01 RD_COVER.indd - European Risk Insurance Management News ...

Risk Distribution Survey 2011
and

TABLE OF CONTENTS
WELCOME —
Risk Distribution 2011
WELCOME TO Commercial Risk
Europe’s first annual survey of
risk distribution in the European
corporate insurance market, a brave
and at times challenging project,
supported by Lloyd’s of London and
Aon, that has produced some very
interesting conclusions.
This survey emerged out of our
flagship survey of Europe’s leading
risk and insurance managers—Risk Frontiers—that will this
year be published in October for the Ferma Forum.
As we carried out the research among the insurance
managers for last year’s Risk Frontiers survey it became
clear that the role of the broker—and value it could and
should add to the risk transfer chain—was a hot topic of
discussion.
The insurance managers were clearly frustrated that the
brokers were not quite ready, willing and perhaps able to
deliver solutions in key areas such as global programmes,
emerging risk and innovation.
At the end of the day we are mightily proud of the
fact that we managed to carry out in-depth interviews
with 25 corporate insurance brokers ranging from global
behemoths to national operators that rely on networks to
handle cross-border coverages.
This project would not have been possible, of course,
without the support of our two sponsors, Lloyd’s and Aon.
Lloyd’s in particular provided lots of help with the content
such as the statistics at the back of the report and we
appreciate the time and effort taken there.
This will be an annual survey and it will be finetuned
and improved over time, will grow organically and
become an even more relevant and useful resource for
our readers. Please send any comments, suggestions or
criticisms directly to me.
ADRIAN LADBURY
Editor‚ Commercial Risk Europe
aladbury@commercialriskeurope.com
INTRODUCTION — Executive overview
■ The key conclusions drawn from our interviews with
25 of Europe’s leading corporate risk brokers, 20 risk
and insurance managers and 10 insurers. How could
and should the brokers make themselves even more
critical to this part of the market .......................................4
PART I — State of the market
MARKET ENVIRONMENT:
■ What is the size and scope of the European
non-life insurance market and prospects for growth
What is the market share of commercial business
held by brokers and will this share grow ........................6
RULES & REGULATIONS:
■ How are brokers regulated in Europe and what impact
will the Commission’s review of the Insurance
Mediation Directive have What does the recent
agreement between Ferma and Bipar mean ...................8
PART II — What the market says
INSURERS:
■ Do the industrial insurers feel that the brokers are
doing a good job for them currently and how
would they like to see them improved ........................ 11
RISK MANAGERS:
■ Corporate insurance buyers are generally happy
with their brokers but there are some key ways
in which they could significantly add value and
raise their worth ..................................................................... 15
BROKERS:
■ Europe’s corporate insurance brokers are aware of the
key challenges that their customers feel they need
to tackle and are on the case. But are they ready to
take that big step towards becoming full service
risk consultants as many would like to see ................ 18
PART III — Broker profiles
■ In-depth interviews with 25 of Europe’s corporate
insurance brokers ranging from the global brokers
to national independents. The brokers explain what
they believe are the key strategic challenges faced by
the sector and what they believe will be the
optimal model in 10 years’ time ...................................... 24
PART IV — Data addendum
■ Latest statistics from the CEA that show the
size, composition and growth of the European
non-life insurance market ................................................... 54
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EXECUTIVE OVERVIEW
Corporate insurance brokers are
highly valued by their customers
and insurers but not really
loved or even trusted.
If they can somehow convince
their paymasters of their value
for money then the rising
spectre of uninsurability
could be tackled at the same
time as finally ditching Eliot
Spitzer’s legacy and securing
the foundation of the sector for
the foreseeable future. Adrian
Ladbury reports
THIS SURVEY WAS BASED ON A
range of interviews carried
out with a collection of
Europe’s leading corporate
insurance brokers, insurance
managers and insurers.
The questions asked varied depending
upon which type of individual was under
the spotlight. But the questions and
answers can be grouped as follows.
Q: Why do we need brokers
A: Because they are the glue that
binds the market together—keep
up the good work.
HE GOOD NEWS FOR EUROPE’S
T corporate insurance brokers is that both
insurance managers and insurers really value
the service they provide and rate them as
essential for the efficient distribution of
corporate risk.
Even more positive for the brokers is that
the customers and the insurers identify very
similar reasons for their existence and core
value as the brokers themselves. It is good
to be aligned with your customers in any
market.
There are, however, some significant
differences in emphasis that the brokers
ought to sit up and take note of.
For example, all the brokers interviewed
for this survey believe that the risk
management and wider consulting advice
and services that they provide, beyond the
basic function of discovery and placement
of the best coverage at the best possible
terms, is very important, perhaps on a par
with the transactional role.
The insurance managers and insurers,
however, stressed the transactional role
more than the brokers.
The key role of a broker, according to
them, is to analyse what is available, find
the right level of capacity and negotiate
a good deal. If the brokers can add more
value by providing consulting advice and
> OVERVIEW
Fortune favours the brave
services on top in a cost-effective manner
then they will be happy to talk.
But, for the customers at both ends of
the chain, the brokers remain placement
specialists first and advisers second.
This is potentially a more significant
conundrum for the bigger brokers to ponder
as they tended to stress the importance
of ‘bells and whistles’ on top of the basic
transactional services more than their smaller
rivals.
The big brokers have invested heavily in
state of the art IT applications and services,
for example, that they believe and hope add
value to the risk management and transfer
process in the corporate market and naturally
expect to see a return on such investment.
The insurance managers in particular,
however, do not seem that interested in
such fancy applications and would rather
the brokers help ensure that the basics, such
as efficient distribution of premiums and
claims payments, are carried out faster and
more accurately—essentially to deliver more
contract certainty.
But, as noted above, these are really
points of discussion about how to raise the
value of what the brokers bring to the table,
not a fundamental disagreement about their
core role and value in the chain which would
be far more of a worry for the brokers.
Q: How could and should services
be improved and what will be
the optimal model for brokers in
10 years’ time
A: Listen to your customers and offer
more consulting services.
HILE THE RISK MANAGERS AND
W insurers stressed the importance of
good old fashioned coverage analysis and
placement for now they also said that brokers
will make themselves more valuable in future
by raising their levels of professionalism
and knowledge, drawing themselves much
closer to their customers so that they truly
understand their risk appetite and needs and
acting more like risk consultants rather than
basic transactional agents.
Initially this may appear to be a
contradiction with the above because the
customers place transactions as the prime
role of the broker today but want them to act
more like consultants in future.
But again the answers from the insurance
managers and insurers did quite remarkably
mirror the answers given by the brokers
and therefore indicates that this is not
fundamentally a contradiction or indeed a
problem.
The simple fact appears to be that all
three groups in the ‘risk triangle’ as described
by Philippe Rocard, CEO of AXA Corporate
Solutions, want the brokers to make the
step change towards a more well-rounded
and consultative future and actually find it
frustrating that it has not really happened
yet.
All the comments made by the three
parties about emerging risk and how brokers
could and should help find the solutions to
challenging new problems strongly indicate a
golden opportunity for the brokers.
This is indeed a golden future, according
to those who took part in the survey, to
deliver true added value to a market that is
increasingly worried about rising levels of
uninsurability at a time when corporations
in Europe and the world over are looking for
more, not less, risk management.
But, and it’s a big but, the brokers have
some work to do to convince the insurance
managers and insurers that they are capable
of making this sea-change.
Unfortunately it seems that there is a
considerable level of mistrust in this market
about the true intentions of the brokers.
The insurance managers are screaming
out for more knowledgeable and experienced
account managers to help solve their
increasingly complex and global exposure
problems. But at the same time they moan
that the experienced broker that won their
account was promoted five minutes after
doing so to leave it in the hands of a spotty
graduate.
The inference is that, no matter how
many times the brokers tell their customers
that they are serious about broadening and
deepening their role, insurance managers and
insurers still suspect that they will try and do
it on the cheap.
Brokers of all types will always be accused
of doing this because their customers at
either end of the chain think that they could
do a better job themselves but simply do not
have the time or resources.
In this sense the use of a broker remains
something of a begrudged purchase, rather
like paying a lawyer or tax adviser to sort
out something you would rather had not
happened in the first place.
The good news for the brokers in this
The question for the brokers appears to
be...how they make that transformation
from a transactional to a consulting model
and meet the voracious demands of
shareholders at the same time
4

EXECUTIVE OVERVIEW
respect, however, is that almost all the
insurance managers we interviewed do not
think that they ever will be in a position to
take over the broker’s role themselves or even
want to.
Even the captive brokers in Germany are
more than happy to outsource key functions
to the brokers such as finding specialty
coverage and the provision of risk advice and
will continue to do so as their budgets come
under pressure.
The suggestion by one Swiss insurance
manager that the brokers should really offer
themselves as outsourced risk and insurance
management departments for bigger
companies with small departments or smaller
companies with no such departments at all
could provide an answer to the conundrum
of how to get from transactional position A
to consulting position B.
Q: Should an insurance manager only
use one broker or spread the net and
do they have to use a global broker to
cover cross-border risks
A: Not really but currently neither
really seem to offer a true solution.
NSURPRISINGLY THE BIG BROKERS
U generally said use one broker and the
smaller ones said that insurance managers
ought to consider using a panel of brokers to
meet their specialist needs.
Interestingly, however, a majority of
the brokers, regardless of size, believe that
insurance managers ought to stick with
one broker for risk management advice but
should keep their options more open on
placement services because otherwise things
can fall through the gaps.
Most of the insurance managers
interviewed for this survey work for Europebased
multinational companies and virtually
each one uses the global brokers—Aon,
Marsh or Willis—for their core insurance
placement, captive management and other
services.
Typically the choice of lead broker is
often dependent upon where they have
offices and how closely it matches the
customer’s own spread.
None of the insurance managers who
took part in the survey, however, use a
single broker as a one stop shop. Diversity
and spread is a big cultural force in the risk
transfer world for good reasons and perhaps
this has spread to the use of brokers too,
though for less obvious reasons than insurers
and reinsurers as they do not hold monies as
a rule.
The most common preference among
the insurance managers appeared to be to use
one, two or even three of the big brokers for
the bulk of the work and perhaps one or two
of the niche brokers for specialist needs.
One leading German risk and insurance
manager recently said that he now uses
independent niche brokers for 50% of his risk
transfer needs because he likes the bespoke
approach.
Many of the insurance managers
interviewed for the report said that they like
the smaller brokers because they really care
about them as clients and go the extra mile
to make sure they are happy and given a
good service.
But it seems that very few of the larger
buyers are prepared to take the kind of step
the German insurance manager mentioned
above took, if only because dealing with
numerous brokers does increase the
workload. “I like to play golf on my own at
weekends,” said another German insurance
manager.
When it comes to global programmes,
however, the insurance managers, insurers
and brokers themselves, apart from Aon,
Marsh and Willis, are more than happy to
accept that local, independent brokers are
critical.
The big three say that they can manage a
multinational’s cross-border coverages quite
comfortably by using their network of global
offices. Where they do not have a
presence they will line up a local
partner to do the job, rather like a
network.
The smaller brokers that team
up with other brokers in networks
such as Unison, Brokerslink,
WBN and Assurex, say that their
approach is much better because
the local brokers really value the
multinational customers and so
step up to the mark more readily
than a local office of a global
broker that has to carry out the
work to grudgingly fund the
bonus of the London broker that led the deal.
The arguments are quite convincing from
both sides and make economic sense for
bigger and smaller brokers.
But the customers in particular do
not currently seem that convinced by
either argument. They do not appear to
really believe that the global brokers can
offer a truly global service for their global
insurance needs just as they do not believe
the international insurers can really do the
job quite yet. Likewise they do not seem that
convinced by the network approach.
If pushed the insurance managers
surveyed for this report will opt for the global
brokers though the response may well be
different amongst insurance buyers with
smaller companies.
Q: How should brokers be paid
A: For the services they provide to
both customer and insurer so long
as it is transparent.
E THOUGHT LONG AND HARD ABOUT
W whether to include this question
because there does appear to be a growing
sense of exasperation, frustration and downright
boredom expressed about this topic.
It has been a long time now since former
New York Attorney General Eliot Spitzer
ripped the lid off this particular can of worms
and most people in the corporate insurance
market would rather it was just quietly left
in a dark corner to rot away unnoticed, apart
from a faint distasteful memory and odour.
The European Commission made it quite
clear, for example, in its recent statements
about the planned review of the Insurance
Mediation Directive that it has little appetite
for such worms currently and is happy to let
the corporate insurance market sort out its
own remuneration model.
But, and again it’s a big but, this was
clearly a question worth asking if only
because it drew the longest and most
emotionally charged answers of all from the
brokers. The insurers were mildly excited
about the topic and least interested were the
insurance managers who seem very relaxed
about it all.
This is not surprising given the fact that
the responses of the three groups that make
up the triangle suggest that the problem—if
indeed there really is one—lies primarily in
the payments made to brokers by insurers
and not those made by the insurance
managers.
All parties agree that, in an ideal world,
brokers would only take payments from
insurance managers. But they do carry out
valuable services for the insurers, particularly
in the corporate insurance market, and do
receive, and deserve to receive,
payment for these services.
The fact that the brokers
generally take a significant slug
of their total revenue from the
insurers means that the insurance
managers are able to get away
with paying less.
If the insurers had to fund
the activities that the brokers
carry out for them today then
they would have to charge higher
Philippe Rocard prices to cover the extra cost.
Herein lies the rub.
Our research shows that all
three parties in Mr Rocard’s risk triangle want
to derive more value from the brokers and
would like to see them add more value to the
chain by acting more as risk consultants than
simply negotiators of best value insurance
solutions.
The research also shows that everyone
is more or less comfortable with the insurers
paying the brokers for genuine services
carried out so long as they are clearly
identified and do not pose a conflict of
interest.
So the conclusion would appear to be,
and this was stressed in a roundabout and
diplomatic way by many of the brokers,
particularly in Germany, that brokers need
to be totally transparent about what they are
paid for and how.
Many also stressed that they should stop
charging ill-defined service fees to insurers
just because they can get away with it for
now, as a leading executive of Willis famously
phrased it at the Ferma Forum in Geneva.
The obvious thing to do would be for the
brokers to set up separate service companies
to carry out distinct services for their
differing customer groups and construct solid
walls between them to prevent conflicts of
interest arising.
But one of the main strengths offered
by the brokers, as expressed by most
respondents to this survey, is their ability to
provide a bird’s eye view of the market and
string together solutions for customers.
If the brokers unbundled themselves
into ethically pure and clearly delineated
operations then a lot of this value would
be lost in the short-term at least because it
would be more difficult to join up the dots.
For now at least, given the fiercely
competitive nature of the market and
stubbornly low prices, basic economics would
appear to dictate that few brokers will be
prepared to take the plunge and customers
will continue to moan about their brokers
that could add so much more value but can’t
quite deliver for a while longer yet. Fortune
favours the brave.
5

PART I — STATE OF THE MARKET
Brokers and other intermediaries
have a big role in the European
insurance market. Insurers are,
however, keen to diversify their
premium sources and the rise of
alternative distribution channels
such as supermarkets and
the internet do pose a threat.
According to the CEA, however,
there are still good opportunities
for traditional brokers
MORE THAN HALF OF EUROPEAN
non-life insurance premiums
are handled by intermediaries
of one form or another and
the European insurance
industry is the biggest in the world with a
40% share of the global market, according
to the Comité Européen Des Assurances
(CEA), the federation of European insurance
associations.
These are big numbers. The CEA
estimated that European life insurers paid
out around €530bn in benefits to insureds
in 2009 through capital, annuities, pension
revenue and death benefits.
Non-life insurers paid out almost €300bn
in claims to insureds in 2009, of which about
€100bn was for motor insurance, almost
€80bn for health insurance and around
€60bn for property insurance claims.
Private health insurers accounted for
around 12% of all current health expenditure
in the European Union in 2008.
The CEA estimates that European insurers
invested more than €6,800bn in the global
economy in 2009, equal to 53% of the GDP of
the European Union.
The European insurance industry employs
more than one million people directly and
there are also around one million outsourced
employees and independent intermediaries,
according to the CEA.
Premiums rising
Total gross written premiums for the whole
European market have increased by an
average of around 3% a year over the last
decade and reached €1,057bn in 2009. This
comprises life 61%, non-life and accident
29% and health 10%. (See data addendum
for full breakdown of total non-life European
business on pages 54 & 55.)
The biggest countries in premium terms
in 2009 were the UK with €203bn, France
with €220.1bn, Germany with €171.3bn,
Italy with €117.9bn, the Netherlands with
€76.4bn, Switzerland with €35.1bn and
Belgium with €28.4bn.
With €121bn of premium income, motor
insurance is the biggest class of non-life and
accident business, accounting for 39% of
premiums, said the CEA.
The second largest class is property, with
a 26% market share and the third largest
> MARKET ENVIRONMENT
Everything up for grabs
classes are general liability and accident with
a 10% market share each.
Marine, aviation and transport (MAT) and
legal expenses account respectively for 5%
and 2% of non-life and accident premiums.
Over 5,000 insurance companies
operated in Europe in 2009. The majority
were joint stock companies and mutual
insurance associations, but also included
public institutions, cooperatives and other
organisations.
The number of insurance companies has
decreased over the last ten years as a result
of the wave of mergers and acquisitions that
took place at the end of the 1990s following
the liberalisation and deregulation of the EU
market, noted the CEA.
The insurance federation reckons that
more than half of premiums are collected by
intermediaries in all its sample countries apart
from Switzerland, the Netherlands, Croatia
and three Nordic countries where direct
writing dominates.
Among the two types of intermediaries,
agents take the ‘lion’s share’ and showed a
high level of penetration in several countries,
such as Italy (84% in 2006), Turkey (70%) and
Slovenia (67.5%).
Agents held more than a 50% share in six
countries (Italy, Poland, Portugal, Slovenia,
Germany and Turkey) and more than 30%
in 11 of the 25 countries in the CEA sample.
As in the US, the agency system has been
established widely in Europe for several
decades, noted the CEA.
The federation says that recent trends
show a slight decrease in the market share of
agents in most markets.
“This is closely linked to diversification
by insurers: on the one hand, there are
new distribution channels such as
bancassurance and the internet and, on the
other hand, insurers have embarked on a
multichannel strategy that is eroding the
market share of the leading distribution
channels,” it stated.
The proportion of tied and multi-tied
agents varies widely from country to country
according to local practice and national
legislation. For example, tied agents led the
market in Germany (58% in motor), while
multi-tied agents had a large market share in
Portugal (48%), reports the CEA. “It is worth
pointing out that tied-agency relationships
have recently been forbidden in Italy,” it
added.
“Brokers remain much less important
than agents in most European countries. They
do dominate the non-life market in a few
countries such as Belgium, Ireland and the
UK, where they accounted for more than 50%
of non-life premiums. The brokers’ market
share decreased in these three markets while
it remained stable or even slightly increased
in the other markets,” stated the CEA.
Bancassurance is not very well developed
in the non-life insurance market and
represented less than 10% in all countries,
found the federation. It stated that the
highest market shares were in Turkey (9.7%),
Portugal (9.3%), the UK (9.9%), France
(9.0%), the Netherlands (8%) and Spain
(7.9%). Other countries showed much lower
market shares of below 5% except for Belgium
which reported growth of 5.8%.
The CEA said that countries with high
bancassurance rates, such as France, Portugal
and Spain, also had high bancassurance
penetration rates in life business. But,
the development of bancassurance in life
insurance does not guarantee the success of
this channel in the non-life market, it added.
This is perhaps proven in Italy, where
the CEA estimates that more than two-thirds
of life premiums were generated by the
bancassurance network while in non-life
insurance the market share was less than 2%.
“The existence of a strong alternative network
(agents in the Italian case) may explain such a
situation,” stated the insurer group.
According to the CEA, direct writing,
through employees or distance selling, is the
dominant non-life distribution channel in
the following markets: Austria (40%), Croatia
(70%), the Netherlands (52%), the Nordic
countries and Switzerland.
Selling stakes
In most countries, direct sales come mainly
through company employees. Sales through
the internet, phone or mail were generally
not significant in most countries with market
share below 5% except in the Netherlands
which has 45% and the UK with 21%.
“The high proportion recorded in
the Netherlands is, among other factors,
correlated with the recent privatisation
of the health insurance scheme, health
insurance products being mainly distributed
by distance selling. In the UK, the broad use
of the internet and telephone, particularly for
acquiring motor policies, explains the high
ratio,” concluded the CEA.
Several eastern European countries
show high market shares for distribution by
company employees. This is linked to the
high market shares of the former state-owned
companies that often sold insurance through
their own networks of employees, concluded
the CEA.
In most of these countries, however, the
market shares of the networks are decreasing
with the appearance of alternative networks
such as agents, brokers and bancassurance
and the opening of the markets to
competitors that rely more on alternative
distribution channels.
The distribution of property insurance
across Europe mirrors that for non-life
insurance business as a whole, according to
the CEA. However, some national features are
worth noting.
Bancassurance, which represented
less than 10% of the non-life market, held
high market shares in the UK (28%) and in
Portugal (19%). There was a higher market
share of bancassurance in property than in
the whole non-life market for most of the
countries for which the CEA has data.
6

