Insurance Brokerage

[TheGuru2010]

Ok so a example of a error - this could be loads of things really, one example would be advising a client what insurance they need & getting it wrong, you could easily forget to disclose a material fact that the client could have made you aware of. Say the client makes you aware that he is working with asbestos & you dont declare this to the insurer, when a claim comes round for this chap the insurer wont pay out - guess who he will be coming after !

If you cant get the experiance then you may well struggle, before you will even get a network / insurers they will want to make sure you know what you are doing, You also have all the legislation of the FSA to consider etc. People who can manage all these things will not be easy to find & wont be cheap!

When you state you are looking at a niche area where there are less variables what would this be?.

In relation to costit will be more the ongoing cost while the business establishes its self. You will need advertising, computers, location, rates, business stationary & the staff to actually get you off the ground.

Have you looked at the option of buying a brokers as well?

 

[scm5436]

When you state you are looking at a niche area where there are less variables what would this be?

Well, here's a totally random one (ie. not one of the one's we're considering, but one I fould while researching and makes a good example)-

Wedding insurance. The only options were 'how much do you want cover for', 'do you want marquee cover', and 'do you want cerminonial sword cover'.

That's pretty simple. They have the policy document from the insurer that explains what is covered, and there are only a couple of things to take into account when providing a quote.

Presumably this is a fairly risk free (for the broker) form of insurance? I can't see any obvious pitfalls as there are with the more complicated commercial insurance?

I'm guessing that's probably quite a cut-throat niche though?

 

[TheGuru2010]

Well, here's a totally random one (ie. not one of the one's we're considering, but one I fould while researching and makes a good example)-

Wedding insurance. The only options were 'how much do you want cover for', 'do you want marquee cover', and 'do you want cerminonial sword cover'.

That's pretty simple. They have the policy document from the insurer that explains what is covered, and there are only a couple of things to take into account when providing a quote.

Presumably this is a fairly risk free (for the broker) form of insurance? I can't see any obvious pitfalls as there are with the more complicated commercial insurance?

I'm guessing that's probably quite a cut-throat niche though?

Could be good but personally I don't think there would be enough meat in something like that, pretty sure you could get wedding insurance for about £100 or less these days. You would look to take around £15.00 - £25.00 per transaction on that. - Again you need to write alot to make some money.

Things like that are good to have as they are very little work but I wouldn't base a whole business on something like that, there is very little control over the claims ratio (ie you cant pick the good from the bad) & the rates etc will pretty much be in control by the insurer.

Policy's like that are never going to make you a fortune unless you are writing them in mass amounts (which will need a heavy advertising budget) & i would say it would take you a while to make a return on something like that.

You want to stand out from the crowd & make some money? this is not the easiest to explain in writing so ill try my best. If it was me this is what I would be looking for:

I would be looking at some trades which would demand a high (ish) premium & you would need to learn the sector very very well.

One thing I do is Self Drive Hire, insurers hate this kind of business because it is rife with fraud, claims & is generally bad business. Over the last few years I have grown to this trade & understand the business very well (I can spot a dodgy one from a mile off). then over the next few years you would look to build a book of this class up by picking choosing the best of the crop & keeping claims ratio to a minimum, this in turn will make sure each insurer receives a profit. Then what you would look to do after that is possibly approach one insurer to provided you with a scheme, it would go something like this

"Hey Mr underwriter I have been doing self drive hire insurance for 3 years now and currently have a GWP of £3,000,000 out of that claims have been less that £1,000,000 so we can show that we can manage this stuff spot on & you make a profit etc etc. You may find a insurer work with you to develop a scheme giving you a market leading edge"

There are loads of trades out there where the market is difficult, you need to think of something that is up & coming, what is your current business that you are involved with? Maybe there is something you could work with on that sector?

 

[scm5436]

Could be good but personally I don't think there would be enough meat in something like that, pretty sure you could get wedding insurance for about £100 or less these days. You would look to take around £15.00 - £25.00 per transaction on that. - Again you need to write alot to make some money. Things like that are good to have as they are very little work but I wouldn't base a whole business on something like that

agreed. but what if you worked say 20 similar niches? They're all probably too small to bother with on their own, but get a whole bunch of them running and it starts to add up. Maybe.

there is very little control over the claims ratio (ie you cant pick the good from the bad)

Isn't that a problem for the insurer rather than the broker? Or will the insurers put your prices up if you bring in an above average amount of bad business? Or were you just thinking of all the extra paperwork involved?

