Brokerslink Chairman Says Brokers and Broker Networks Must Adapt or Decline

Speaking at the 3^rd Asia Insurance Brokers’ Summit in Kuala Lumpur, Jose Manuel Fonseca, chairman of Brokerslink, told delegates that, in order to address global challenges, brokers and broker networks must adapt or decline.

Highlighting consolidation as a major challenge, Fonseca said that buyers were the ultimate losers in the race for critical mass as it reduced choice when selecting a new broker.

“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,” Fonseca said.

He cited this as a reason the large insurance underwriting groups seek to grow meaningful and collaborative relationships with independent and niche brokers.

While Fonseca expected many of the mega brokers to cite the benefits of their premium muscle and size to get the best deal for their clients, he believes clients should question whether the local office of a large global broker enjoys the same leverage as its parent company.

Fonseca also questioned whether the concept of a one-stop skills shop within brokers is best for clients. “I do not dispute that this approach can provide economies of scale, but clients should be offered a choice of independent specialist service providers, separate from the insurance purchasing transaction. Reinsurance and employee benefits, for example, are areas where conflicts of interest can be an issue.”

Addressing the impact of increasing corporate globalization, he went on to say: “The global nature of economy and the rising wealth in emerging markets is fueling 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.”

Broker Networks

Broker networks have not been immune to these external forces. Rather than be consumed by large broking groups, many independent brokers have decided to seek out relationships with like-minded broking firms in cross border collaborations, he said.

Unfortunately, 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 and, once again leading to a lack of choice for the ultimate insurance buyer, he continued.

But Fonseca believes there is an answer. “While broker networks remain attractive to clients and their risk managers, the underlying business fundamentals need to change radically if they are to survive. 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 give members an equity stake may be among the features to seek. Brokerslink has already changed its business model to facilitate these essential elements as we believe this to be where the future lies,” he said.

“Adapting a broking business is not easy, but the extinction alternative is unthinkable.”

Source: Brokerslink

Topics Agencies