PART I — STATE OF THE MARKET
“In three markets (Belgium, France and
Slovenia), the market share of intermediaries
also appeared higher for the distribution of
property policies than for the distribution of
all non-life policies. This can be explained by
the fact that a significant part of the property
business is quite complex and thus requires
better risk knowledge and assessment,” said
the CEA.
The CEA concludes that the development
of new channels such as supermarkets, the
internet and call centres in parallel with the
retention of traditional networks such as
agents and brokers demonstrates the desire
of insurers for multichannel strategies to
reach clients. It believes that this strategy is
made necessary by the growing volatility of
purchasing by customers.
“The strategy erodes the market share of
the dominant channels, whose absolute levels
of premium income remain, however, more
or less stable.
“As clients are generally rather reluctant
to change their insurance contracts, it is an
increase in the total volume of premiums that
generally facilitates the development of new
networks,” stated the CEA.
“This has been the case over the last
10 years for bancassurance, which has
developed along with the strong growth in
life insurance.
“However, the UK market, where
purchasing volatility is generally higher,
shows that new channels (eg the internet)
may develop without a significant increase in
the premium income,” concluded the CEA.
A CONTINENT DIVIDED
Research into the European commercial lines market found that the prospects for growth among
brokers in north and central Europe are more promising than in southern and western Europe
Statistics about the European commercial insurance market and
more specifically the role of brokers within that market are thin on
the ground, partly because so many European brokers are privately
owned companies.
Well-known research company AXCO has published some
research into this area but unfortunately was unwilling to share the
highlights of the work with us for this survey.
International research company Finaccord (www.
marketresearch.com) has, however, published a couple of detailed
surveys on this market, one for northern and central Europe and
one for southern and western Europe and made available the key
findings.
The total value for commercial non-life insurance in northern
and central Europe was estimated by Finaccord to be €40.4bn in
gross written premiums for 2008.
The company estimates that a staggering 60% of this total
comes from Germany alone, with some €24.6bn of commercial nonlife
insurance premiums.
It found that brokers are the single most important distribution
channel for commercial non-life insurance in northern and central
Europe, and handle about 43% of the region’s commercial non-life
insurance premiums, worth an estimated €2.5bn of turnover in
2008.
Interestingly, and in contrast with what most brokers said in
this survey, the threat of regulation by the EU to replace commission
with fees would not damage brokers’ market share, if the experience
of Denmark, that has adopted a ‘net quoting’ system, were to be
repeated elsewhere, stated the company.
Finaccord states that the commercial non-life broking market in
northern and central Europe is not particularly concentrated, with
the top ten brokers in each country controlling an average of 51% of
commercial non-life insurance premiums.
It did predict, however, that the recession will lead to
consolidation in the market.
Looking forward, Finaccord’s analysis finds that three quarters
of brokers’ revenue growth between 2007 and 2012 is expected to
come from an increased share of the commercial non-life insurance
market, with the other quarter from growth in underlying premium
volumes.
The increased share of the cake will presumably come through
taking the business away from other intermediaries such as tied
agents of insurance groups and persuading those who buy direct to
use them instead.
The talk among many of the brokers surveyed for this report
suggests strongly that the SME and mid-sized corporate market
will provide a good portion of the fresh revenue in these markets
particularly as they begin to tentatively expand abroad in search of
new markets and cheaper production sources.
This is supported by the fact that none of the brokers
interviewed for our survey believe that commercial brokers would,
could and should seek to raise market share by attempting to
prize business away from the in-house brokers of large German
companies, and to a lesser extent Dutch and Scandinavians, that
control a decent portion of the existing cake.
Finaccord’s analysis of southern and western Europe found
that more than a third of the total growth in commercial non-life
premiums in the region between 2004 and 2008 came from France
alone.
The ten largest brokers control more than 70% of the broker
channel in Ireland, Italy and the UK, compared to less than half of
the channel in Spain.
Finaccord reckons that the total value for commercial non-life
insurance in southern and western Europe was about €78.3bn in
gross written premiums in 2008, with most of the growth between
2004 and 2008 coming from Belgium, France, the Netherlands and
Spain.
“Brokers are easily the most important distribution channel in
southern and western Europe, handling an estimated 76% of the
region’s commercial non-life insurance premiums, which gave them
revenues of €8bn for 2008,” stated the research company.
It also said that regulatory reforms in Spain and Portugal may
disadvantage independent brokers in favour of bank-owned brokers
and tied intermediaries respectively, while legislative changes in
Italy will help brokers to expand in personal non-life insurance.
Little growth is forecast in southern and western Europe for
either commercial non-life insurance premium volumes or for
brokers’ share of the commercial lines market up to 2012 and,
perhaps not unrelated, a high level of merger and acquisition
activity is expected to take place within the broker market itself,
forecasts Finaccord.
7

PART I — STATE OF THE MARKET
Regulation of insurance
intermediaries in Europe is
devilishly complex and often
confusing as it represents the
classic ‘patchwork quilt’ of very
different and often conflicting
rules that the European
Commission loves to hate.
Adrian Ladbury analyses how
the Commission wants to sort
this all out and what the brokers
and their customers want
THE EUROPEAN COMMISSION
states clearly that the concept
of the single insurance market
requires that insurance
intermediaries should be able to
operate throughout the EU and establish and
provide services freely, in accordance with the
principles of the Treaty of Rome.
The EC recognises the significance of
intermediaries within the insurance chain
and construction of a single market.
Intermediaries’ role
“Insurance intermediaries are a vital link in
the process of selling insurance products in
the European Union. They also play a pivotal
role in protecting the interests of insurance
customers, primarily by offering them advice
and assistance and by analysing their specific
needs. Therefore they are a major element
in the functioning of the single insurance
market,” it states.
To help build this dream of a single
market the EC introduced EU Directive
2002/92 on insurance mediation (IMD) in
September of 2002.
The Directive takes an activity-based
approach rather than distinguishing between
agents and brokers because a whole variety
of ‘persons’ or institutions such as agents,
brokers and bancassurance operators can
distribute insurance products.
The EC states that the core aims of the
Directive are to ensure:
■ a high level of professionalism
and competence among insurance
intermediaries whilst guaranteeing a high
level of protection of customers’ interests
■ that individuals/companies providing
insurance or reinsurance mediation are
registered in their home EU country
(which allows them to do business
elsewhere in the EU)
■ that minimum professional requirements
are respected (individual EU countries
may adopt more stringent provisions, but
only for intermediaries registered on their
territory)
■ that insurance intermediaries give
customers clear explanations for the
advice they give on which products
> RULES & REGULATIONS: 1
What the Commission wants
■
■
■
to buy (why they have recommended
particular products in the light of the
customer’s individual requirements)
the involvement of national financial
authorities and other bodies (insurance
undertakings or professional associations)
in the registration process
easy public access to details of registered
insurance and reinsurance intermediaries,
and
appropriate and effective Alternative
Dispute Resolution procedures for out-ofcourt
redress for dissatisfied
customers.
The recent financial crisis and
impeding arrival of Solvency II,
Europe’s planned new solvency
regime, persuaded the EC that it
needed to update the IMD.
The Directive has been
implemented in a varied way
between EU countries and
this has lead to fragmented
insurance markets in the EU,
‘with significant gaps and
inconsistencies, in particular
regarding the information
requirements imposed on sellers of insurance
products’, said the EC.
“This has increased the problem of
customers having a poor understanding of
the risks, costs and features of insurance
products. The collapse in consumer
confidence during the financial crisis has also
given new prominence to level-playing field
and consumer protection issues,” states the
Commission.
A request for advice to help try and
solve these issues was sent to the Committee
of European Insurance and Occupational
Pensions Supervisors (CEIOPS—now EIOPA)
early in 2010.
The EC reckons that a
majority of the respondents to
its consultation paper were in
favour of a revision of the IMD
because the need to better protect
policyholders within the European
Union was ‘largely recognised by
some respondents’.
“There is a general consensus
that the level of policy holder
protection embodied in EU law
on insurance intermediaries needs
to be raised. This conclusion is
shared by consumer organisations,
as well as by public authorities
and financial advisers,” stated the EC. But,
according to the Commission both the
insurance industry and the intermediary
lobby stressed to it that consumer protection
has to be consistent across the EU.
To harmonise the information requirements
for insurance intermediaries it
was, for example, suggested by a number
of stakeholders to introduce a European
Standard for status information, which has
been labelled a ‘business card’ solution.
The EC also said that a ‘large majority’
of the respondents shared the view that
Karel Van Hulle
Sharon Bowles MEP
there is a need for a new requirement which
obliges insurance intermediaries to indicate
if they own a percentage of the capital of the
insurance company which they represent,
and whether they are entitled to any other
incentives or bonuses provided by that
company.
Most of the respondents also would like
to see more transparency over administrative
costs, added the EC.
“They consider that the existing
legislation is insufficient and that there is
a need for more information
disclosure at the pre-contractual
stage,” it noted.
But, the EC commented,
perhaps significantly for the
corporate insurance market, that
there is a view that if general
levels of commission fell because
of the disclosure of remuneration
it could result in lower quality of
advice, encourage ‘mis-buying’,
provoke diversion from the issues
of coverage, conditions and price
and force a shift to ‘cheaper
internet non-advised sales’, stated
the Commission.
This is certainly a fear among many of
the brokers surveyed for this report.
On the topic of increased efficiency
in cross-border business, the EC said that
most of the respondents did not answer the
questions.
But it added that the ones that did
respond were ‘unanimously’ of the opinion
that there is a need for a definition of the
freedom of establishment and freedom to
provide services in the revised directive in
order to render the cross-border process more
effective.
Some respondents suggested that a
central clearing system through
which notifications could be
submitted would be useful. The
same central clearing system could
also be used to store all member
states’ ‘general good’ rules which
would make it easier for firms
passporting in to other countries
to understand any additional
regulatory requirements.
Insurance almanac
This would fit neatly with the
idea pushed by Ferma and Airmic
at the recent Global Programmes seminar
organised by Commercial Risk Europe for an
industry database of worldwide insurance
rules updated by national supervisors to help
insurance buyers ensure they are compliant
and up to date with the rules.
The EC said that the market appeared
to be split on the need for a higher level of
professional requirements.
“Some of the respondents suggest
that the raising of the level of professional
requirements should be proportionate to
the complexity of the products sold by the
8

PART I — STATE OF THE MARKET
insurance intermediary. Some respondents
believe that professional requirements should
be outcome-oriented,” it explained.
Then, in December of last year the EC
hosted a public hearing on the proposed
revision of the IMD in Brussels.
Sharon Bowles, MEP and Chair of the
Economic and Monetary Affairs Committee,
explained: “So why are we looking at IMD
Well, Solvency II said we should.
There is a desire to facilitate cross-border
activity and to address complaints about
undesirable obstacles such as gold-plating
practices and the use of general good
provisions at national level.”
Diversity doubts
Ms Bowles stressed the enormity and
complexity of the task ahead, not least
because the IMD covers such a wide range of
product and distribution types.
“IMD was done 10 years ago, so before
I came on the scene, but from some of the
enquiries that I have made, the IMD seems
to be one of the least wanted directives that
I have come across. The reasons for this are
several: insurance is quite different in the
various member states.
“Perhaps an extreme example is looking
at the numbers of compulsory insurances,
which ranges from four in the UK to 400 in
Spain. I’m not even sure I can name what
the UK four are, so this immediately makes it
clear that there is opportunity for confusion
for consumers and businesses who move
around the EU,” she said.
The diversity suggested that the EC needs
to tread carefully in this field, commented Ms
Bowles.
“There is a huge diversity within
insurance and expectations, looked at more
widely it is easy to understand concern at
changes and costs that might be incurred
for full harmonisation. So I would say even
if full harmonisation were justified—which
it is not—now is not the time to put such
burdens on the economy or the people, for
it is policyholders who ultimately bear the
cost. But there are some things, and especially
minimum standards, that should be looked
at,” she said.
Many in the corporate insurance market
have stressed all along that the Commission
needs to be careful not to tar the entire
intermediary sector with the same brush.
Why should sophisticated insurance buyers
with multinational companies and their
brokers be subject to the same complex rules
designed to protect individual buyers of
mortgage-related endowment products, they
rightly ask. Ms Bowles appeared to provide
some encouragement in this respect.
“Solvency II of course does provide
passporting and the ability to offer services
across borders—and it was always a
dream—especially of the Commission—for
everything to be harmonised and cross-border
so that through competition better pricing is
obtained.
“But would that really be the case I
envisage some services such as the selling
of investment products that can, indeed
should, be treated that way, but other types of
insurance need not,” said Ms Bowles.
Transparency is obviously a key
matter for all insurance intermediaries and
their customers the world over. The high
profile campaign led by former New York
Attorney General Eliot Spitzer was all about
transparency as he sought to rid the industry
of practices such as contingent commissions
that steered business to the highest paying
insurers without the ultimate buyer being
aware of the reasons for the choice of carrier.
The IMD requires insurance
intermediaries to give customers clear
explanations for the advice they give on
which products to buy. “They need to
specify accurately in writing, in terms
comprehensible to the customer, why they
have recommended particular products
in the light of the customer’s individual
requirements,” explains Bipar in its
description of the IMD.
Moreover, the IMD does require
intermediaries to tell the customer whether
they are giving advice based upon a fair
analysis, or whether they have contractual
obligations with one or more insurers, states
Bipar.
Written backing
And, the intermediary has to state in writing
the reasons for any advice on a given
insurance product and all this is supervised
and controlled by the national supervisory
authorities, explained the European brokers’
federation.
The IMD no longer, however, refers to
the traditional distinction between agents
and brokers, and adopts an activity-based
approach. The federation explained that the
Directive relies on disclosure at contract level
so that the insurance seeker is aware of the
capacity in which the intermediary is acting.
To add to the complexity of the area,
some member states have retained the
traditional distinction while others have
adopted the IMD approach.
So, what next
In July, Karel van Hulle, Head of Unit
Insurance and Pensions at the European
Commission, told delegates at the Bipar
annual meeting in Brussels that a legislative
proposal for the new IMD would be proposed
in the fourth quarter of this year. Over 2012
and 2013 the work will be carried out to
prepare the Level 2 implementing measures
and the new regime would come into force in
2014–2015.
Europe’s brokers and insurance
buyers have worked hard
through their representatives
to try and forge an agreement
on best practice in the sector
to help fend off any unwanted
new rules from national
regulators and the Commission.
Adrian Ladbury reports
IN LATE NOVEMBER 2010, FERMA AND
Bipar announced the agreement of a
groundbreaking transparency protocol
that they hope will prevent conflicts
of interest in the relationship between
brokers and corporate insurance buyers.
The protocol, believed to be the first of its
kind worldwide, offers buyers the opportunity
to request full disclosure about remuneration
charged by brokers for the placement of their
risks with insurers and other services.
> RULES & REGULATIONS: 2
What the market wants
The need for such an agreement became
even more pressing for large commercial
insurance buyers in Europe as the discussions
over the review of the IMD progressed and it
seemed increasingly likely that the
Commission would not include
complex risks and the reinsurance
market in the revision.
Complex risks and reinsurance
are currently excluded from the
IMD because the Commission
decided that this market was
sophisticated enough to look after
itself.
Ferma had hoped that,
following its consultation with
the market, CEIOPS [now EIOPA]
would tell the Commission to
ensure that the large corporate risk
and reinsurance markets are covered by IMD2
so that it would back up its efforts to achieve
greater transparency.
9
Peter den Dekker
Ferma pointed out to the Commission
that large risk mediation is also carried out
for small and medium-sized enterprises that
employ no professional insurance buyer.
It also explained that large
risks can be interpreted in many
ways and coverages, such as
private liability insurance with
a limit of €1–5m, is relatively
normal. The individual that buys
such cover may well be perceived
to represent a ‘small risk’ but the
damage that can be caused could
be perceived as a ‘large risk’ thus
leading to problems of definition,
said the federation.
Also, Ferma pointed out
that even the biggest of the
intermediaries often deal with
small and large risks and so no level playing
field is created by the Directive as it currently
stands.

