Starting out as an SME broker
28 November 2018
18 April 2019
Society of Insurance Broking
A Society member tells us about the issues new brokers face at a start-up.
Recently we spoke to one of our Society members, Alexandra, who shared with us some of the challenges new brokers face when starting out at a small business. Here is what she had to say:
In a highly competitive market that is constantly changing and buried in laws and regulations, the struggle of a new insurance broker working in a small business is real. After months of paperwork, emails, phone calls, compliance research and an emotional rollercoaster as a bonus, the broker obtains their FCA authorisation. They then happily start applying for insurance agencies. Of course they look at the most reputable companies first, because they are the financially stable ones, as brokers only want the best products for their future clients.
Once an application is sent, the broker’s inbox starts to fill with responses from the insurers:
"We apologise, but we require a minimum 3 years of trading.’’
"Following a review of the financial information submitted as part of your application, we decided not to take your application forward."
"Your enquiry has been rejected because we require a minimum GWP of £400,000."
"We are not in a position to offer you an agency as we are at full capacity at the moment."
"Sorry, 4 minimum years of trade and X amount of GWP."
"We regret to say that you need to trade profitably for 2 years first."
Sometimes brokers may follow-up with a phone call in an attempt to build a rapport with the insurer. At the end of the other line, the management staff sometimes state the same thing as in their original rejection email. Some of them engage with the broker when they communicate their refusal, however some do not even respond.
If a broker manages to obtain a few agencies they may start heavily investing in marketing campaigns, build a social media presence and attend networking events, hoping to create meaningful contacts and prospects. The products of the few agencies obtained so far might not be of interest to the market they are trying to break into, but they must keep on applying and re-applying to the insurers who provide the niche they are genuinely interested in. Stuck in a vicious circle they may receive the same answers. In order to obtain the agencies they need to trade and show profit, but in order to trade in their market, first they needs their agencies.
As a new insurance broker starting at a small business, applying for insurance agencies is like being a student applying for their first job and hearing the cliché of not having enough work experience for the position applied.
In the meantime, the emerging brokerage needs to pay for FCA fees, ICO fees, PI cover, software, the network, examination fees, staff wages, online memberships, broker assess, CPD and networking events, IT and security, marketing fees, travelling fees, etc.
- Adapt agency application forms, including a section for start-up brokers, eg "If you are a new broker, please tick here and go to section X", which would take the broker to a section with more relevant questions, adapted to their current situation. Questions like, "please list all the insurers you work with" or "what is your annual gross written premium" are not only irrelevant to a newly established broker, but they make the application look weak, increasing the chances of being declined.
- A ‘Notes’ section on the application where the broker is given the chance to briefly present to the company their plans and prospects.
- An active interest from leading Insurance Associations.
- Join a broker network.
Perseverance, patience, a good strategy, capital, networking, good knowledge of the industry, strong skills, acting in good faith and having an ethical conduct all contribute to a broker’s success. But at the end of the day, it is still hard due to the reasons mentioned above.
I understand that insurers need to carefully select brokers, but perhaps it would help future business if new insurance brokers from smaller firms know that there will be a place for them as well in the market. Being welcomed by certain insurers who would at least offer them a first chance. Everyone was once a beginner.
If this is an issue that affects you, or if you have a suggestion on how insurers can improve relationships with new smaller brokers, please email us at email@example.com.
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.