Policy's like that are never going to make you a fortune unless you are writing them in mass amounts (which will need a heavy advertising budget) & i would say it would take you a while to make a return on something like that.

ok, but we're not in a huge rush. We'd see this as another arm to our business, one which we can subsidise during startup as long as we can see that it will become profitable later on. It's not like we need to turn a huge profit imediately to pay the rent or anything.

"Hey Mr underwriter I have been doing self drive hire insurance for 3 years now and currently have a GWP of £3,000,000 out of that claims have been less that £1,000,000 so we can show that we can manage this stuff spot on & you make a profit etc etc. You may find a insurer work with you to develop a scheme giving you a market leading edge"

Thanks for the tip, I can see how that would work. Though in general that's something to work towards over the medium term, and specifically a sector to avoid.

 

[lockyer]

a couple of notes:

1. the networks give you a compliance framework and consultancy, but there is a lot of adming in managing the compliance at your end. I have a member of staff dedicated to it on a 30 hr week.

2. To become registered with the FSA you need to prove your competancy to be classed as having a control funtion, without experience that isnt going to happen.

3. Broking IT systems tend to have hefty setup costs. You will need one as part of your FSA compliance management.

4. Ongoing training for CPD points and to prove competancy.

5. niche areas (and I have a lot of experience in marketing to them) need a decent marketing budget.

6. the networks, even the ones that specialise in startups, will only take you on board if you can prove insurance knowledge, and without experience that isnt going to be happening.

 

[lockyer]

Isn't that a problem for the insurer rather than the broker? Or will the insurers put your prices up if you bring in an above average amount of bad business? Or were you just thinking of all the extra paperwork involved?

.

at first rates will rise, then comission cut, then they close your agency. Insurers expect you to be selective about what business you place with them. Broking and insurers is a symbiotic relationship, if the brokers dont make profit for the insurers they ditch them.

 

[TheGuru2010]

Some sound advice posted by lockyer here. Hopefully you should have enough info to put some thoughts together?

Just shout if you want to ask anything else. Just so you know I don't own a brokerage so am not 100% on the fsa / network side of things. However Lockyer has years of experience in insurance & with targeting neich markets & working with insurers.

His advise on here should steer you well.

 

[scm5436]

yes, thanks both for the advice, though not really what I wanted to hear...

If TEN won't take on start-ups with no direct experience that does kind of kill the idea dead...

 

[lockyer]

or you could become an appointed representative of the broker and do a joint venture

 

[scm5436]

I thought that was kind of what the TEN network was about? You kind of became an AP of them?

Not really sure where we'd find a broker will to do joint venture. Would they be any more interested in setting up with a company with no experience than a network would?

 

[lockyer]

I think you have completely missunderstood what a network is.

They are basically a buying channel. They get you they agencies and commission levels you would be unable to obtain as a small independent.

You still have to be a broker in your own right.

An appointed rep is an introducer of business to a broker on a commission share, but the broker still deals with the clients, you just supply the leads.

 

[lockyer]

Where are you based in the country? if you fancy a trek to wakefield I'll happily spend a couple of hours go through things in more detail with you in a less public environment.

 

[scm5436]

I think you have completely missunderstood what a network is.

They are basically a buying channel. They get you they agencies and commission levels you would be unable to obtain as a small independent.

You still have to be a broker in your own right.

An appointed rep is an introducer of business to a broker on a commission share, but the broker still deals with the clients, you just supply the leads.

ok, yes, misunderstood that. But the TEN network does seem to absorb some of the cost/work I think (pasted from their website):

• PI Insurance premiums paid by TEn
• FSA compliance costs paid by TEn
• FSCS compensation fund calls... for TEn
• maintenance of solvency margins are for TEn
• client/insurer accounting performed by TEn
• broker technicians employed by TEn
• central IT functions performed by TEn

Where are you based in the country? if you fancy a trek to wakefield I'll happily spend a couple of hours go through things in more detail with you in a less public environment.

That's a very kind offer, but I'm just north of London so it's a bit too far of a trek I'm afraid.

 

[lockyer]

The costs aren't absorbed, you still pay them, just in a monthly bill:

FSA compliance costs paid by TEn - you still have your FSA fees to pay, and all they do is provide a framework. trust me on this, they dont physically do the work, its impossible. To comply with the FSA you need to employ auditors who are totally independant for twice yearly financial audits. You need to audit your staff monthly (this includes your own work being audited) to ensure compliance with regs and product knowledge.


broker technicians employed by TEn - this is for their own products, you still need brokers
central IT functions performed by TEn - this is for their own it, not yours i.e you will stil have MS office, exchange etc to maintain yourself.

plus ten pay the lowest commissions out of all the networks so your earning less. This is due to them being quite small