PART I — STATE OF THE MARKET
CEIOPS advised the Commission,
however, that it believes that the large
corporate risk and reinsurance markets are
sophisticated enough to look after themselves
and that national supervisors report no major
problems in the area. These areas therefore
should continue to be excluded from IMD2,
it said.
Ferma said at the time that it would
continue to lobby for the inclusion of
complex risks and reinsurance in IMD2.
But if the Commission accepts CEIOPS’
advice on this matter then Ferma’s agreement
with Bipar will become even more significant
as it will effectively be the sole mechanism to
achieve transparency in this market.
The Ferma-Bipar protocol does not
provide national associations with an
exhaustive list of detailed requirements.
Rather, it provides a short list of high-level
principles that the two parties hope will be
used as a ‘guiding framework’ and converted
into practical national guidelines.
The core principles of the agreement are
that intermediaries should:
■ Identify, manage and mitigate any
potential conflict of interest in an
‘appropriate and transparent’ way
■ Provide ‘clear and fair’ information on the
nature of their services and the capacity
in which they operate. This would
include any underwriting powers and
delegated authorities they may be granted
by insurers, so that buyers can make
‘informed decisions’ when they buy cover
■ ‘Voluntarily’ inform their customers about
the nature of the remuneration that is
‘directly related’ to the placement and
servicing of the insurance contract, for
example whether they are paid a fee or
receive commission
■ Disclose the amount of any direct
remuneration ‘on request’ from the client
■ Give generic information about other
types of payments they may receive
from insurers if the customer’s insurance
contract is part of the calculation of these
payments, also on request from the client.
The Chairman of Bipar, Jaap Meijers, and
the President of Ferma, Peter den Dekker,
said in a joint statement: “Intermediaries
play an important role in the development,
placement and servicing of business insurance
contracts, and they should receive fair
remuneration for their services. The amount
and nature of that remuneration is
a matter for the parties involved.
Fair remuneration
“In the complex nature of
business insurance, conflicts of
interests can sometimes arise.
When this occurs, intermediaries
should identify, manage and
mitigate them in an appropriate
and transparent manner.
“Ferma and Bipar recognise
that the complexity of the
business insurance sector can
sometimes create a perception of
a lack of transparency. This protocol
addresses these concerns to underpin
and enhance trust in the purchase of
business insurance,” continued the
statement.
John Hurrell, CEO of Airmic, the UK
risk and insurance manager’s association,
Eliot Spitzer
and himself a former broker, said the UK risk
management association warmly welcomed
the protocol which he said is ‘excellent’ news
for buyers.
“This is an excellent agreement as the
level of transparency across the territories
represented by Ferma members is variable
and, in many cases, not meeting buyer
requirements, as shown by [a] recent Ferma
survey. It brings the recommended standard
for disclosure up to the level we have enjoyed
in the UK in the last few years where buyer
satisfaction levels on this issue were shown
to be much higher in this recent survey. The
new agreement will be helpful for UK buyers
who have multiple broker relationships
in different European territories,” he told
Commercial Risk Europe.
On demand
Mr Hurrell pointed out that the practice of
demanding information from brokers ‘on
request’ is ‘well established’ in the UK where
‘buyers are used to asking such questions and
brokers are used to answering them!’.
But Mr Hurrell did point out that the
new protocol will have to be applied in each
territory by the appropriate parties before day
to day practice is likely to change.
For its part Airmic has published a buyer
guide on the best questions to ask that can
be found at http://www.airmic.com/en/
Library/Guides/broker-remuneration-andtransparency-guidance.cfm.
While all European risk and insurance
managers will be pleased to see the
conclusion of the protocol some will be
disappointed that the protocol and advice
from CEIOPS to the Commission does not go
further.
In a number of countries, notably in the
Nordic region, pressure has built in recent
years to ban the payment of commissions
from insurers to brokers outright, particularly
if they are based on the volume of business
placed.
Some insurance buyers have also argued
strongly in favour of automatic disclosure of
remuneration at the point of sale rather than
an ‘on request’ system as agreed by the two
federations.
Mr Den Dekker told CRE that he does not
believe that a ban on contingent commissions
is necessary and that the ‘on request’ system
should work, as in the UK.
“Ferma is not against
contingent commissions. Ferma
is not a regulator and it is not
realistic and pragmatic to call
for a ban as we see in many
other jurisdictions. Ferma
believes that management of
(potential) conflicts of interest
in the commercial and business
insurance market can only be
successfully managed if there is
transparency and full disclosure of
financial and other interests,” said
Mr Den Dekker.
“Although not automatically, we now
have the option to ask for any type of
remuneration (direct and indirect), this
should give us a clear picture of the type of
agreements intermediaries have with our
insurers. This protocol will give us insight
so we can make informed decisions instead
of constantly giving public statements that
create no solutions,” he continued.
Mr Den Dekker recognises that the
position of SMEs is somewhat uncertain
as they will not generally be covered by
the Ferma protocol as most of the national
association members represent larger
corporations and, as noted above, the
definition of large risks is rather vague under
the IMD as it stands.
“If they do not fall under the definition
of large risks, then there is no problem,”
he said. “If they do, then automatic
disclosure might be, but in reality is not, a
solution. It [automatic disclosure] will not
change anything, it will only create a huge
bureaucratic burden on the sector and SMEs
will probably not be able to understand the
disclosure details, unless they are big enough
to become a member of the associations
represented by Ferma. Then they will be well
represented and educated,” added Mr Den
Dekker.
Mr Den Dekker subsequently told CRE
that Ferma would like to see the principles
of the non-binding protocol to be made
mandatory by having them incorporated into
the revised European Insurance Mediation
Directive.
He said that the principles should be
included in the Drective as ‘minimum
standards to reduce conflicts of interests
and increase transparency in the business
insurance sector’, in a letter sent at the end of
February to the European Commission.
Large risks need to be included within
the revised IMD, Ferma stressed again. “The
revised European Insurance Mediation
Directive (IMD) should incorporate binding
standards of transparency for brokers in their
relationship with insurance buyers no matter
what size the risks,” it stated in the letter.
Ferma noted in its comments to the EC
that the application of its protocol with Bipar
is ‘left to the goodwill’ of the federation’s
respective members, with ‘no guarantee of
uniform application’.
“The review of the IMD represents,
therefore, a unique opportunity to
incorporate undisputed standards of
transparency into binding European
legislation,” Ferma told the EC.
Mr Den Dekker said that by incorporating
principles of the protocol into the IMD,
Ferma was attempting to address the
‘patchwork’ of regulations already observed
by the EC.
Game changer
“We want to have a level playing field
across Europe,” Mr Den Dekker said. “We
see the difference within Europe already.
If you are in the UK or in the Netherlands or
in France, you see a much more
sophisticated broker and client relationship
than in other markets.”
In those more developed markets, it is
normal for brokers and buyers to discuss
transparency, remuneration and the
management of potential conflicts of interest,
he explained. “In other countries, it is not
normal, and if you are a UK head office
customer and you have operations across
Europe and you need to manage your broker
relationships in every country, you need at
least a minimum level of transparency in each
country to start with, and at this moment it is
very difficult to do,” Mr Den Dekker said.
10

PART II — WHAT THE MARKET SAYS
Insurers interviewed for this
survey agree that brokers are
doing a good job but they could
do better. They need to hire
more experts and remuneration
remains a problem area but one
that most insurers would appear
to want to address at a later date
EUROPE’S LEADING INDUSTRIAL
and commercial insurance
companies value the brokers
immensely because they are their
main, and more often than not only,
source of business.
In a highly competitive market the
insurers need to find and establish good
relations with the best brokers that will
deliver the best business to them on a
consistent basis.
As loss ratios rise, rates remain
persistently flat because of the competition
and combined ratios climb inexorably
towards 100%, the value of these relationships
will become even more important
as risk selection will become the key
determinant of profit or loss in the absence of
a major catastrophe to shove rates up.
Ill-defined services
This puts the best brokers in rather a strong
position and they are of course more than
aware of this. It is surely no coincidence that
in recent times some of the bigger brokers
have been presenting the insurers with bills
for service commission of 2.5% or more for
rather ill-defined services carried out on their
behalf.
But that does not mean that life is made
easy for the brokers. The insurers are correctly
choosy about which they do business with
because if they pick partners that cannot
deliver the goods for their customers then the
blame is shared between broker and insurer
when it all goes horribly wrong.
For this reason there does appear to
be something of a two-faced relationship
between the brokers and the insurers, rather
akin to that described in the chapter on
insurance managers’ views of their brokers
which is perhaps inevitable for any middleman
who takes payments from both ends of
the chain.
Before considering the areas of potential
conflict and ideas for improvements in the
way the brokers operate, therefore, it is useful
to review exactly what the insurers want and
need from their brokers and how they see the
partnership evolving.
Sean Rocks, CEO of Liberty Mutual
Insurance Europe, is a good example because
his company is a 100% broker company
that is rooted in the London market but
growing in the UK commercial market and
has ambitions to grow further in mainland
Europe. He explained the strategy with
brokers.
“It will be different brokers to the ones
we normally deal with in London, and will
include both nationals and regionals. For
> INSURERS
A question of balance
the specialty business it is the nationals and
niche players in London. In our branches we
are looking at a panel of brokers rather than
across the board and it will vary by branch.
We are not looking to have an office in every
town but concentrate on regional hubs.
We currently have offices in Manchester,
Bristol, Birmingham, Dublin and London
and will increase the number over the next
year or two. Generally we focus on where
the business is and we have the relationships
where we can access the business and
together with our broker partners, add value
and offer the best service,” he explained.
Jens Wohlthat, board member at
HDI-Gerling Industrie and responsible
for international business, explained the
German-based industrial insurer’s broker
strategy during a conversation about its
acquisition of Nassau in the Netherlands.
“Generally if you ask what we do as
insurers in relation to brokers it is to ensure
that the brokers bring the quality business
to us. We pay a commission but this is not
our way of building the business. Rather, if
the broker trusts us to lead the business, and
that is always our aim, the broker entrusts the
client relationship to us and if we screw up
then he or she is unhappy and we jeopardise
the relationship. Therefore our foremost way
to secure top business is to be really serviceoriented.
We have to do it this way because
we are in industrial business for the long term
and we have to do right for the brokers and
clients,” he said.
Onno Paymans, Director of Bloemers
Nassau Group, added: “The brokers have to
be able to explain the product to their clients
because D&O is different to property. I am
fully aligned to Mr Wohlthat on this. Yes
we can pay commission but this
should not be seen as the main
reason why they work with us. It
has to be a long-term relationship
with the broker and therefore
with a large client such as Aon
with which we work on global
programmes these are significant
relationships that reach further
than one country. So it is more
about the long-term relationship
than one stop shopping. I would
rather go to the grocery store for
one stop shopping. The way to do
services on all levels is to embark
upon the long road together as true partners,”
he said.
We also spoke to Argo Group President
and Chief Executive Officer Mark E. Watson
III and Bruno Ritchie, Head of the Bermudabased
group’s new Paris office, which is
clearly very reliant on brokers to help get the
new operation up and running. He said that
part of the reason for opening the office in
Paris rather than trying to build the business
from London was to get closer to the brokers
as well as clients and it is not alone in
adopting this strategy as Lloyd’s of London
clearly attests (See related story on page 13).
Mr Ritchie said that the choice of broker
is not driven by the size of the broker or risk
11
Jens Wohlthat
but rather claims. “If the risk is located in one
place and something goes wrong elsewhere,
for example if a French company is sued
in the US courts, it could be difficult when
you come to buy professional indemnity or
D&O coverage. Therefore being in the French
market is also good because you understand
the process in the French market and of
course have a good understanding of the
French client base,” he said.
“The big insurers value the brokers’
ability to help them seek out new business in
local markets and help them understand and
assess risks and therefore find accurate pricing
and effective risk transfer solutions for major
clients,” added Mr Watson.
“This is increasingly important for all
parties in the risk transfer chain as risks
become more diverse, complex and global
and regulators show an ever-higher interest
in how local insurance markets interact with
international markets,” he continued.
AXA Corporate Solutions is very focused
on its brokers and at this year’s Amrae
conference in Deauville, Normandy launched
its first set of service commitments to French
brokers to complete what CEO Philippe
Rocard described as the ‘magic triangle’ of
corporate insurance.
Mr Rocard said that the commitments,
that include the ability for brokers to issue
their own certificates of insurance and
track claims much more easily via the AXA
system, could be rolled out to other European
markets in time if local brokers ask for it.
ACS launched its first set of public service
commitments to risk managers in France
four years ago and has since extended these
commitments to include other countries such
as the UK.
The commitments to
customers include promises to
speed up policy issuance, deliver
timely engineering reports,
manage accounts with more
care and carry out formal annual
business reviews.
Mr Rocard said that it became
increasingly clear, however, that
the commitments should also
include key brokers.
“We have offered these
engagements (commitments) to
customers for four years now and
we thought in the magic triangle
of risk, comprising risk manager, insurer and
broker, we could not leave the broker out of
this. We have formal commitments to clients
but this was not enough, we also needed to
make commitments to the brokers as they
are involved in the business in almost all the
main countries,” Mr Rocard told Commercial
Risk Europe after the company’s press lunch at
Amrae in Deauville earlier this year.
The first commitment is to make it
possible for the leading 15 brokers that
deliver the bulk of AXA Corporate Solutions’
business to generate their own electronic
certificates of insurance via its own system.
The company has also decided to step up
its communication efforts with the brokers

PART II — WHAT THE MARKET SAYS
through technical conferences and regional
meetings.
Another big commitment is the decision
to introduce a system of ratings for group
companies and partner companies. The
ratings will be based upon speed and
efficiency of policy issuance, claims handling
and payment.
Only about 10% of AXA Corporate
Solutions’ business is generated by partner
companies but Mr Rocard said that it remains
very important because the group sells the
quality of its network and so it is vital that it
is ‘under control’.
Other commitments to brokers
include a promise that the quality
of vessels chartered by marine
customers will be assessed in three
hours and the appointment of
in-house managers dedicated to
brokers that demand individual
servicing.
Mr Rocard explained that the
package had been created on the
basis of in-depth interviews with
some 62 brokers that was a very
clear and honest process. “It was
very helpful for us to carry out this
process and think about it and where and
whether action was needed,” he explained.
So the insurers do value the brokers and
appear to be working harder than ever to
make sure they are working with the best and
making it as easy as possible to do business
with them.
But are the brokers responding with
investment in the kinds of thoughtleadership
and innovation that their
customers are currently screaming out for and
that the insurers need to deliver via products
Insurance managers recognise that one of
the key stumbling blocks towards innovation
and new capacity for emerging risks is a lack
of information that flows between insurer
and customer.
We therefore asked the insurers whether
the brokers are doing enough to help the flow
of information to help tackle these emerging
risks.
Andrew Kendrick, Chairman and CEO
of ACE European Group, said: “The broker is
the client advocate. In my experience they
are the first ones to consider how to manage
newer risks such as supply chain or cyber
liability and of course they play an important
part. To help the communication between
the three parties we run client advisory
boards in the UK and France as we have done
in the US and elsewhere and are looking to
extend these to other countries. We recently
held one in Paris and it was really useful to
understand more about client concerns and
the risks they are faced with. Dialogue with
the client is key.”
Chris Smith, RSA’s Risk Solutions Europe
Director, said: “Technical knowledge is the
key. Being a smaller player we need to rely
on brokers—the big multinationals and the
larger local brokers that are increasingly
prominent in this market. So we work to
get to know them quite well. I know the
brokers in London well from my days in that
market. In line with our strategy we expect
the brokers to have detailed knowledge of
the risk exposures. You simply cannot play in
this market without that knowledge and we
always want more.”
So, as with the insurance managers
Andrew Kendrick
interviewed for this report, the insurers seek
greater knowledge and expertise from the
brokers to help with innovation.
The insurers were also asked how could
and should the brokers improve the services
more generally to the insurers and risk
managers. The answer was clearly to up their
levels of professionalism.
“We are a broker company, they are
our lifeblood. They need to be very good
advocates of their clients. But I see standards
slip in soft markets such as now,” said
Mr Kendrick. “We have seen cases where
underwriters find brokers
wandering in with little more
than a web-link to the client’s
home page to provide information
about the client. This is clearly
unacceptable either from an
insurer or client perspective and
such behaviour is limited to a
minority of brokers. However, I
think that standards should slip
even less during a soft market
because arguably it is even more
important that a broker is doing
a good job. We obviously do not
respond to brokers who walk in
with web-links to find out about their clients.
It is about upholding standards,” he added.
Mr Wohlthat at HDI agreed that the
brokers need more expertise, particularly
in claims. “One other aspect is certainly
that we have people that have gone from
underwriting into claims because this is key
to the business. We are looking for brokers
that have the knowledge to explain and also
are able to help their clients with claims.
The ideal broker is able to add value for the
customer through knowledge and it needs
to be a long-term relationship for us and
for them. This involves extra work because
broker relationships need care to add that
extra value. Therefore through the cycle, we
have to take care of our brokerage partners to
take care of our clients,” he explained.
Overall therefore it seems the insurers
would like to see the brokers up their game
but fundamentally the brokers need the
insurers to place their commercial risks and
insurers need brokers to find them, so all
should be rosy in the garden then
But this is not necessarily the case if only
because there is a constant and sometimes
big potential flash point concerning how the
brokers are paid, as was once again
confirmed by this survey.
In a perfect world brokers
would only be paid on a fee basis
by the insurance buyers and they
would then negotiate with the
insurers on a totally equal basis.
But for a number of complex
historical reasons this market is
not that simple. The brokers also
take commissions from insurers,
unfortunately often based upon
the volume of business placed and
performance of the account.
Moreover, the big brokers in
particular also push hard for service fees on
top to remunerate them for a wide range of
services such as collecting premiums, helping
to handle claims and the like, on top of any
other fees they can generate for other services
such as modelling and actuarial work.
As reported in the following chapter,
the insurance managers interviewed for this
12
Regis Demoulin
report appear to be relatively comfortable
with the way brokers are paid for what they
do and the fact that they take payments from
insurers. But the insurers do not seem to be
quite so happy with it, philosophically at
least.
Sean Rocks of Liberty Mutual said that
he is not sure the current system is properly
balanced.
“I can’t get away from the feeling that
there is an inherent conflict of interest in the
remuneration structure of brokers currently
in as much as they are looking to get paid by
both sides of the equation,” he said.
Mr Rocks suggested that the payment for
specified services should be made in a more
transparent way. “Brokers should get paid for
the value they provide to the client. If they
are providing information that adds value
then it should be done on a consulting basis
rather than market wide and should be priced
accordingly,” he said.
Mr Kendrick said that the whole
discussion is about value, transparency and
communication. “Clearly it is about the value
of the service and what it costs and whether
the customer is prepared to pay that cost.
In respect of the client, it is down to the
broker to clearly communicate the nature of
the service they are offering and subject to
client agreement, the broker will be paid the
commensurate fee for that service,” he said.
And, like most insurers he would prefer
that the brokers were only paid by their
customers, the insurance managers. “Really
I would prefer to see the brokers, rather than
coming to us for some form of payment, to
be paid solely by the clients. It is very simply
a relationship in which the broker is acting
for the insured. I, as an insurer, should not
be paying a broker. It is as simple as that,” he
said.
The big mainland European insurers
tend to be less willing to talk so directly
about broker payment than their London
counterparts, perhaps because they tend to
pay less to the brokers for these ill-defined
services.
Regis Demoulin, Chief Commercial
Officer at AXA Corporate Solutions, spoke
to CRE during last year’s Ferma conference
in London, after he had announced the
findings of the survey that it carries out with
the federation and Ernst & Young every
two years. Mr Demoulin did not comment
on whether insurers should pay
brokers but said that he would
rather leave the discussion about
transparency to be held between
the brokers and customers.
“I feel it is more a question
that should be raised between
the clients and brokers and not
with insurers, because, as you
know, most corporate clients and
risk managers remunerate their
brokers directly through fees. But
through the [Ferma] survey we
see progress has been made on
this topic and that risk managers
feel more comfortable than before on the
question of broker transparency. But it is
not perfect and, as some risk managers said
during the conference, it should be perfect.
Risk managers want 100% transparency. Year
after year, it is an issue on the agenda and so
now, we could say that we are close to a good
level of transparency,” he said.

