With each new year, there is the hope that the previous year's problems will fade into the distant past. Often, however, the reality is that those issues remain present challenges.
For independent insurance agents and brokers, the soft market and the slow economic recovery are just two obstacles to growth that are continuing into 2011.
"Brokers have taken a beating from depressed written premiums," Advisen, a New York-based research firm, said in a mid-December 2010 report, noting, however, that cost control and headcount reduction have helped brokers to offset some of the loss in commission income they experienced as a result of the soft market and recession last year.
While the report predicts that organic growth will remain difficult in 2011, and that the situation will fuel broker merger and activity, broker executives counter the grim forecasts. During recent interviews with NU, the executives said that by paying attention to their clients continuing and emerging risk issues, and crafting innovative responses, they can create opportunities for their firms for the future.
"We see clients more optimistic about the future and the tools for them," said Eric Andersen, chief executive officer for Aon Risk Solutions U.S., part of Chicago-based insurance brokerage firm Aon Corp.
That is not to say that clients lack concern about market direction, or that there is not some nervousness among clients about market stability, as the soft cycle appears to be nearing the bottom. "Clients have benefited from the last five years of competitive markets," Mr. Andersen noted. "There is nothing worse than the snap back of price to create anxiety and angst."
For now, the soft market is continuing to generate intense competition between insurance carriers. The challenge for brokers, then, is not to compete on price, said executives who explained that buyers can simply play the field and probably find a cheaper product somewhere.
"There will not be a vastly different purchasing environment in 2011," predicted Todd Jones, president of Willis North America, a unit of insurance broker Willis Group Holdings, one of several executives who stressed the need to build long-term relationships that are valued by clients.
"There will be some modest pricing stability in some areas and that competition has been great for clients. The challenge is to figure out how to differentiate organizationally" from the competition, he said.
"Any broker can go in and get a better deal," said Dean Klisura, U.S. risk practice leader for insurance broker Marsh. "The challenge is to raise the level of discussion and talk about models and analytics and have a real discussion other than we can get you a better deal."
"There is a lot of capacity, and insurers are willing to create and partner so long as they can get their hands around the risk and underwrite it," noted Timothy J. Mahoney Jr., president of Global Risk Management for insurance broker Marsh.
"On the client and risk management side, they are concerned about reducing expenses and doing more with less," Mr. Mahoney said. "To add something new on top of what they are doing is a challenge," he said, referring to the prospect of emerging risks adding more headaches for customers.
New risks range from the implementation of health care reform mandates to cyber risks. Whatever it may be, the bottom line is affordability, noted Mr. Klisura.
Dealing with these issues means innovative thinking and building risk solutions that clients find economically advantageous to them.
"There is more to the conversation than just the cost of the transaction," Mr. Mahoney said.
Mr. Jones said brokers need to "push themselves to extract more value" out of their relationships with their clients and that they need to align themselves with "clients that are doing more with less."
"The risk manager in [an] organization does not need to be a cost center, but a driver of value in [his or her] company," he pointed out.
"We need to raise the bar and expect a better outcome and more value," instead of just focusing on the question of "how we are going to deliver" on an insurance policy, Mr. Jones said.
To deliver more value, brokers are going to need to increase their emphasis on specialization, he noted, adding that this will be key not only to the broker's growth, but the carrier's growth also. More importantly, brokers will need to respond and react to both the middle and large markets as the economy improves, and adapt and react to what is happening to the customers, he said.
"The only way to drive real growth is through innovation and new product development," Aon's Mr. Andersen concluded.
"It is an area we need to get better at. We have a history of doing this. We have to regain our confidence that we can underwrite, and price and come up with solutions," he said.
"We see a ton of opportunity to create solutions for our clients."
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