discussions is a reflection of how Ferma’s members are evolving, with “siloed” corporate insurance managers increasingly turning into wide ranging risk managers. It’s also because of the emergence of risks that aren’t easily, or economically, solved by off the peg insurance coverage.
Willaert, who is risk manager at the multinational imaging systems corporation Agfa-Gevaert in Belgium, has long experience of the corporate risk business.
“In the past the buyer would say, ‘Look I have this problem’ and the broker responded with a pre-packed solution, if one existed. Now it is different. The broker is equipped with a better understanding of the client’s needs and takes that to the market to find a solution. It might be an insurance construction or it might not be insurance,” Willaert explained.
“In a global economy the function of the risk manager’s job is becoming more ‘global’ across the organisation. Working in siloes is no longer possible. Cyber risk, for example, is a property and a liability issue today. It is a reputation and communication issue as well,” Willaert said. “Also, risks like business interruption and business continuity require special products because they do not fit in the old insurance siloes.
“It’s why big corporations need brokers more than ever to provide solutions with added value. Of course there will be a wider gap between SMEs and large corporations because SMEs and private businesses only need standard products with the best price and decent coverage,” Willaert added.
As well as advising their corporate clients on complex risk issues, brokers can take a heavy burden from corporate clients in the back office.
“A lot of administration can be sub-contracted to the broker because the broker is equipped for it and has the contacts in the market. The broker often has more efficient processes; it makes sense for them to take on more of the administration as it reduces duplication,” Willaert said.
Such arrangements could become more commonplace and many Ferma members have started a dialogue with brokers on this aspect of the relationship. It’s not straightforward, however, as the guidelines and targets imposed on brokers in individual markets by their central office can be an obstacle to deals being done, Willaert said. Big brokers often don’t adjust easily to individual markets, he added: “There’s a big difference between Germany, where corporations usually have
So are some brokers simply too big to adapt to individual markets? “No, I don’t think that brokers can be too big. If I come to a big broker with a difficult challenge it’s more likely that they will have encountered such a challenge before. In our global world it is an unavoidable that the global brokers are better positioned to work with global clients.”
Willaert believes that as long as a broker’s business model allows them to adapt to local needs, cultures and legal systems then big brokers can remain relevant: “That’s the exciting challenge for big brokers. In fact, I wish I was 20 years old and just starting to work as a broker in this environment!”
One important change in relationships that is happening in Europe is the shift towards fee-based remuneration, versus commission.
“Yes definitely. Clients in Europe no longer want to pay commission for something that’s out of their hands. Where commission is still paid, compliance rules have created a transparent culture where it is clear what has been paid. But in general, especially where we are talking about major insurance programmes, broker remuneration is increasingly fee based in Europe.”
The UK risk management trade association Airmic recently published a paper highlighting the concerns of its members around potential conflicts of interest created by agreements between brokers and insurers. Willaert is more relaxed, however.
“Personally, I always want to be sure I have the best
“If I do my job properly, I will know what I paid to the insurer, to the broker and to the tax man. If the broker is clever enough to make its own arrangements with the insurance market, it works to my benefit. The more money the broker makes from insurers, the less he will ask from me. That’s my personal opinion as a risk manager for a large company. I know that not everyone shares it.”
Nor does Willaert believe that brokers are in danger of being disrupted any time soon by new entrants. “I believe that as long as the intermediary can show added value, the intermediary will always be there, because insurance buyers will always be ready to pay an intermediary for added value. And in my experience, the big brokers do work hard to deliver added value to their clients,” he said.