PART II — WHAT THE MARKET SAYS
Allianz Global Corporate & Specialty
(AGCS) was one of the driving forces against
broker efforts to charge the ill-defined extra
service fees of 2.5% or more that the brokers
introduced four years ago into Europe and
that was such a hot topic of debate at the
Ferma Forum in Geneva.
During a recent interview with CRE, Axel
Theis, CEO of AGCS, was in no mood to bash
the brokers and agreed with Mr Demoulin’s
diplomatic position: “Transparency is the key
between client and broker in our segment. Do
we need a Scandinavian [net pricing] model
I would like to see a different position
But if we can’t achieve more transparency
it may happen because the regulatory
authorities will come back to it and ask who
is responsible for what and ensure that it is
visible and transparent and the easiest system
would be the Scandinavian one. The market
needs to take a proactive approach to that.
But do remember that brokers need to be
fairly paid for the services that they carry
out.”
So it seems, as was evidenced by the
interviews with the insurance managers,
the basic position of the brokers and their
potential future role in this market will, at
the end of the day, largely depend upon what
model they decide to adopt.
Most in the market, including the
insurers, the insurance managers, national
supervisors and the bureaucrats in Brussels
do not seem to think that the fundamental
conflict of interest inherent in the way
brokers are remunerated needs to be
addressed. Many insurance managers
think it is fine, many insurers fudge the
issue at best and only Mr Kendrick it seems
is brave enough to stand up and say it is
wrong.
Whether it is wrong or not is perhaps a
more ethical and philosophical question that
needs to be addressed in a different forum.
But what does seem quite clear from this
survey is that until it is properly addressed
the brokers are going to find it more difficult
to make any kind of transformational model
change that could help them address some of
the concerns expressed by both insurers and
insurance managers in this survey.
Jose Ribeiro joined Lloyd’s of
London in September 2007 as
Director, International Markets
and is responsible for promoting
the market across the globe. Mr
Ribeiro has been busy leading
a more energetic long-term
strategy in Europe that is based
on building understanding and
relationships with local brokers
across the continent
LLOYD’S OF LONDON IS THE
ultimate broker market as almost
all of the Lloyd’s business comes
through this channel. This means
that it is very different to national
markets throughout Europe where there tends
to be a dominant player in each territory
such as Allianz in Germany, AXA in France
and Mapfre in Spain and which source their
business in many different ways.
Jose Ribeiro, Director, International
Markets at Lloyd’s, explained that this
fundamental difference means that Lloyd’s
adopts a rather different strategy to most of
the leading industrial insurance groups in
Europe.
“Clearly we are not trying to go head
to head with such companies,” he said.
“We really need to leverage our competitive
advantages and strengths. What are these
First, we are a very specialised market and
very flexible for large and specialty risks. We
offer a very bespoke approach and it is very
different to the domestic local insurers as we
offer coverage for more complex risks via the
subscription market,” he explained.
Coverholder model
“Second, we have the coverholder model
[A coverholder is a company or partnership
outside of Lloyd’s that is authorised by
a Lloyd’s managing agent to enter into
contracts of insurance with customers that are
underwritten by syndicates of the managing
agent] which we believe offers good potential
> LLOYD’S
A long game
for growth in Europe for Lloyd’s,” continued
Mr Ribeiro.
Lloyd’s could simply rely on the global
brokers and national brokers that work
through Lloyd’s’ wholesale brokers to
generate the business from Europe and try to
build its non-US and UK book that way. But
Mr Ribeiro said that this approach is limited
and the coverholder system offers the chance
to dig deeper and wider into markets.
“It is the only way that you can really
be local and deploy the global expertise via
the service companies that are owned by
Lloyd’s managing agencies and individual
coverholders. This means that customers can
deal with local people, who have the local
language and can work via local brokers.
Roughly a third of Lloyd’s business comes
via coverholders. It is a win,
win model because for it to be
successful the managing agent has
to make a profit,” he explained.
It is of course not that simple
and there are challenges. Some
coverholders, for example, base
the transactions on UK wordings
and in some cases it does not work
so well, said Mr Ribeiro. To tackle
this type of problem Lloyd’s is
working with the Lloyd’s Market
Association (LMA) to develop
competitive local wordings that
comply with local legislation and
regulations. “You do not necessarily want
or need to translate the wording letter by
letter. So we want coverholders and service
companies to be local players but have access
to the knowledge and expertise of the Lloyd’s
market,” he said.
The key lesson learned from Lloyd’s’
recent effort to build its mainland European
business is that local wordings and local
people who can handle local claims
effectively are critical, said Mr Ribeiro. “These
are the key things that you need to compete
with the insurance companies in national
markets in Europe,” he said.
The other important thing is to make the
life of the coverholder easier, said Mr Ribeiro.
For example, a coverholder may have four
13
Jose Ribeiro
or five binding authorities with four or five
different Lloyd’s managing agents and have
to go through four or five audits a year, he
explained.
Lloyd’s is therefore working to design a
system that means the coverholder only has
to go through one audit that will satisfy the
corporation as well as all the managing agents
involved, said Mr Ribeiro.
“Improved and more consistent service
standards [such as those on delivery of
contracts within certain time periods] also
make it easier for the coverholder to do the
job successfully. Therefore there is a lot of
work still to be done but fundamentally the
most important thing is to identify the best
people to be our coverholders. That is the
key,” he continued.
In most European countries
brokers can also be coverholders.
In these cases Mr Ribeiro
explained that Lloyd’s needs to
ensure that conflicts of interest
are properly managed and the
functions are separated. The
legal entity may be the same but
there could be obvious conflicts
of interest and these need to be
managed properly and checked
regularly, he said.
The development of the
coverholder model in mainland
Europe is a key focus for Lloyds
strategy but it also still receives most of its
business from traditional brokers. Asked how
Lloyd’s thinks that the flow of business could
be improved and the brokers could make
themselves more user-friendly for insurers
and risk managers, the former broker said that
it is best to distinguish between the brokers
and not place them all in the ‘same bag’.
“Some Lloyd’s brokers tend to be global
operations with offices all over Europe so
that they can deal consistently with clients
locally. Of course for these brokers it is very
easy to place business all over Europe. They
can also work with local Lloyd’s coverholders
and service companies on the ground to place
smaller ticket and less complex risks. The
more complex and specialist risks may also

PART II — WHAT THE MARKET SAYS
find their way into Lloyd’s via a local broker
and then onto the London office of the
Lloyd’s broker. This works well but can pose
challenges as we have to ask what can we do
better locally to help promote this flow and
make sure that the London perspective is well
understood and accepted locally,” he said.
Mr Ribeiro said that wholesale brokers
present a ‘completely different proposition’.
This is because they tend to be London
brokers that work with local independent
brokers to help place business at Lloyd’s.
“We work with these brokers to help
them identify local brokers who we would
like to work with. Thus our offices across
Europe do a lot of work with local brokers to
help identify best possible partners in every
country. It works well for both parties again
as the local broker finds an outlet for the
business that it is not naturally set up to place
[the business] and it brings new business to
the Lloyd’s wholesale broker,” he explained.
And, local brokers face a variety of
challenges, said Mr Ribeiro. “Lloyd’s needs to
work closely with local brokers in the UK for
example to explain how Lloyd’s works and
how they can access the market. We need to
explain how they can use wholesale brokers
and service companies because some still do
not know how the model works.
“There is still an awful lot of work to
do to develop the technology to allow the
brokers to access the market and enable them
to handle more complex risks and even
access Lloyd’s directly. There are already a
few Lloyd’s brokers based in mainland
Europe which is great but this is the
exception,” he said.
Better or smarter use of technology is one
obvious way of trying to make life easier for
distributors of insurance business in foreign
markets to export their business. Mr Ribeiro
said that ideally the future technological
model would give the Lloyd’s market greater
flexibility to help it reach out but at the same
time believes that face to face contact is still
criticial, especially in the larger risks market.
“We need technology that would allow
brokers to transact business with Lloyd’s as if
we were a local underwriter. Having said that
I believe that face to face trading for more
complex risks is still very important as you
need face to face negotiations when brokers
are dealing with such risks. We can and
will develop the technology further to help
facilitate the flow of business into the market
but underwriters and brokers need to see eye
to eye in a complex case to really seal a deal,”
he said.
The UK is part of Europe of course and is
a big market for the Lloyd’s agencies. But the
market’s share of the UK business insurance
market is still relatively small and part of Mr
Ribeiro’s brief was to build this up.
“This is a big challenge for us and we
started in earnest upon it last year. The UK is
the second largest market for Lloyd’s after the
US but we did not really have a firm strategy
from a Lloyd’s corporation’s perspective for
this market,” he explained.
Demystification
Mr Ribeiro said that the main focus of this
effort is to ‘demystify’ Lloyd’s and bring
the market ‘closer’ to local and regional
UK markets. “We have been supporting the
creation of a UK coverholder association for a
long time and I am pleased to say that it will
now be officially launched on 1 September.
We are also working a lot more closely
with local and regional brokers in the UK
to explain all the options available to place
business at Lloyd’s,” he said.
As part of this effort Lloyd’s held a
workshop at the BIBA [British insurance
brokers] conference in Manchester earlier
this year which 60 brokers attended and
it also had a big presence at Airmic, the
UK risk manager’s annual conference in
Bournemouth. And, as Mr Ribeiro pointed
out, at the same time the work it carries out
with the brokers in the regions enables the
corporation team help the managing agents
understand these markets better and be more
selective.
“We had a very successful event in
Belfast earlier this year for example where we
simulated the Lloyd’s underwriting floor with
25 managing agents and 150 local brokers.
This initiative was very well received. We now
have a variety of such events across Europe
that really showcase Lloyd’s. We have held
them in Spain, Ireland, France, Italy and
Poland recently and it is something that we
will do more of,” said Mr Ribeiro.
Lloyd’s has also invested in its offices
across Europe and set up a number of new
operations in recent times. It now has a
Scandinavian regional operation based
in Stockholm, a Benelux presence based
in Rotterdam, and opened an Irish office
three years ago. Lloyd’s is also present in
Poland, Iberia, Italy and Switzerland and has
longer-established offices in countries such
as Germany and France. “So we now have a
significant presence on the ground in Europe
and all our offices are working very closely
together with the market,” explained Mr
Ribeiro.
Despite this investment Mr Ribeiro
said that Lloyd’s is ‘not really’ concerned
with market share in Europe. “We are not
going head to head with the major national
carriers so we really need to make sure we
are able to write business locally through the
coverholder model and at the same time be
able to service cross-border and reinsurance
business competitively. We do not want to
be seen as the market of last resort. We also
need to be in a position whereby Lloyd’s
coverholders can pick and choose the
business that they want. At the end of the day
if our managing agents just stay in London it
will never happen,” he added.
CLOSER TO THE SOURCE
Country managers are increasingly important to Lloyd’s as it continues to expand out of its core
heartlands into newer markets and attract fresh business from local brokers and coverholders across
Europe. One manager explained what they really want and need from the brokers
Keith Stern, Lloyd’s Regional Manager, UK & Ireland, has a big job on his
hands as he leads Lloyd’s effort to raise its profile and expand its business
in the UK, Europe’s biggest insurance market by gross premiums. Lloyd’s
estimates that this market generates about £50bn in premiums, excluding
global/multinational risks and, of that total, roughly 60% (£30bn) is
commercial/corporate business.
Lloyd’s competes with Aviva, RBS, Axa, RSA, Zurich, BUPA and Allianz
which as a group hold about 70% of the UK market.
In the UK, Lloyd’s Managing General Agents, also known as
coverholders, underwrite all classes of general insurance for Lloyd’s,
ranging from niche personal lines such as motor, household, travel,
high net worth, accident and health, through to commercial-combined
policies, comprising all classes of property and casualty insurance.
Via these coverholders Lloyd’s underwriters also write a high volume
of scheme and affinity business, professional indemnity and marine
and aviation classes, said Mr Stern. Traditionally the coverholders have
what Lloyd’s terms binding authority agreements with the underwriters
which are ostensibly contracts that allow them to issue insurance policies
on behalf of the syndicates. Approximately a third of the overall UK
business is underwritten by such coverholders and Lloyd’s has over 500
coverholders in the UK.
Speaking more generally about brokers, whether coverholders or
not, Mr Stern said that ‘clearly’ brokers need to continue to listen to their
clients whom they represent and the insurers too. “Brokers continue to
be an integral part of the Lloyd’s market and we work very closely with
key Lloyd’s brokers to ensure that their strategies and business models are
closely aligned to ours and vice versa. Some of the larger brokers such as
Aon and Marsh place considerable emphasis on their annual client surveys
and this is an activity that could easily be adopted by the SME brokers
too,” he suggested.
“Furthermore, brokers need to ensure that they continue to have
a good understanding of their clients’ insurance needs and they must
continue to work with insurers to understand the new emerging risks
and how they may be relevant to their clients. Providing that kind of risk
management service to SME clients is an important way in which the
brokers can ensure that they can continue to add value.
“It goes without saying that the brokers should also continue to
examine whether they are providing a value for money service and
that they do not inflate the overall price with administration charges
that do not appear to relate to a particular part of the service.
Transparency with both the insurer and the client is absolutely
imperative,” said Mr Stern.
14

PART II — WHAT THE MARKET SAYS
Europe’s risk and insurance
managers would like to see their
brokers actually become true
risk advisers, rather than explain
how they plan to do so some
day in the future but continue
to focus on commission from
transactions for their core
revenue. At the same time,
however, European insurance
managers concede that the core
value of a broker really remains
its ability to use its central
position to find and deliver
the best coverage at the best
terms possible. Adrian Ladbury
talked to a number of risk and
insurance managers from a wide
range of industries about what
they really want and need from
their brokers
EUROPE’S RISK AND INSURANCE
managers have something of a
schizophrenic relationship with their
brokers which is sometimes difficult
to fathom.
On the whole they really value the
service that brokers provide. Most of the
risk managers interviewed for this report are
primarily insurance managers and so still very
much rely on their brokers to seek out the
best coverage for their core insurable risk at
the best terms possible.
The recent economic and financial crisis
has made this role even more important
than ever as many risk managers say that the
value and appreciation of insurance as an
alternative form of capital has risen of late by
their CFOs.
But most risk and insurance managers
polled for this report also seem rather
exasperated that the brokers appear unable
to emerge successfully from their core role
as finders and arrangers of adequate and
competitively placed insurance coverage and
turn themselves into the risk advisers that
they really need and want.
The brokers fully appreciate this need
as our collection of interviews with 25 of
Europe’s leading commercial risk brokers
clearly shows.
They are more than aware that their
future lies in the delivery of expert and feebased
consulting services rather than on basic
transactional work.
It seems that both parties, and the
> RISK MANAGERS
Consult more, transact less
insurers too, are agreed on what will be
needed in future but the weight of the
historical relationship and how the broker is
traditionally remunerated coupled perhaps
with the inability of the insurance manager
to break into the boardroom currently makes
it too difficult to enable the transformation.
Before reviewing the comments from
the risk and insurance managers polled for
this report one has to note that the survey
is skewed somewhat because all of the risk
managers polled work for large European or
even huge multinational corporations.
It is likely therefore that the opinions
expressed are rather more advanced than the
mass of commercial buyers that account for
the bulk of most brokers’ income.
But the input from the risk managers,
insurers and brokers themselves suggests that
the mid-sized and even SME markets are not
that far behind their larger peers.
They all want to see a more focused,
knowledgeable and consultative approach
that will help the buyers cope with the everwidening
range, frequency and severity of
risks they face on a daily basis.
The question for the brokers appears to be
therefore how they make that transformation
from the transactional to consulting
model and meet the voracious demands of
shareholders at the same time.
Core placement remains key
Before looking too far ahead, though, it
is worth pointing out that every risk and
insurance manager polled for this survey said
that they are happy with the service offered
by their brokers.
Moreover no customer said that
the service had become worse over
the last five years. All of them said
that it had either improved or
stayed the same.
This was the simple bit.
The more complicated and
lengthier responses came when
the insurance managers were
asked how they think brokers could
and should improve their service over
the next five years.
One key area where brokers can really
make themselves invaluable and perhaps
take the first tentative steps towards
the consulting nirvana according to the
insurance managers is through programme
design and particularly construction of global
programmes that actually work.
The corporate insurance buyers
interviewed for this report place a high
value on the input from the brokers to
help them build effective and compliant
global programmes and with the design and
placement of their increasingly complex
programmes in general.
Hold the fancy systems
Interestingly, and no doubt annoyingly for
the brokers, despite the forecasts about the
shape of the broker in the future, the risk
managers interviewed are not so interested in
technology solutions from the brokers.
Not one of the insurance managers
interviewed said that new software services
would significantly add to the service offered
by brokers.
But, perhaps this reflects the high level
of pressure that most risk and insurance
managers are currently under to deliver the
widest possible risk capital at the cheapest
possible cost because of the relative lack of
alternative funding, not least from the banks.
The credit crisis and subsequent recession
has clearly provided the insurance brokers
and wider industry in general with a great
opportunity to steal a march on the wider
financial services industry to present itself as
the risk financiers that can actually deliver.
But the huge uncertainty over the next
step towards recovery seems to be making it
very difficult for risk managers, their brokers
and the carriers to take that first brave step
and commit risk capital that is more valued
than ever before.
Before moving onto some of the more
macro-economic and philosophical questions
that worry risk managers let us first look at
the basics of service provision.
Before the brokers even think about
transforming themselves into pure fee-based
risk consultants and ditch their grubby
transactional past they need to work out
how to offer their customers more useful
benchmarking tools and information, so long
as they do not charge for them.
A number of risk managers interviewed
for this survey said that Aon’s GRIP service,
by which the broker collates all the wealth
of industry knowledge and data
worldwide, re-packages it and sells
it on as justifiably highly valuable
benchmarking intelligence, is
incredibly useful but they can’t
quite work out why anyone
should pay for it.
“I love the concept and think
Aon can provide a great service
for me and other risk managers.
But I am not happy that I have to pay
for something that I have helped to create
with my own experience,” said one German
insurance manager, underlining again the
obvious challenge the brokers have in turning
themselves into consultants.
Get back to basics with IT
Another German risk manager with a
leading pharmaceutical company said
that the brokers and the wider insurance
industry really needs to get its act together
with more basic administration-driven
information technology-based services and
communication in general.
“In some areas it is very good and in
others just the opposite. What is infuriating
for the customer is IT. The IT solutions in
this industry are not properly designed to
interface with customers. The insurers need
15

PART II — WHAT THE MARKET SAYS
web-based solutions in order to have the
ability to feed our systems. Why not have a
web-based tool which is compatible and that
we can all use” he asked.
Specifically on brokers he said: “IT is
the key to a certain extent and I think the
brokers should organise their administration
differently. Once the deal has been done
the back office team should make sure that
the rest is followed through so that the
very valuable time of the highly intelligent
and experienced broker is not wasted in
administration. Some brokers are going
this way. But again IT is the key matter to
get a good service done in order to avoid
duplication of work.”
So the message from this insurance buyer
is before you really go about transforming
yourself into a consultant invest in the basic
IT platforms needed to efficiently transact the
business in the first place.
Remuneration matters
Remuneration is a popular topic of discussion
whenever the role of the broker is raised and
has filled many thousands of column inches
in Commercial Risk Europe and many other
publications and will no doubt continue to
do so.
As noted in the chapter in this report
on the changing face of rules for brokers in
Europe, the European Commission certainly
has the subject in its sights as proven by the
conclusions to the Business Sector inquiry a
couple of years back and discussions leading
up to the review of the Insurance Mediation
Directive.
The good news perhaps for this sector
though is that the EC does not seem unduly
worried about how remuneration works in
the corporate sector but is far more focused
on individual business and investments.
We asked the insurance managers
whether they are happy with the current
system of broker remuneration, whether they
are happy that they take payments from both
insurance buyers and insurers and whether a
shift to a net-pricing system would be a good
idea.
For the vast majority of the insurance
managers polled for this survey at least, it
does not seem to be a big issue.
Europe’s risk managers with larger
corporations say that they are prepared to pay
for the value added by the brokers so long
as they help find solutions to difficult risk
management and transfer problems.
Most recognise that the brokers have
become a lot more transparent and up-front
about how they are paid for such work
and there is only a minority support for a
wholesale change to the charging model,
such as the adoption of a fully net-pricing
approach. And they do not seem to be that
bothered that the brokers take payments from
insurers, so long as it is transparent.
“I think there is no real conflict of
interest in the fact that we pay the brokers
on the one hand and the insurers do on
the other,” said the insurance manager
with a leading French and international
telecommunications company.
“If you find the right agreement with a
clear level of services with the broker then
you have to ask yourself no questions. The
fact that they are paid by the risk manager
and the insurer does not seem to me to be
a problem. This problem does not exist for
me,” said the French risk manager.
But, more broadly, both risk and
insurance buyers and the leading insurers
believe that the brokers must work harder to
add value to the risk transfer chain to justify
their cost.
One area that really seems to annoy
Europe’s insurance managers is the quality
and accessibility of expert staff within the
brokers. The customers are not happy that
the brokers seem to pull out all the stops to
win the account in the first place and parade
all the top people at that stage but then leave
the customer to work with the graduates once
the deal is done.
There is also a concern, especially with
older risk managers, that the investment in
training and professionalism is not nearly as
high within the brokers or insurers as it was
in the good old days.
Real world experience
One UK-based insurance manager with a big
telecommunications group said that brokers
and insurers need to be prepared to think and
climb outside of their traditional boxes to
keep up with the real world, as well as invest
in ‘proper training’.
Quality people will only really be
found from industry itself with real-world
experience who can then be turned into
brokers and underwriters, he said.
“If I was in charge of a brokerage the first
thing I would do would be to hire people
from outside the insurance industry who
actually understand this stuff and let them
explain it to the rest and teach them how the
business works,” said the insurance manager.
“The insurance industry has gone further
and further away from business over time and
now we have an international economy with
global supply chains that is reliant upon IT
to make it work. It has become even harder.
The single factory model that was relatively
simple to sell and underwrite is no longer
relevant. If we had brokers and underwriters
who had worked in industry it would be far
better. It is not that complicated. You can
train people in insurance. It may be scary but
the industry needs the knowledge,” he said.
If brokers and underwriters follow this
route then the telecoms insurance manager
believes that the market will see more
products that are less likely to fail when
called upon and to have to constantly rely
on exclusions for risks that they have not
understood or bothered to understand, he
added.
Go back to school
One Dutch-based risk manager responsible
for the global insurance needs of one of the
world’s biggest industrial companies would
also like to see a return to former days when
brokers were respected, valued and rewarded
for their qualifications and knowledge rather
than because they currently hold the mega
account that everyone wants.
He said that this is an HR, structural and
cultural challenge that the big brokers in
particular need to think very hard about.
Firstly, he said that brokers need to
improve the efficiency of their organisations
to make it easier to find the right people.
“I used to be a broker with Marsh and
Sedgwick and I would say that the profession
is not moving forwards. Brokers have
incredible knowledge and capabilities but
it is very difficult to find the right people
within the brokers who have the gateway to
the knowledge. From the customer’s point
of view brokers ought to do this from an
altruistic perspective. That person ought to
push themselves forward and really look
to bring the best to the table, bring that
knowledge to the table in the best interests of
the client,” he said.
“They say they have taken the barriers
down but maybe the first barrier is the
ambition of the individual brokers. This
is because the model dictates that when a
young guy joins a broker they look at the guy
who works on the mega account and he is the
goal, he represents the career path. In the old
days it was the qualifications of the broker
that mattered, whether he was a Lloyd’s
broker, not what account he handled and
what position that represented.
“We have shifted to a position where
it is based on who has the most clout not
credentials or qualifications. We need to
return to the time when an individual with
fairly wide knowledge, who was respected
for their insurance expertise with things like
global programmes, is respected not for the
account they work on and their position in
the company,” he said.
The risk manager said that he
understands that from an economic
perspective it would not work for a broker to
suddenly place 10 to 20 people on an account
to win the business.
But the current trend whereby salaries
and respect are dictated by the size of
accounts is not a good trend. “Salaries for
brokers are going up and up especially in the
London market and this is because clients are
apparently ‘attached’ to those individuals and
teams. I find this thinking not quite right.
The account should not move with these
individuals for personal reasons but because
of how they are qualified and what has been
delivered,” he said.
It’s my purchasing power
The global insurance manager also said that
he is not too happy with the way brokers
use the term purchasing power with bigger
clients and suggested that they may need to
reconsider their approach.
“I believe the big accounts like ours, BP,
Shell and the like, are a completely different
kettle of fish. The broker always tells you
about their incredible purchasing power,
how their $2bn of buying power gives them
leverage. But that is disposable capital for a
mega account. What the broker actually does
is use the mega account to build purchasing
power and benefit the other clients. In reality
they ought to lower the price for the mega
accounts to recognise this,” he said.
The insurance manager also said that
brokers should understand that managers of
big accounts like his own would be prepared
to pay for the exclusivity of their brokers.
“I am willing to pay to ensure that my
broker does not have three other accounts.
Mega accounts want to invest time, effort and
money to develop the relationship and which
will ultimately lower the cost of risk,” he said.
One of the main topics of conversation
with risk managers when discussing the
brokers is whether the global model adopted
16

PART II — WHAT THE MARKET SAYS
by Aon, Marsh, Willis and the like really
works or whether the niche independent and
international network approach works better.
When asked whether insurance managers
prefer to use a global broker or would rather
use a network of independent brokers the
answer was not clear cut.
All of the insurance managers surveyed
said they do use a global broker as their first
port of call and usually two or even three.
Some said that they would not use other
niche or national brokers to help them with
specific problems of territorial needs because
that is why they use a global broker and do
not want the added hassle of dealing with
more brokers.
Others said, however, that they like to
use independent and niche brokers to keep
the big ones on their toes and because of
the higher levels of dedication and often
specialist skills they can offer.
Global delivery
If a decision has to be made between the two
models (and they are not sure whether it is
that clear cut) the bigger global brokers must
follow through claims of a global service with
a truly consistent and seamless offering, say
the customers.
Likewise the networks of so-called
‘independent’ brokers must work harder to
convince the biggest risk managers that they
can truly deliver this seamless global service.
Above all, the brokers need to focus more
on the demands of their customers rather
than ‘feeding their own complex structures
and cost bases’ as one leading risk manager
told CRE.
It is clear that insurance buyers will
continue to use the big global brokers to help
them manage their increasingly diverse risks
as they expand into new emerging markets.
For some leading risk and insurance
managers an owned global network is
essential to help them consistently manage
their increasingly international spread of
risks.
But some insurance managers
interviewed for this report expressed
frustration that the big brokers are still unable
to really offer a consistent global service led
by a skilled and trusted individual or team
with the full backing of the international
network. They are not really global yet, is the
suggestion.
Some risk managers still believe that,
despite the best efforts of head offices to
impose a single global culture and structure
upon what was a collection of merged
national champions, work still has to be done
to deliver the goods.
These insurance managers say that if the
big brokers fail to deliver what they want and
need they will increasingly look to the niche
local brokers, combined with leading national
brokers in home and other territories, to help
them find the right coverage on the right
terms.
Ditch the term ‘producer’
“I am happy with the service offered by my
brokers and it is better than five years ago,
certainly not worse, probably because I am
more demanding,” one Dutch risk manager,
who only uses two of the global brokers,
told CRE during the annual conference of
the Dutch risk management association—
Narim—in Noordwijk.
“I use only the two global brokers
because they have the network capabilities
and professionalism. If one big client comes
along I know that they will not reduce the
service for my account while they service
that account. So there is less disruption in
service. In tenders, I inform them that they
are being reviewed more on quality and
professionalism than on price,” he continued.
Innovate, constantly
“I cannot say that we need different or
new services. Keep up the good work! But,
in general, I always want the proactive
approach. I don’t like my broker to always
agree with me. I want them to challenge
and criticise me and this is particularly
relevant for the upper middle market because
insurance managers in these companies may
not be so knowledgeable. So the brokers need
to be skilled and experienced above all and I
would like to see the term ‘producer’ deleted
from all broker job titles,” added the risk
manager.
One risk manager with a UK-based
multinational told CRE that he values
knowledge and expertise above all to help
him manage and transfer his risks in what is a
highly regulated and high risk sector.
Like many insurance managers who
took part in the survey, he said that he uses
one of the ‘big three’ global brokers to place
and service his complex global programme
because its geographical ‘footprint’ most
closely matches his.
He said, however, that he also uses one
of the leading London brokers that is part of
an ‘independent’ global network for strategic
advice too because it boasts the best experts
in his sector.
Follow my agenda not yours
“We work with one of the big three because
they have a similar global spread and we use
their local people as foot-soldiers because it is
still worthwhile to have local follow up. All
brokers need to listen more closely to their
customers and deliver the service they really
need and not run their own agenda. Often
they seem to go off and advise what serves
them,” he said.
Another Dutch risk manager stressed how
brokers who work for the larger companies
need to really focus on their clients and
forget about trying to apply a mass approach
that suits their cost base rather than the
customers.
“I say to the CEO of our global brokers if
you want us as a client for a big joint venture
on an infrastructure project you work for us
and not the others. If they cannot say this
then I will go to a niche broker that I know
in Rotterdam who will only work for us. I
also use a specialist broker in London who
knows our market better than the big three
particularly on contract risks,” he explained.
“Another issue with the big broking firms
is that they think you are working with them
on a global relationship basis but actually
the relationship is with the team and not the
letterhead because teams and the individuals
go from one broker to the next. It is still a
people business. So we are very keen to look
at who we prefer and who are the specialists.
For me the name of the broker is not
important, it is about finding the best people
to help us,” continued the risk manager.
Be freelance risk managers!
A risk manager with a Swiss-based
international manufacturing company threw
a bit of a ‘curve ball’ into the debate as he
said that brokers could improve their service
and margins at the same time by offering
themselves more readily as freelance risk
managers.
“I see an opportunity for brokers to
become enablers by providing insurance
services for corporations. They can go for the
standard service and offer standard insurance
products. But what about all the other
services that they can provide in a modular
and flexible manner” he asked.
“I know people who have insurance
departments with 5 or even 20 people. It
is difficult to motivate insurance managers
within corporations because basically there
are no career opportunities until the head of
the operation retires or moves on. So it is a
struggle to find good people or you have to
hire people who are not really professionals
and train them. If I need two decent
professional people of about 30 to 35 years
old why would they do it They would have
to work 15 to 20 years to gain the promotion
to the top. Why don’t brokers offer this
service
“This could be the answer for the brokers.
It would help the insurer too because they
would not need to present the policy cold
to a risk manager. It could be completely
outsourced. The day to day collection of
claims information with surveyors could be
outsourced to the broker. So the broker could
become more of a risk management adviser
to help customers achieve compliance. But if
they don’t change the remuneration model
it will stay the same and the opportunity will
be missed,” he said.
The brokers should be reasonably happy
with the overall response of the insurance
managers. The customers are clearly happy
to listen to brokers’ ideas on how they can
become more consultative in their approach
and less reliant upon transactions for the core
revenue.
And most insurance managers with
bigger companies at least say that they
would be happy to effectively fund the
transformation to a more consultative model
by paying more for their services.
But the insurance managers do not seem
to be wholly confident that the brokers are
capable of making the gradual transformation
to their business model without taking their
eyes of the existing balls.
They seem fearful that the brokers will
try to generate more revenue by offering
more consulting-style services but try to do so
without investing more in themselves to do
it properly.
Many of the insurance managers
interviewed for this report have worked for
brokers and insurers in past lives and so
perhaps have an inkling that the clever bosses
of the brokers will be incapable of taking the
big step forward without making the concrete
investment required to do so.
For the sake of the insurance managers,
the brokers themselves and the industry as a
whole let us all hope they are wrong.
17

Adrian Ladbury asked brokers
why they felt they were needed
by risk managers and insurers
and what they plan to do over
the next 10 years to make
themselves even more invaluable
ONE OF THE MOST INTERESTING
findings of this survey was the
remarkably similar response
received from brokers, insurance
managers and insurers about the
basic reason for using a broker that carried
subtle but potentially big differences in
emphasis that perhaps explains a lot about
the current health and outlook of the sector.
Both insurance managers and insurers
say that they value the consulting advice
and services offered by the broker and also
agree that this will become more important
in future. But the overall conclusion was that,
for now, the main reason for using a broker
remains its ability to find the right coverage
on the best terms possible.
The brokers on the whole agree. They
realise that the main value that they bring to
the risk transfer chain is their ability to sift
through the myriad of options available to
the customer, use their knowledge, contacts
and negotiating skills to find the best ones
and then secure the coverage.
But almost all the brokers surveyed—
whether large or small—stress the softer
side of the relationship with both insurance
managers and insurers. They think they
are adding more to the deal than their
‘customers’ and also believe that this is undervalued
to an extent. This is perhaps the basic
reason why we are still droning on about the
remuneration model that is dealt with
in more detail later.
Setting aside the thorny matter of the
payment model, first let’s look at the basic
reason for using a broker.
According to the brokers themselves it
is quite straightforward. Insurance managers
have limited resources and budgets and need
their independent advisers to help them
secure the best terms. Basically they outsource
a significant chunk of the risk management
and insurance placement process to maximise
their limited resources.
The insurers need the brokers because,
while they have far greater financial clout, in
the absence of a monopolistic market or tariff
system agreed through oligopolistic collusion,
they cannot afford to add a full service local
distribution system for complex commercial
risks. It may work for commoditised personal
PART II — WHAT THE MARKET SAYS
> BROKERS: The 10 year plan
Source it out
lines business but not for corporate risk.
Francois Leduc, Deputy Managing
Director at Verspieren, France and Director
of Services to corporate risk managers put it
succinctly as he said: “For a company, it is
an advantage to externalise part of their risk
management and advice activities. It is a real
trend and there are several of these activities
that can be performed by brokers. Brokers
also provide a level of advice that a risk
manager cannot find if he works directly with
an insurer or an agent.”
Polish broker EIB came up with a neat list
of reasons:
■ Consulting activities because brokers have
a wealth of experience gained by work
with many clients across industries and
are able to take a look at corporate risk
from many different angles
■ Access to the broker’s international
network, worldwide but still local expert
advice and ability to retain control over
the global corporate risk management
policy
■ Access to traditional services on
training, loss prevention surveys, claims
management and insurance-related legal
consulting, and
■ The fact that the risk manager transfers
Brokers on the whole agree. They realise that
the main value that they bring to the risk
transfer chain is their ability to sift through the
myriad of options available to the customer and
use their knowledge to secure the best coverage
part of his liability and ‘mistake risk’
outside the organisation.
Belgian broker ADD stressed the ability
to outsource the risk management function,
especially for smaller companies. It explained
that brokers are critical to corporations in
Belgium because the function of risk manager
is not common and is limited to the larger
enterprises.
Most mid-cap companies do not employ
risk managers and when a company does
hire a risk manager their responsibilities are
not always limited to insurance. Thus even
if a company has a risk manager in-house,
companies still collaborate with brokers based
on fixed agreements for a range of reasons.
Clarity counts
For ADD the core benefit of using a broker
is its ability to provide a ‘clear overview’
of which insurances are legally required,
recommended or simply ‘nice’ to have.
Walter Schenk, member of the executive
board of the Austrian broker GrECo, said
that risk analysis is the key factor. “What
kind of risks does the company face What
claims were lodged in the past What is the
18
company’s attitude towards risk Does the
company want all risk cover or limited ones
Based on this information, brokers should
design risk concepts, insurance programmes
and market their concepts. Then they have to
provide service in case of claims and deal with
the administration of the contracts. There
should be an annual assessment to review
the existing solutions with regard to changes
in the company and the environment.
This must be supported by reporting and
reinsurance cover, if necessary,” he said.
Anthony Palmer of BPL Global, the
London broker that specialises in political risk
insurance (PRI), said that the PRI market is a
relatively simple one that offers clear value
for the brokers and little need for change.
Capital gains
“The market professionals are agents:
underwriters act for their principals, the
capital providers, and brokers act for the
clients, their principals. Both underwriters
and brokers recognise that the important
people in the market are the principals:
the clients and capital providers. This is
a very good, simple, transparent business
model both for the PRI market and for other
specialty insurance businesses dealing with
large and complex risks. The closer the
market conforms to this model, the better the
market’s standing will be with clients, with
capital providers, with regulators, and indeed
with commentators,” he explained.
Norbert Noehrbass, Managing Director
of Detmold, Germany-based broker Ecclesia,
suggested that brokers ought to think a
little more about the core reason for their
existence, focus on these fundamental reasons
and adapt their strategy accordingly.
“In Germany insurance brokers have
still failed to explain what the profession
stands for, although it is more than 100
years old. We need fixed benchmarks to be
able to differentiate between excellent or
only average suppliers and services. Part of
the problem is that there are no transparent
quality benchmarks for services. Almost
every broker offers a claims handling
service. However, such services may range
from internal experts to the often executed
‘mail services’, which is nonsense and not a
service,” he said.
Mr Noehrbass said that one of the core
reasons why risk managers should use brokers
is that they can allocate their time to assess
concepts, suggestions and alternatives.
“Where no broker is involved they have to
waste time checking the possibilities offered
on the market and talk to every insurer
separately about the corporate risk situation
and their history,” he explained.
“Risk managers want to be in control,
yet the sheer amount of knowledge and
experience larger brokers acquire on a day
to day basis on the markets is a benefit the
‘lone’ risk manager lacks. You should not only
be the paymaster, you should be involved in
team management,” said Mr Noehrbass.

PART II — WHAT THE MARKET SAYS
So what about the future of the broking
model
Adam Garrard, Chief Executive Officer
of Willis Continental Europe, pointed to
the significant differences between risk and
insurance managers in Europe and Asia where
he has worked for a long time and suggested
that within this diversity lie some pointers to
the future.
“In China, for example, it is
predominantly about risk transfer and the
broker’s ability to effectively structure and
price such a transfer. In Europe the risk
transfer remains an important aspect of the
broker’s role, however, this is augmented with
more detailed advice on risk identification,
risk analytics, risk evaluation and risk control
and mitigation strategies,” he said.
Mr Garrard said that in Europe the risk
manager is more a seller of risk rather than
a buyer of insurance. Consequently, armed
with the correct broker support, they need
to be very knowledgeable about the risks the
organisation faces.
“Armed with such knowledge the
European risk manager will have a deep
understanding of the potential impact of
risk and will therefore be much better placed
to decide whether to retain it or ‘sell it’ to
the capital markets,” he said, adding that
he referred specifically to insurable risk as
opposed to operational or treasury.
The flip side of this higher level of
maturity, complexity and sophistication
enjoyed by European risk and insurance
managers is that they inevitably face a
more demanding regulatory and political
environment. But this offers opportunities as
well as challenges according to Mr Leduc of
Verspieren in France.
He said that because of Solvency II,
Europe’s planned new capital adequacy
regime, insurers will increasingly turn
themselves into financial institutions focused
on their role of carrying risks, and not as
much in the provision of services for clients.
Expanded role
“In this context, there is a bigger role to be
played by brokers. Brokers will increasingly
act as intermediaries and buffers between
insurance companies, regulatory constraints
and insurance buyers. Brokers will have
to make sure that services are provided to
clients,” he said.
Stefan Nill, member of the executive
board of Dortmund, Germany-based broker
Leue & Nill that works mainly for German
medium-sized companies which are generally
owner-managed with a turnover of between
€50m and €500m, believes that specialisation
is the key word in the future European and
world economy for brokers.
He said that his brokerage’s strategy
for growth revolves around industrial
associations.
“We want to concentrate on special
concepts for various industries like
automotive suppliers, trade chains and
the food industry. We want to expand our
engagement in these industries with measures
like special training programmes for our
employees,” said Mr Nill.
One question posed to brokers for this
survey was whether or not their future
strategy and shape will depend upon
customers’ desire to unbundle services or seek
a range of niche services.
Oliver Cullmann, Managing Partner at
Bremen, Germany-based broker Gebrüder
Krose said that, in his opinion, whether
customers in future demand a one stop
service from brokers or seek to increasingly
unbundle the services and use more niche
brokers will depend on size.
“Smaller companies which do not have
their own insurance departments will surely
look for a broker who can offer complete A-Z
services. When it comes to larger companies,
we expect that they will have their own
insurance expertise and buy selective
services,” he said.
ADD said that it has a clear idea of the
optimum model for brokers in 10 years’ time.
It believes that brokers will evolve
towards real ‘knowledge centres’ about risk
analysis, specialist insurance topics, and
specialist consultants in claims and policy
handling.
The broker believes that the future is
bright for middle market and niche specialists
as they compete with the global brokers,
again because they will need to outsource
significant elements of their risk and
insurance management function to brokers
and will opt to use national companies rather
than global brokers.
“Since middle-market companies do
not have dedicated risk managers, these
companies will outsource more activities to
brokers in the near future. The difference with
today’s practice is that mid-market companies
will no longer outsource their insurance
activities exclusively to the internationallybased
brokers. Middle-market brokers such
as ADD nowadays are fully equipped for
servicing enterprises with international risk
management analyses, and this is tailor-made
and at a high standard of service level,” it
stated. According to ADD one of the core
services that a broker should offer in the
modern economy and which differentiates
them from the competition is powerful
international reporting tools.
Apart from this, the broker identifies five
other core services a broker should offer in
the modern economy. These are:
■ Specialised product and market knowledge
■ Risk management tools
■ Specialised claims handling services
■ International skills, and
■ Compliance.
Many of the brokers interviewed for this
survey believe that risk management services
are the future for brokers.
EIB said that it believes that the broker
should be able to provide comprehensive
services including risk prevention, risk
mapping, self-insurance vehicles, captives and
the like.
EIB believes that the range of services
offered by brokers will be quite similar in the
future. “The field on which brokers can build
a competitive strength is IT resources and
quality of services including communication
with the client. One demanding aspect will be
assuring the same and highest level of quality
in all links of the global network. The IT
solutions—ensuring security of information—
will play an increasingly crucial role. This is
what will differentiate one broking company
or network from another,” said the broker.
Marguerite Soeteman-Reijnen, Group
Managing Director of Aon GRIP Solutions
and former Chief Broking Officer for Aon
Risk Solutions in Europe, Middle East and
Africa (EMEA) said that the key aim for the
future is to deliver ‘first class’ service, advice
and consultancy and rated the two most
important factors that face companies today:
risk and people.
“The key here is to move away from the
old-fashioned transactional model whereby
the broker provides just capacity on a
wholesale basis. As a broker we are aiming to
enable our clients to be more competitive and
grow their business,” she explained.
According to Dutch broker De Keizer
the optimum model for brokers in 10 years’
time will be the broking and consulting of
complex risks.
Complex risks
For this reason brokers will increasingly
focus upon consulting services in risk
management with a focus on medium and
large commercial risks, it said in a written
response to our survey.
“There will be no focus on simple risks,”
according to the Dutch broker.
The ability to offer true advice on
enterprise risk management, wide market
knowledge and access to the best insurance
products are the main strengths of brokers
today and what should differentiate them
from the competition, according to De Keizer.
Many of the brokers interviewed for
this survey believe that much of the value
that they bring to the table in future will be
IT-based.
“Increasingly, the offer of insurance
products is associated to the offer of tools that
will help the risk manager to have a realtime,
extensive view of the risks of the company
and its losses. When we are working on an
offer, we send IT experts along with our
insurance people in order to answer specific
requests from the client in this area, which
are becoming more usual,” said Verspieren’s
Mr Leduc.
Walter Schenk, member of the executive
board of Austrian broker GrECo said that
like all good brokers it is working on new
products and services to help its customers
cope with new risks. “We are working on
cover for gradual losses and renewable
energy. In addition, we developed the GrECo
Online Services. This is an internet-based
tool which clients can access any time to
check their contracts and claims data and
to add additional data. Furthermore we
created underwriting guides about specific
risks in certain industries. The main risks
are described and quantified there. It is an
interesting tool for benchmarking clients
with regard to claims history,” explained Mr
Schenk.
Leue & Nill also attempts to differentiate
itself from the crowd by offering something
special on the IT front.
“We have a department which develops
tailor-made IT systems for our clients,
especially in the liability segment and
for clients with generally high claims like
retailers, supermarkets, fast food chains. In
addition to that we offer completely paperless
communication. These systems should make
life easier for clients,” explained Mr Nill.
“Of course, these services are nothing
special, almost all brokers have similar offers
in their portfolio. We place importance
on having one’s own claims management
19

PART II — WHAT THE MARKET SAYS
department in each insurance segment. It
is essential to have appropriately qualified
personnel. That is why we train apprentices.
Many brokers face the problem of finding
young and well educated staff because they
do not train apprentices,” continued Mr Nill.
So while IT is obviously a clear basis for
the creation of competitive advantage for
corporate insurance brokers, people remain
key.
The insurance managers interviewed for
this report certainly stressed the importance
of key people with knowledge, experience
and the willingness and ability to stick with
their clients through thick and thin. Many of
the brokers claim that they recognise that this
is just as important as any fancy IT system.
Martin South, CEO of Marsh UK said that
this is one of the reasons why global brokers
are better for customers than smaller niche
operations.
“Talent management is a vital question.
If you work in a small organisation you start
in general management. But if you want
to get on you have to move into senior
management. I feel, however, that you can
do very, very well at a large organisation like
Marsh if you stay doing what you are good
at and what you feel comfortable doing. We
have plenty of people who are very good at
their specialist area and we do not want or
need too many general managers. We are
investing significantly in quality with clients.
That means a hard analysis and review of
profitability and when we do that analysis we
execute the findings. This drives growth,” he
explained.
“Certain individuals may not be cut out
to be general managers but are passionate
about what they do. The key is to ensure
that they are rewarded and valued for this.
On the talent side we opened the gates to
graduates in 2009 and in 2010 some 15 out
of 1,100 applicants made it and we have
another graduate intake this year. You need
to create the funnel so that if good people
leave you can replace them. We also decided
not to pay what we could get away with. In
comparison with the big four accountants we
are the best. But we do expect our graduates
to be ACI qualified in two years,” continued
Mr South.
Same old, same old
Aon’s Ms Soeteman-Reijnen said: “There are
lots of opportunities [with any] change but
the standard answer—to provide more of the
same old insurance capacity—is not necessarily
the right answer to such challenges. You
need to invest time, effort and considerable
intellectual capital to seek solutions and
alternative ways of looking at such problems.”
Julian James, CEO at privatelyowned
broker Lockton said that how to
differentiate oneself in the corporate risk
market is important to Lockton because its
fundamental philosophy is that its structure
should not get in the way of what the client
needs. People are the most important asset
it has, he said, and remain the key for future
strategy.
“We are organised around our clients.
This gives us the ability to think long-term
about what resources we need and how
they can best be used for the clients. Most
importantly, no one is more senior in our
organisation than the individual who looks
after the client.
“No one at Lockton can be prioritised
away from the client, and people have
to be totally focused on servicing them.
Typically we have a lot of intellectual ‘grey
hair’ working closely with the clients, and
our most experienced people remain client
facing and are taken away to do more general
management,” explained Mr James.
Dr Leberecht Funk, partner of Funk
Group based in Hamburg, Germany said that
while brokers need to think long and hard
about the types of services they offer for
customers in future, the optimal model will,
as ever, be based upon quality, and quality
people, rather than specific content.
“Generally speaking the services provided
by large brokerages are comparable and leave
hardly any leeway to differentiate. At the end
of the day it depends on the parties involved.
Things like a lack of support, the wrong
person in the wrong place at the wrong
time. All these factors can anger clients and
increase their willingness to look for a new
broker. And if this scenario occurs very often,
this could do serious damage to the broker’s
reputation,” he said.
The globalisation of business
means that an ever-growing
number of European companies
need their brokers to solve
their cross-border coverage
requirements. One of the big
questions is whether they
can rely upon networks of
‘independent’ brokers or a global
broker. Adrian Ladbury reports
NETWORKS OF INDEPENDENT
national brokers are the answer
to the growing international
insurance coverage requirements
of insurance buyers according to
Florian Karle of Südvers, the German broker.
“Our nightmare scenario is what
happened to Jauch & Hübener in 1997.
Overnight they lost their entire network to a
competitor. We don’t want this to happen to
us, so we created our own network named
WBN, which is internationally focused
with a presence in more than 70 countries.
Brokers have to decide for themselves
whether to build up their own network,
which is very costly and time-consuming,
or use the network of another company.
But being internationally active is very
important for brokers, they cannot do
> BROKERS: Global game
Best of both worlds
business without it,” he said.
Mark Drummond Brady, International
Chairman of Risk & Insurance and Executive
Director at JLT, the London-based broker, is in
charge of one of the world’s biggest brokers
but one that runs its own network rather than
following the acquisition route taken by rivals
Marsh, Aon and Willis.
Invest in interest
Flexibility is the main reason why a corporate
insurance buyer would use JLT rather than
the globals, according to Mr Drummond
Brady, and not being a majority shareholder
or owner of its partner brokers is good for
buyers, he said.
“We do have minority interests in
[French broker] S2H and GrECo and in these
cases, as with Ecclesia in which we have no
20
equity interest, we manage the partnership
effectively through an exclusive trading
agreement. This agreement encompasses
compatible branding and mutual
development of all insurance, reinsurance and
employee benefits activities, including shared
technology, for the benefit of clients across
all industry sectors. We have a European
Business Development Forum that includes
the CEOs of our key partners, which meets
three times a year, and focuses on marketing,
business development, and the continual
improvement of service to our clients, all
measured with financial targets,” said Mr
Drummond Brady.
The key benefit for the partners is
knowledge-sharing, he added. Mr Drummond
Brady said that JLT can learn a huge amount
from Ecclesia about healthcare for example.
“I would say that JLT’s approach is one
Brokers have to decide for themselves whether
to build up their own network, which is very
costly and time-consuming, or use the network
of another company. But being internationally
active is very important for brokers

PART II — WHAT THE MARKET SAYS
of partnership; we have no set mandate, nor
model. With global programmes, for example,
we can offer a great degree of flexibility from
both a marketing and service perspective.
We can provide the structuring skills and
technical understanding that is perhaps
not available purely in the local market and
from this mix you can extract real price and
coverage advantage. The real advantage from
our western European system will come from
just better collaboration between us and our
partners. Obviously anyone can say that, but
we really do not just leave it to happen ‘by
magic’. We actively manage our relationships
and don’t just wait for the business to move
from A to B,” he said.
Oliver Cullmann, Managing Partner at
Bremen-based broker Gebrüder Krose believes
that cross-border buyers can rely on smaller
independent brokers in networks to arrange
their coverage.
“We have some positive experiences in
cooperation with smaller broker companies
integrated in a network. That is why we are
part of the Unison network. You can choose
a local partner which is appropriate for the
individual case. Usually there are several local
partners, so you can make your individual
choice. These small broker companies are
highly motivated and more flexible,” he
explained.
EIB, the Polish broker, believes that
companies with cross-border exposures
must use brokers that have international
capabilities and partners, whether they be
part of a global group or within a network.
In a written response to the survey, it
pointed out that in 1990 there were about
3,000 multinational companies in the US.
Today, that number has grown to more than
65,000 and it is the same the world over as
companies seek new revenue and competitive
advantage through overseas expansion.
One stop shop
EIB reckons that multinationals want to
address their domestic and international
needs through a single resource.
This means that smaller independent
brokers need to work out solutions which
bring international capabilities and
expertise to their operations and customers.
“Otherwise they will not be able to follow the
development of their customers’ needs. In our
opinion a cross-border insurance buyer needs
to work with a broker that is able to handle
both their domestic and international needs,”
stated the broker.
But it is clear that independent networks
are better than global brokers for such
companies, according to EIB. “Independent
brokers work with each other only when
they want it. They are satisfied because the
client is satisfied not because they share the
same global logo. As a result they are better
motivated to deliver high quality work,”
stated EIB.
But national brokers can only deliver
effective global programmes if they are part of
an independent broker network, according to
EIB. “The ability to work together with these
companies allows us to structure and manage
effectively global programmes. Otherwise it is
impossible,” it stated.
Spanish broker Artai, a founding member
of Brokerslink, the international network of
brokers that boasts over 260 offices in more
than 50 countries, said that the company
supports a network model that truly works for
the benefit of clients and where members not
only share business opportunities, but also
information and training.
And it says that firms that work under
the same operational network must also have
a similar business style, culture and focus on
similar segments of clients, which in the case
of Artai is the middle-market.
It said that networks offer an efficient
tool for national-based brokers to offer global
programme solutions for clients that are
expanding their international operations.
In a country like Spain, this is
increasingly the case, as companies strive to
expand their global footprint, with emphasis
on regions such as Latin American, China,
Eastern Europe and North Africa.
As brokers try to follow their customers
Spanish broker Artai argues that networks
provide an efficient tool for national-based
brokers to offer global programme solutions
for clients that are expanding their
international operations
into new markets, the development of a
relationship with local partners can provide
an initial solution. But Artai argues that the
best solution is to enjoy the benefits of a
functional operational network of brokers.
The view of the company is that brokers
with a purely domestic presence could
provide global programme solutions if only a
few of their clients have operations abroad.
In cases where several clients are
expanding to other countries, they need to
become members of global networks in order
to take advantage of the reach provided by
such arrangements, said Artai.
Belgian broker ADD does not believe that
cross-border or international insurance is the
exclusive domain of major integrated brokers
anymore.
It said that specialised middle-market
brokers such as itself are ‘fully equipped’ to
provide a high service level to international
companies today. And this can not only be
done in the country where the company’s
headquarters are located, but also on a local
basis by servicing local subsidiaries, it said.
Thus national brokers do have
the strength to deliver effective global
programmes, according to ADD. “Companies
rely on a partner who not only speaks the
language, but knows the local rules inside out,
which is an asset that will become more and
more important,” stated the broker.
For this reason, by travelling themselves
and by using networks intelligently brokers
21
do not necessarily need to expand their
footprint across the globe, according to ADD,
not least in BRIC countries where ADD has
invested time to build its knowledge of these
important territories for its middle market
clients.
Toby Esser, Group CEO of Cooper Gay
Swett & Crawford, is one of a growing band
in the European corporate insurance market
who believes the time is ripe for so-called
independent brokers to take advantage of the
perceived desire among many risk managers
to diversify their brokers.
Alternatives rock
“The risk management community is
looking at alternatives. It is very difficult to
find a company that can really service
global accounts and specialist needs.
We give access worldwide and have great
specialist knowledge within the group.
We have a very different approach to the
global brokers,” he said.
CGSC works a lot with the in-house
brokers, in countries like Germany, to deliver
what they need. “They tend to have retail
partners and need a wholesale partner. Also
the bigger independent retail brokers in
Europe want bigger accounts and together we
can achieve that, he explained.
Mr Esser said that the consolidation
carried out by the big brokers certainly does
not appeal to everyone but a lot of risk
managers and retail brokers do not know how
to access the global markets without the big
brokers.
“We know that the majority of the
retailers feel they have to go to the big four
brokers. But why do business with Marsh if
you can do business with us” he asked.
Growth is possible in the currently
stubbornly competitive market if brokers can
tap into the demand for wider international
coverage and service and customers appreciate
the true value that a professional wholesaler
can bring to the mix, said Mr Esser.
“From a service perspective we are not in
this to feed income to our own businesses.
We have put together a network with people
who we have done business with and will do
business with for a very long time.
“We have a very strong local presence and
then the advantage of being the wholesale
partner of a size that is able to handle
any major account now. We will carry out
strategic reviews, placement of primary
business, work out the structure of the deal,
work through local rules and organise the
local servicing which is done extremely well
on a local basis. On top of this we benefit as
CGSC,” he explained.
Part of the opportunity for brokers such
as CGSC is provided by the fact that it is a
challenge for the big brokers to persuade
entities to work together properly even
though they are in the same company and
the customer needs multiple access to make
sure it works as it should, according to Mr
Esser.
“If we have four or five offices working
together then it is absolutely the best way to
do it. Think about how you actually get the
deal done and how you split the commission.
The mega brokers have problems with
individuals dealing with one office or another
and the London brokers tend to continually
try and push the independent broker out of
the deal and it becomes a struggle,” he said.

PART II — WHAT THE MARKET SAYS
We asked the brokers whether
they thought risk and insurance
managers would be better off
sticking with one broker or
spreading their risk by using
a collection of specialists. The
response was a mixed bag
THE RESPONSE TO THIS QUESTION
did not seem to follow a fixed
theme as opinions varied and
did not seem to be necessarily
determined by the size or focus of
the broker in question.
The question was sparked by feedback
from European risk and insurance managers
over the last year or so who have said that
they would prefer to use a range of brokers
rather than stick with one global broker
for everything, but on the whole feel that
they have to stick with the big brokers for
corporate reasons.
It would be natural to assume that the
> BROKERS: Spread betting
Eggs in one basket
big brokers would say only use one and the
smaller brokers would say use as many as
possible, but this was not the case.
Belgian broker Van Dessel said for
example that it believes that it is better to
have the whole insurance portfolio handled
by one broker in order to avoid ‘double
insurance’ and gaps.
But it reckons that there is the option
to defer between insurance lines such as
employee benefits, fleet and property and
casualty. It also expects niche brokers to
continue in certain lines of business such
as employee benefits, kidnap & ransom and
directors & officers.
Mediator, the Portuguese broker, said that
insurance buyers should use more than one
broker for risk transfer but just one for risk
management advice.
Anthony Palmer of London political risk
insurance specialist BPL Global, said it was
unequivocal. “They [corporate insurance
buyers] should use whichever broker meets
their needs in each line of business,” he said.
Belgian brokerage ADD said that it
believes that insurance buyers should, on
the whole, only use one broker for their risk
transfer needs and risk management advice.
“Some risk managers rely on several
brokers for product knowledge, but the bulk
of ADD’s client portfolio consists of insurance
dossiers that are centralised with one broker.
Risk managers get the full picture of all their
risk needs via a similar centralised approach,
which has several advantages,” according to
ADD.
It listed these advantages as:
■ ‘Heliview’ of all policies
■ Standardised reporting tool
■ Balanced insurance package (mandatory,
recommended, nice to have), and
■ Instructions from headquarters are aligned
and fine-tuned throughout the entire
group (and in the countries in question).
Ideally brokers would only be
paid fees by insurance managers
and would not take any
payment from insurers. But a
shift to that system would be
very difficult for brokers as they
do carry out services for the
insurers and now of course rely
upon the income that keeps the
charges for the customers down.
Breaking out of this circle is
going to prove very tricky and
for many of Europe’s corporate
brokers not necessary anyway
IT IS FINE FOR BROKERS TO TAKE
payment from insurance managers and
the insurers with which they place the
business so long as the reasons for the
payments are clear to all and linked to
properly agreed services provided, according
to most of the brokers surveyed for this
report.
But, the fact that brokers are paid by both
customers and insurers presents an inherent
conflict of interest, particularly if they are
paid commissions by insurers that are based
upon the volume of premiums and profit of
the account that they place with them—socalled
contingent commissions.
Brokers are supposed to carry out an
> BROKERS: Feedback
Catch 22
independent assessment of the market for
their customers and place the business with
those insurers that offer the widest possible
coverage that best suits the customer’s needs
at the cheapest price possible.
If, however, brokers are also paid by the
insurers then who is to say that the broker did
not simply choose the insurer that offered it
the highest commission based on volume of
premiums and performance of the business,
and not necessarily the best terms and
conditions for the customer
Thus in an ideal world the brokers would
only take payment from their customers on
a fee basis and there would be no questions
asked about conflicts of interest.
Cost-effective marketing
But, as the brokers surveyed for this report
pointed out, they do carry out a number
of services for the insurers that range from
specific duties such as loss engineering, claims
handling and premium distribution and, of
course, particularly in the large corporate
market the brokers are the insurers’ most costeffective
form of marketing.
So the brokers justifiably deserve payment
for carrying out tasks on behalf of the insurers
that if they did not would cost the insurers a
lot of money.
As this survey of Europe’s leading brokers
has clearly confirmed, from their perspective,
the problem is not really that the brokers
take any form of payment from the insurer
but rather that too often these payments
come in the form of ill-defined ‘service
22
fees’ that are not very transparent.
According to most of the brokers
interviewed for this survey this lack of
transparency is more of a problem than
contingent commissions or other forms of
payment from the insurers. And, as noted
in the following chapters that present the
opinions of the insurers and brokers on
broker pay, the insurance managers and
insurers seem to agree.
A number of the brokers surveyed in
this report believe that net pricing is the way
ahead and would like to see it happen sooner
rather than later.
Ken MacDonald of London-based Miller
said it had ceased taking payments from
insurers on any contingent basis. Willis
has also taken a similar stance for its retail
book business but does still accept a small
amount for other lines. Mr MacDonald said
he recognised that the company has taken a
brave stance but said Miller believes it is one
that should reap dividends in the longer term.
“The experience of the last 12 months
has demonstrated that it is a transparent
approach that most major buyers really
want,” he said.
Adam Garrard, Chief Executive Officer
of Willis Continental Europe, said that the
key consideration is transparency. “This is
a confused issue. It is not about how we get
paid. It is about whether we are transparent
about how we are paid and what we are
paid,” he said.
“We are very disappointed about the lack
of transparency in the market and would like
to see more of it. Every client of Willis knows

PART II — WHAT THE MARKET SAYS
exactly what we earn and how. It is not about
where we get it from because if the client
knows how we are paid and what we are paid
it does not matter whether it’s commission,
fees or anything else,” said Mr Garrard.
He did stress, however, that the broker
payment method should not conflict with
their desire to put the client first. He said
that Willis is the only global broker that
does not take contingent commissions in
retail business because it believes there is an
inherent conflict of interest.
“Taking commission based upon the
results of insurance companies is a complete
and utter conflict. I am frustrated that some
brokers take them, because it may lead to
a broker consciously or subconsciously
providing advice that may not be wholly in
the best interest of the client. The threat to
the broking industry is that we forget who
we are there to serve. Any conflict of interest,
such as contingent commissions, has the
potential to lead to flawed business models,”
said Mr Garrard.
Stefan Nill, member of the executive
board of Dortmund-based broker Leue & Nill,
is not happy with the level of transparency
involved with insurer payments to brokers.
Asked if he is happy with the current
situation, he said: “Absolutely not. We already
had this scenario a few years ago. There
definitely would be a conflict of interest. This
is not in the interest of the client who suffers
as a result. Brokers represent the clients’
interests, not the insurers’ interests.”
But are the customers prepared to pay
enough for the exclusive attention of their
brokers
Florian Karle, Managing Director of
German broker Südvers, said that the
payment from medium-sized companies in
particular will have to be tackled if there is a
trend away from insurer payments.
“Clients cannot expect to pay next to
nothing for services. A change of mindset
has to take place. Brokers have learned not
to sell additional services because they were
included in the big companies’ premiums
in the past. Brokers now have to make their
services transparent and find ways to sell the
benefits to the client. And customers have to
understand that additional services have to be
paid for,” continued Mr Karle.
Price comparison
“When operating on a fee basis, we will
lose money with private and small-scale
commercial business and will thus not be able
to afford this business any more. It will revert
to the insurance agencies. The result will be
a rise in premiums and a lack of independent
advice,” he added.
Norbert Noehrbass, Managing Director
of Detmold-based broker Ecclesia, believes
too much attention is paid to the theoretical
question of remuneration.
“The answer is that brokers should be
paid in such a way that pleases both parties.
I prefer the fee model where clients pay
for products sold or for a specially created
product. But some clients prefer to pay a
set charge rather than hourly fees. Some
clients want to decide what happens to the
commission and how it is invested in services.
Others may want to see us working on a fixed
or structured budget. Life is colourful, so why
narrow down one’s choices!” he asked.
But he said he is ‘totally against’
commissions that are not performance-related
such as general service charges. “We must
assume that they are just being used as a kind
of cover-up to conceal large commissions
which only benefit large brokers. The latter
should not be paid in a different manner
to smaller brokers unless they generate
additional benefits for the insurer,” he argued.
“It might be reasonable or adequate to
ask for such fees and even if we do not have
the intention to change our paying model
yet, we might change our mind one day.
The most important issue is transparency.
If you charge the insurer not only for the
services you provide, but claim an additional
commission, that would be disgraceful,” said
Mr Noehrbass.
Brokers should be paid commissions or
fees, exactly as now, stated Polish brokerage
EIB. And there is no question that insurers
should pay brokers for valid services
delivered, it added.
“The broker acts as an intermediary
between insurers and corporations. Despite
the fact that they represent the insurance
buyer they also indirectly work for the
interest of the insurance company. The broker
identifies and addresses potential product
buyers, makes clients aware of the (new)
risks and gaps in coverage, informs about
insurer products and explains how they work,
provides objective information to the client
about the reasons for choosing an insurer’s
offer, collects all information for underwriting
and bears some liability towards the insurer,”
stated EIB.
“Brokers give very important feedback
to insurers about the competitiveness
of their products and areas that require
improvements. Brokers also facilitate loss
handling processes as well as improve
insurance and risk management awareness of
clients. All the above mentioned actions lead
to savings for insurers or the development
of its business. The broker is perceived as a
distribution channel by the insurer. It is much
cheaper and more effective to pay a broker
that has well-qualified resources rather than
employ and train their own staff to perform
all of this work,” the broker argued.
If insurers did not pay brokers then
they would have to bear higher operational
costs and this would inevitably lead to rate
increases, added the broker.
Moreover, according to EIB, net pricing
favours global brokers. This is because
a mandatory net pricing system would
eliminate from the market many local
intermediaries that would switch from
brokerage to (multi)agent activity and hamper
the development of emerging markets in
particular.
Dr Leberecht Funk, partner of Funk
Group, said that the bottom line is that
brokers should receive adequate payment.
The actual form of remuneration, whether a
commission or a fee, is not so important to
him. “One of the main points is to interact in
a transparent and trustworthy way. No more
hidden remuneration should be paid,” said
Dr Funk.
If measured by traditional services the
current commission level is ‘completely
adequate’ said Dr Funk. He said that the
system has become ‘unbalanced’ because
clients tend to ask for more and more nontraditional
services but expect them to be
included within the existing commission
paid. Insurance companies also neglect
their sales-related core services and this has
negative consequences for the brokerages
which have to fill the gap, he added.
Dr Funk is also not happy with general
service payments in principle. “We consider
this remuneration as a counterproductive and
undesirable development. There is a serious
danger of collusion by mixing the service
components. That is why I say an explicit ‘no’
to this kind of commission,” said Dr Funk.
Belgian broker ADD believes the
traditional billing system will change in the
near future and become more transparent for
all. “Ideally, brokers should adopt a system
which allows them to bill clients for each
task performed. In this way, clients pay a fee
to brokers for the specialised services and
knowledge brokers have developed through
the years. Fees should be relative to the
broker’s workload and discussed beforehand
with companies’ risk managers,” stated the
group.
Total transparency
On this basis the current commission system
only works if it is sufficiently transparent and
efficient. “If brokers communicate the level
of commission they receive from insurance
carriers, the billing system is transparent
to customers. In some cases this system is
profitable for customers,” it said.
Toby Esser, CEO of Cooper Gaye Swett
& Crawford, the London-based wholesale
broker, agreed that it is not the form of
payment that should be questioned but the
level of transparency.
“If I were an insurance buyer I would be
interested to know what the broker is making
and would justifiably ask. If the broker is not
willing to say then I would sack him. So it
is not a question of fees or commissions but
just a question of knowing how the broker is
rewarded and for what,” he said.
“There is nothing wrong with trying to
maximise commissions and say to insurers
I give you significant premiums and want
more. They are wielding the big stick. It is
up to the customer really and they do have
the choice to move the business if they do
not like it. It is supply and demand,” he
continued.
“If I was the customer I would move the
business if I did not like the commission level
being demanded and demand that they try
to make their margin by selling more. We
are not pushing for extra commissions from
insurers as has happened in the London
market recently among some of the big
brokers. Standard commission is fine for us,”
he concluded.
Thus for Mr Esser, Dr Funk and most of
the brokers interviewed for this report brokers
could and should be happy to take payments
from both insurance managers and insurers
so long as they deserve them and make it
clear to all what they are being paid for.
If they don’t really deserve the payments
and fail to clearly state what they are charging
for then market forces should dictate that the
customers will move elsewhere. What annoys
most of the brokers is the presumption that
the very big brokers have been able to charge
extra ‘service’ fees to insurers of late because
they have the purchasing power to be able to
do so.
23

PART III — BROKER PROFILES
ADD is one of the top five
insurance brokers in Belgium
with more than 60 years of
experience in the market.
The group states that its primary
aim is to work closely with
national and international
insurance companies to develop
general and specialist insurance
solutions that are tailored to
each of its customer’s needs
ADD HAS 110 STAFF BASED
in a number of offices across
Belgium and in 2010 handled
total revenue of €14.5m.
It is a member of BVMM, the
Belgian Federation of Insurance Brokers for
commercial lines, and the Worldwide Broker
Network (WBN) which it uses to help manage
its international business.
The brokerage offers a full range of nonlife,
employee benefits, financial lines and
specialty coverages.
The group describes itself as a ‘specialised
middle-market’ broker and currently supports
more than 140 international clients. The
international activity has been ADD’s fastest
growing area of activity in the last 10 years.
The most important regions of its
international business are central and eastern
Europe, which accounts for 67.6% of the
business by policy number and 49.5% by
premium. This is closely followed by Asia
(20.3% of policies and 25% of premium) and
North America (10.1% of policies and 25% of
premium share). WBN is the main way that it
handles cross-border risks.
The network is the world’s largest
organisation of independent insurance
brokers, risk management and employee
benefits consultants that work together on
the sales and service of international business.
Partner network
The network is represented in more than 79
countries, by more than 15,000 professionals
and handles $28bn worth of premiums.
Partner firms are represented in North
America (17 firms), South and Central
America (10 firms), Africa/Middle East (6
firms), western Europe (17 firms), eastern
Europe/Scandinavia (18 firms) and Asia/
Pacific (14 firms).
Brokers are critical to corporations in
Belgium because the function of risk manager
is rather uncommon and limited to the larger
enterprises, said ADD.
Most mid-cap companies do not employ
risk managers and when a company does
hire a risk manager their responsibilities are
not always limited to insurance. Thus even
if a company has a risk manager in-house,
companies still collaborate with brokers
based on fixed agreements for several reasons.
According to ADD the main reasons are:
■ Brokers’ knowledge of the market
> ADD
Room for the middle man
■ Interaction with carriers
■ Branch and product expertise
■ Market approach
■ Claims handling (in-house lawyers).
For ADD the core benefit of using
a broker is its ability to provide a ‘clear
overview’ of which insurances are legally
required, recommended or simply ‘nice’ to
have. Also, the proactive support provided
during the whole insurance process including
the selection of the best coverage on the
market, the negotiation of best prices with
insurance companies and the support
provided to quickly receive claims payments
are critical.
ADD has a clear idea of the optimum
model for brokers in 10 years’ time.
It believes that brokers will evolve
towards real ‘knowledge centres’ for risk
analysis, specialist insurance topics and
specialist consultants in claims and policy
handling.
Bright future
The broker believes that the future is bright
for middle market and niche specialists as
they compete with the global brokers.
“Since middle-market companies do
not have dedicated risk managers, these
companies will outsource more activities to
brokers in the (near) future. The difference
with today’s practice is that mid-market
companies will no longer outsource their
insurance activities exclusively to the
internationally-based brokers. Middlemarket
brokers such as ADD nowadays are
fully equipped for servicing enterprises with
(international) risk management analyses,
and this is tailor-made and at a high level of
service,” it stated.
One of the core services that a broker
should offer in the modern economy
and which differentiates them from the
competition, according to ADD, is powerful
(international) reporting tools and the
company has invested considerable time and
effort into this area.
Apart from this, the broker identifies five
other core services a broker should offer in
the modern economy. These are:
■ Specialised product and market knowledge
WHAT ARE THE KEY
EMERGING RISKS
Which are the black swans that you
will focus upon for your customers
over the next 10 years
According to ADD brokers should focus
over the next three or four years on the
following risks:
■ Compliance of international programmes
■ CatNat exposures (CATastrophes
NATurelles: Climate Change)
■ Cyber risks
■ Environmental risks and biodiversity
24
(eg. specific branches such as
environment and credit management)
■ Risk management tools
■ Specialised claims handling services
■ International skills, and
■ Compliance.
ADD believes that insurance buyers
should, on the whole, only use one broker for
their risk transfer needs and risk management
advice.
“Some risk managers rely on several
brokers for product knowledge, but the bulk
of ADD’s client portfolio consists of insurance
dossiers that are centralised with one broker.
Risk managers get the full picture of all their
risk needs via a similar centralised approach,
which has several advantages.”
It listed these advantages as:
■ ‘Heliview’ of all policies
■ Standardised reporting tool
■ Balanced insurance package (mandatory,
recommended, nice to have), and
■ Instructions from headquarters aligned
and fine-tuned throughout the entire
group (and in the countries in question).
ADD does not believe that cross-border
or international insurances are the exclusive
domain of major integrated brokers any
more. It said that specialised middle-market
brokers such as itself are ‘fully equipped’ to
provide a high service level to international
companies today. And this can not only be
done in the country where the company’s
headquarters are located, but also on a local
basis by servicing local subsidiaries, it said.
Local hero
Thus national brokers do have the strength
to deliver effective global programmes.
“Companies rely on a partner who not only
speaks the language, but knows the local rules
inside out, which is an asset that will become
more and more important,” stated the broker.
For this reason, by travelling themselves
and by using networks intelligently brokers
do not necessarily need to expand their
footprint across the globe, according to ADD,
not least in BRIC countries where ADD has
invested time to build its knowledge of these
important territories for its middle-market
clients.
As with most professional and ambitious
brokers ADD believes the traditional billing
system will change in the near future and
become more transparent for all. “Ideally,
brokers should adopt a system which allows
them to bill clients for each task performed.
In this way, clients pay a fee to brokers for the
specialised services and knowledge brokers
have developed through the years. Fees
should be relative to the broker’s workload
and discussed beforehand with companies’
risk managers,” stated the group.
On this basis the current commission
system only works if it is sufficiently
transparent and efficient. “If brokers
communicate the level of commission they
receive from insurance carriers, the billing
system is transparent to customers. In some
cases this system is profitable for customers,”

PART III — BROKER PROFILES
it said.
But ADD said that it would have no
problem if the system evolved towards a
system based on fees if that system was based
on clear agreements and well determined
services.
ADD said that the question of why an
insurer should pay a broker at all is irrelevant
because, in reality, it is the client who pays
the broker. “They should pay brokers in a
fully transparent way and according to the
services and expertise they receive from brokers.
This means insured companies will pay
variable amounts each year. Some clients will
pay more, others will pay less (for example if
it involves claims handling after a big fire that
implies a huge workload),” stated the broker.
To help customers cope with emerging
risks, new exposures and the fast changing
structure of the global economy, brokers
should inform their customers in a ‘proactive
way’ about emerging risks in such a way
customers are able to take action, argues ADD.
Primarily this means that brokers need
to closely follow the evolution in legislation
and compliance on a local, regional and
international level.
Aon is fully aware that the
broker that can deliver a
structure that enables it to focus
on its customers rather than on
itself will retain and win more
business than the competition.
The prime focus for Marguerite
Soeteman-Reijnen, Group
Managing Director of Aon GRIP
Solutions and former Chief
Broking Officer for Aon Risk
Solutions in Europe, Middle East
and Africa (EMEA), is to make
sure the group is sharply focused
on the needs of its customers.
She explained the strategy
AON HAS COINED THE PHRASE
‘broking excellence’ as a key
part of its ongoing strategy
for growth. For Marguerite
Soeteman-Reijnen this means
that the broker optimises the point of entry
into the global re/insurance marketplace
in the most strategic way possible for every
client wherever they are located. This in turn
ensures that the best possible solutions are
offered from the global marketplace.
This sounds simple on paper but for
a company with offices all over the world
that has been built through a huge number
of acquisitions in a relatively short space of
time, it requires a lot of hard work and focus
to deliver this on a daily basis to ever more
demanding customers.
First class
The end result, as explained by Ms Soeteman-
Reijnen, actually reveals the scale of the task.
“All our broking capabilities, not only in our
Broking Centres in London, Singapore and
Bermuda but also our global retail network
and specialty units have been set up to ensure
a seamless coordination and alignment to
offer our clients the best possible results,
providing realtime access to state-of-the-art
risk advice, innovative programme designs,
and a gateway to global re/insurance capital,”
she said.
> AON
In search of excellence
Ms Soeteman-Reijnen said that the
key aim that lies behind any structural
arrangements is to deliver ‘first class’ service,
advice and consultancy, and rated the two
most important factors that face companies
today: risk and people. The key here is to add
value for clients by using Aon’s knowledge
of risk. “We are moving away from the oldfashioned
transactional model whereby the
broker provides just capacity on a wholesale
basis. As a broker we are aiming to enable our
clients to be more competitive and grow their
business,” she explained.
Ms Soeteman-Reijnen said that this
provides the most interesting part of the
job. To innovatively look for, advise on and
apply solutions whether it be a product or
cross-border problem that may involve legal
risk management, financial risk and even
Solvency II, or whether expanding into
China or India or elsewhere. “This
is critical nowadays. For clients
expanding to China, we use our
international network and our
specialised knowledge of risk
management in China, learning
from the information we have
gathered in previous cases,” she
said.
The delivery of solutions to
varying risk challenges and across
borders is clearly not simple to
organise and implement and,
as risk managers increasingly
attest, is perhaps the biggest
challenge that faces all in the risk transfer
chain. The findings of Aon’s 2011 Global Risk
Management Survey support this position as
responses from nearly 1,000 organisations
placed regulatory/legislative changes as
number two on the list of the top 10 risks
they face, following the economic slowdown’s
number one slot.
Ms Soeteman-Reijnen described this as
a challenge and opportunity as a ‘work in
progress’ on a daily basis and it is tackled
on a matrix basis. “We are mastering the
matrix every day as people work in teams
and continuously connect colleagues with
the right skills for customers. My job is to
enable and facilitate my colleagues to ensure
their advice can be delivered locally for the
customers and to intellectually challenge
them,” she said.
“In Europe, Middle East and Africa
there are different languages and cultures
and corporate behaviours but there also are
common denominators particularly across
25
Marguerite
Soeteman-Reijnen
industries such as telecommunications
and we can draw on our experience and
knowledge and apply global knowledge
and specialty products. Solving a Rubik’s
Cube is difficult but possible. We can take
these complex common denominators and
create innovative solutions for our clients,”
continued the Dutchwoman.
Innovation and the provision of coverage
for so-called emerging risks is a key topic for
risk managers currently and they all want to
know what the brokers and insurers are doing
to help them tackle such risks. Indeed, Aon’s
2011 Global Risk Management Survey places
the failure to innovate/meet customer needs
at number six on its list of top 10 risks.
Ms Soeteman-Reijnen said that
innovation in key areas like wordings needs
to be a constant activity and not only take
place after a loss has occurred. She said that
brokers need to carry out contract
accuracy assessments, constant
scenario analysis, stress-testing
and planning and work out how
they and the customers would
react to situations.
Unknown unknowns
“It is key for customers nowadays
to manage and expect the
unexpected. Management teams
are currently, for example,
particularly interested in the
extent to how high the limits of
their liability covers should be and, as such,
how much should they buy. CFOs and CROs
want to see quantification and a real picture
of what is going on currently and what could
happen. We have developed such tools with
clients and are rolling them out. For example,
Aon Global Risk Consulting has developed
a Liability Limit Quantification study and
the Aon Global Risk Insight Platform (Aon
GRIP) is enabling benchmarking,” she said.
Aon GRIP is an award-winning electronic
platform that drives collaboration among
thousands of Aon users in 20 countries to
deliver unparalleled intelligence about what is
happening in the insurance market.
Additional key risks faced by Aon’s
customers according to Ms Soeteman-Reijnen
are supply chain (and, ultimately, business
interruption) and damage to reputation/
brand. She said that reputation has now
become a combination of IT, the influence of
social media and brand reputation and so is
not simple.

PART III — BROKER PROFILES
“The next generation is buying products
and services and looking at brands in a
different way than in the past which was
more based on the way people were brought
up and educated in school, church and so
on. Consumption is now very brand-based
and driven by digitalisation. We are destined
to work in that environment which brings
huge opportunities and threats. You have
to ask yourself how do you manage social
media, how do you grow and manage your
brand,” she said. In response, Aon is working
with WPP, the world leader in marketing
communications services, and Zurich to offer
organisations brand restoration through
a combination of insurance placement
and crisis communications consulting and
preparation.
Ms Soeteman-Reijnen said that clearly
everyone can see what companies choose
to report in their annual reports about risk
management and not just insurance risk but
also enterprise-wide risk management. But
one has to ask whether this matches what the
company does in real life
“Companies may appear to be risk averse
in such reports but you have to look carefully
at the real risk appetite. You have to look at
the balance sheet of a client and ask what is
going to affect the left and the right hand
side and how risk can be identified. As a
broker you have to ask questions about socalled
black swan events. What do we know,
not know and what do we think we don’t
know, particularly with innovation in mind.
As a broker, you have to continuously try
to identify these potential risks and discuss
how they can be covered with the insurance
companies or whether additional mitigation
tactics are in order from a consultative
perspective,” she explained.
Pace of change
Given the rapidly changing risk landscape
and the scale of the risks faced, brokers
obviously have to focus their resources
to where they are most needed and help
customers feel that they are adequately
covered. The key question for an organisation
such as Aon is where and on what.
This is a challenge because all companies
naturally seek costs savings to enhance
or protect profitability. This is made more
taxing because of lower GDP growth and
consolidation in many markets and further
compounded by rising regulation across
many sectors, changing customer behaviour
and social change and of course low interest
rates.
“There are lots of opportunities in all
of this change but the standard answer of
more of the same old insurance capacity
is not necessarily the right answer to such
challenges. You need to invest time, effort
and considerable intellectual capital to seek
solutions and alternative ways of looking at
such problems,” she explained.
A longer-term challenge that Aon
perceives is the ageing population which
creates huge questions for pensions. For
a broker this creates opportunities. Aon
Hewitt, the human resource consulting and
outsourcing solutions business that was
formed after the acquisition of US-based
Hewitt Associates last summer, enables the
group to help address such questions for
customers.
“Another example is the risk brought
GLORY, GLORY GLOBAL BROKER
Greg Case, President and CEO of Aon Corp, recently told delegates at the annual conference
of the British Insurance Brokers Association (BIBA) in Manchester, England why he thinks that
the future of the broker is bright and what brokers need to focus upon to make sure they are
around to enjoy it and deliver the kind of excellence that the football team it sponsors does
on the pitch year after year
Greg Case, Aon CEO, told delegates at the recent BIBA conference in Manchester that it is clear that in an
increasingly risky world business cannot function without a mechanism to transfer that risk and that equally
business cannot function without risk management, not least because not all risk can be transferred.
He noted that it was not long ago, however, that many in the industry and wider business circles
questioned whether the rise of technological innovations would mean that intermediaries would become
obsolete.
The idea of disintermediation was a hot topic in the 1990s. The basic idea was that insurance carriers
would work out how to bind risks electronically with information supplied directly by the policyholders and
thus remove the need for an intermediary. The broker simply added increasingly unnecessary cost to the
chain and so its inevitable demise was forecast.
Mr Case told the massed ranks of UK brokers that, in his ‘humble belief’, fortunately the demise of the
broker was greatly exaggerated and that the theory of disintermediation was disproved. “Fast-forward to
today and we see that good intermediaries are flourishing. Brokers with specialised expertise are providing
valuable services to clients, especially in commercial lines, as well as to carriers,” he said.
It is a simple fact that some insurance companies have underwritten certain personal lines directly,
without agents or brokers, with great success. The obvious example oft cited in the UK is of course Direct
Line.
But, Mr Case pointed out that most insurance companies have ‘strongly affirmed’ the value that brokers
bring to the industry as a distribution channel as ‘thought partners’ that can serve policyholders and as
‘advisers’ that can help their clients improve their risk profiles. Moreover flexible and forward-looking brokers
have also ensured that they remain as important as ever to the insurers as well as the insured, he said.
“It is my strong belief that the future of insurance brokers is bright. Our services and expertise are
needed more than ever,” predicted Mr Case.
But the Aon CEO recognises that it is not and will not be a walk in the park for the brokers to retain their
value at the heart of the risk transfer chain. He warned against complacency and identified a number of key
steps that brokers must take to retain their significance to insurance buyers and carriers, interestingly three of
the key areas that risk managers interviewed for this report said that they would like brokers to focus upon.
The first big step is to remain client-focused. As anyone who has worked for a large organisation
will confirm this is all too often easier said that done as individuals who have built careers by reacting
to customers’ demands with innovative new ideas and products disappear under a mound of corporate
bureaucracy.
Mr Case said that client focus must remain paramount to what the people at Aon do every day, no
matter the pressures. “If we are not taking the time to listen to and understand our clients’ needs, we can’t
provide the best advice and truly serve those needs,” he said.
Another big goal has to be to provide a long-term perspective, he continued. “The most valuable advice
improves the client’s position for the long term. As advisers, we have insights from interactions with clients
across industries. That broadens our scope and gives us depth of experience that can help clients to make
informed decisions and achieve a better outcome,” explained Mr Case.
And third, brokers have to invest in innovation. Mr Case pointed out that brokers have existed for
centuries because they have continued to deliver value to clients and carriers. “Therefore, another key to
our future success is to keep innovating. Doing so will benefit clients as well as carriers, but let’s be clear: it
requires continuous investment. That is not easy, but it’s an important commitment to enhancing our value
to clients,” he said.
Mr Case said that the magnitude, complexity and scrutiny of risk is clearly rising and that more complex
challenges inevitably demand innovative solutions. Brokers have a central role to play in the development of
such solutions, he said.
“It’s quite simple. If we do not provide value to clients, we can’t succeed. If clients do not find value
in our advice and our services, we will cease to exist. So our opportunity is to become even more valuable
advisers, because the world needs our expertise to manage difficult challenges,” said Mr Case.
“Let’s stay focused on clients, offer informed perspectives and keep innovating to benefit our clients. If
we do our very best, brokers will be even more trusted and even more valued,” he continued.
Given that the BIBA conference was held in Manchester and Aon has taken over the sponsorship of that
city’s football team that plays in red he thought it apt to quote, I think, the following words of legendary
Manchester United manager Sir Matt Busby who once said: “At United, we strive for perfection. And if we
fail, then we might just have to settle for excellence.”
Mr Case concluded: “If we heed these famous words in our business dealings every day, then I truly
believe that our clients and colleagues will be very well served. We are in a centuries’-old profession, whose
brightest days are ahead of us.”
about in emerging markets, risks related to
the carbon trading market, limits placed upon
emissions by governments and the need
for companies to take a more sustainable
approach to doing business. This and scarcity
of natural resources and often rising prices
means that companies need to look for
new ways of producing things with new
processes. All of this creates new risk. So we
look at changing behaviours and strategic
objectives,” added Ms Soeteman-Reijnen.
26
One specific example of how Aon is rising
to the challenges created by the change in the
way companies do business is with business
travel, she said. The former head of the Dutch
Reinsurance Association pointed out that
emerging markets present unprecedented
medical and safety challenges while increased
social and economic division feeds violent
crime. Kidnap for ransom is more common
and terrorism poses a growing threat.
“Our customers have a duty of care

PART III — BROKER PROFILES
to safeguard their travelling employees
which includes monitoring threat levels in
countries, preparing staff before they travel
and installing procedures to react to incidents
of all kinds.
“To help clients cope with this, we
have developed Aon WorldAware Solutions,
a comprehensive safe travel programme
that uses the latest innovative technology
to provide customers with risk analysis,
awareness, risk-managed travel and incident
management wrapped around existing
policies and relationships,” she explained.
Ms Soeteman-Reijnen said that the group
has also developed a mobile application and
programme within WorldAware which serves
as a single source of information for business
travellers to provide in-depth advice about
travel risks worldwide such as street crime,
serious crime, terrorism, kidnapping, civil
unrest, state corruptibility and armed conflict.
The investment in such technology is
controlled through ‘operational excellence’
at all ends of the business and managing the
business ‘very, very tightly’, said the broker.
Ms Soeteman-Reijnen said that she feels
the insurers are generally doing a good job
on innovation. But she pointed out that the
underwriting world is based on models and
when new risks arise such as nanotechnology
it is a challenge to classify it and therefore
underwrite. The insurance companies are
also of course driven by shareholder demands
for margins and these demands are rising
therefore the need to accurately model the
risks is more important than ever.
“Companies need to take on new risks
and be entrepreneurial but also need to bear
in mind the potential impact of different
activity on the profit and loss and balance
sheet. Checks and balances are needed. Tax
and licensing requirements for international
programmes are important services insurers
can give their client base, for example,” she
said.
Spanish broker Artai says that
brokers need to work together
to help customers cope with
new risks in new markets
> ARTAI
Sailing into uncharted waters
ARTAI IS A MIDDLE-MARKET
broker created in 1995 that
claims to be the leading broker of
the maritime insurance market
in Spain. Revenues collected by
the company in 2010 reached €9m in the
domestic market and €1.5m in the company’s
Argentine subsidiary.
Artai is based in the town of Vigo, in the
Galician province of Spain, and has one of
the busiest seaside ports in Europe. Vigo is
also considered the biggest fishing port in the
world.
The town hosts a large number of
fishing companies, a number of which have
international operations, with their vessels
travelling as far as Africa, Australia and South
America. Vigo’s close relationship with the
sea-based economy is an important factor for
Artai’s activities, as marine insurance accounts
for 30% of its business.
Lines variety
But the company also offers a range of other
lines. Motor insurance for bus fleets brings a
further 20% of revenues, while contracts with
the public sector answer for 10% of the total.
Artai takes a 5% share of its revenues
from personal lines and the remainder
comes from other business sectors, including
manufacturing, textiles and others. Three out
of every four of the firm’s clients are small
and medium firms, and one quarter is large
companies.
In addition to Vigo, Artai maintains
offices in other ports in Galicia and elsewhere
in Spain, including Barcelona, Valencia and
the Balearic Islands, as well as in the capital,
Madrid. In total, the company has 11 offices
in Spain and one in Buenos Aires, Argentina.
Artai is a founding member of
Brokerslink, the international network of
brokers that boasts over 260 offices in more
than 50 countries. The company supports
a network model that truly works for the
benefit of clients and where members not
only share business opportunities, but also
information and training.
Model player
And Brokerslink says that firms that work
under the same operational network must
also have a similar business style, culture and
focus on similar segments of clients, which in
the case of Artai is the middle-market.
Artai believes that networks offer an
efficient tool for national-based brokers to
offer global programme solutions for clients
that are expanding their international
operations.
In a country like Spain, this is
increasingly the case, as companies strive to
expand their global footprint, with emphasis
on regions such as Latin American, China,
Eastern Europe and North Africa.
As brokers try to follow them into new
markets, the development of a relationship
with local partners can provide an initial
solution. But Artai argues that the best
solution is to enjoy the benefits of a
functional operational network of brokers.
The view of the company is that brokers
with a purely domestic presence could
provide global programme solutions if only a
Artai is a founding member of Brokerslink,
the international network of brokers that
boasts over 260 offices in more than 50
countries. The company supports a network
model that truly works for the benefit of clients
few of their clients have operations abroad.
In cases where several clients are
expanding to other countries, they need to
become members of global networks in order
to take advantage of the reach provided by
such arrangements.
In order to retain their customers, Artai
also maintains that brokers need to focus
on the provision of risk consulting services,
helping clients to define the characteristics of
their insurance programmes and the best way
to place their risks with the insurance market.
The company argues that the high
complexity of risks faced by companies
constitutes an important reason why
corporations need the services of brokers to
advise them on risk management and the
purchase of insurance. By employing the
services of brokers, companies are also able to
outsource risk management activities, Artai
says.
Another argument made by the firm
is that brokers have always been the actors
responsible for finding solutions for emerging
risks, enabling clients to transfer such risks to
the insurance market.
Pay preference
In the future, Artai remarks, companies will
continue to demand solutions for emerging
risks. Environmental risks are among the
most likely to concern buyers in the next 10
years, along with political and economic risks
related to investments in foreign markets.
The company also argues that each
client has particular needs and requirements,
according to which they may find it more
convenient to work with a single broker, or to
employ different providers for specialty lines
like maritime or credit insurance.
In either case, however, it is important
that clients be in complete agreement with
the way broker services will be remunerated.
Artai supports the idea that clients
should be able to choose between fees and
commissions, as long as the chosen model is
clearly defined and accepted by all parties. In
the view of the company, a fee-based system
is not necessarily more efficient than one
based on commissions.
27

PART III — BROKER PROFILES
Toby Esser, Group CEO of Cooper
Gay Swett & Crawford, says that
the future is bright for wholesale
brokers because they provide
the essential glue that binds the
international market together
and can help independent
brokers and in-house brokers
cope with the global economy
AGLOBAL WHOLESALE BROKING
powerhouse was created last
summer as London-based
Cooper Gay combined with
US rival Swett & Crawford, the
oldest independent wholesale broker in the
US, to create Cooper Gay Swett & Crawford
Ltd.
The combination created the world’s
biggest independent global wholesale
insurance and reinsurance broker with about
$3.5bn in premiums.
Toby Esser, Group CEO of the new
operation, said that his focus therefore has
been to make sure the transition is successful.
He said it has been, the businesses have been
integrated ‘very quickly’ and it managed
to find the synergies to continue to drive
top line growth partly because the two
companies had very similar cultures.
Only two people were ‘lost’ in the
process and by March of this year 99% of the
transition plan was done, said Mr Esser. “We
have been able to reverse the negative trend
that was experienced at Swett & Crawford
recently in revenue terms,” he added.
In Europe the group has experienced
‘exceptional’ growth, said Mr Esser. It has
also seen ‘great’ organic growth in emerging
markets in Latin America, Brazil and Mexico
for example, and in Asia where Mr Esser
believes CGSC can double its business over
the next four years. “It is a small base but we
are seeing growth rates of 30–40% so it will
change,” he commented.
The group’s main business is wholesale
insurance and reinsurance. Retail only
accounts for about 10% and Mr Esser said
that CGSC does not want to ‘march into’
the retail space in a big way. “You do want
to be as close to the risk manager as possible
but we work with independent retail brokers
worldwide and give them the ability to
compete with the big three,” he explained.
Broker diversity
Mr Esser is one of a growing band in the
European corporate insurance market
who believes the time is ripe for so-called
independent brokers to take advantage of a
perceived desire among many risk managers
to diversify their brokers.
“The risk management community is
looking at alternatives. It is very difficult
to find a company that can really service
global accounts and specialist needs. We give
access worldwide and have great specialist
knowledge within the group. We have a very
> COOPER GAY SWETT & CRAWFORD
Wholesale changes
different approach to the global brokers,” he
said.
CGSC works a lot with the in-house
brokers, in countries like Germany, to deliver
what they need. “They tend to have retail
partners and need a wholesale partner. Also
the bigger independent retail brokers in
Europe want bigger accounts and together we
can achieve that.”
Mr Esser said that the consolidation
carried out by the big brokers certainly does
not appeal to everyone but a lot of risk
managers and retail brokers do not know
how to access the global markets without the
big brokers.
“We know that the majority of the
retailers feel they have to go to the big four
brokers. But why do business with Marsh if
you can do business with us” he asked.
Growth is possible in the currently
stubbornly competitive market if brokers can
tap into the demand for wider international
coverage and service and customers
appreciate the true value that a professional
wholesaler can bring to the mix, said Mr
Esser.
“We are building up our retail network
and are very fast growing in Brazil and
Portugal and we want to continue
to grow in such territories so that
we can offer access to markets
for global accounts. From a
service perspective we are not in
this to feed income to our own
businesses. We have put together a
network with people who we have
done business with and will do
business with for a very long time.
“We have a very strong local
presence and then the advantage
of being the wholesale partner of Toby Esser
a size that is able to handle any
major account now. We will carry
out strategic reviews, placement of primary
business, work out the structure of the deal,
work through local rules and organise the
local servicing which is done extremely well
on a local basis. On top of this we benefit as
CGSC,” he explained.
Part of the opportunity for brokers such
as CGSC is provided by the fact that it is a
challenge for the big brokers to persuade
entities to work together properly even
though they are in the same company and
the customer needs multiple access to make
sure it works as it should, according to Mr
Esser.
“If we have four or five offices working
together then it is absolutely the best way to
do it. Think about how you actually get the
deal done and how you split the commission.
The mega brokers have problems with
individuals dealing with one office or
another and the London brokers tend to
continually try and push the independent
broker out of the deal and it becomes a
struggle,” he said.
“This business should not be treated
like a commodity. In Europe we want to be
involved in the major accounts and we do
well. We are a little different and do not
look like everyone else but we are more than
capable of handling complex major accounts
for sure. We are not a retail broker but we
are happy to deal with retail brokers and inhouse
brokers or any risk manager who wants
to look at life a bit differently. We will do it
with or without the retail broker. We can also
bring the broker into BrokersLink. So we can
give alternatives,” continued Mr Esser.
Looking forwards, Mr Esser believes
that brokers need to offer more bespoke
services. He said that he does not see why
risk managers cannot specify what they want
to pay for.
Further, the number one duty of a broker
is to help deal with claims and help service
that in the right places.
Claims delivery
“If we don’t deliver on claims then we have
no role in the future. It is about constantly
challenging the broker and making sure it
has the client’s interests always at heart. It is
also about offering choice,” he said.
More broadly, Mr Esser believes that the
insurance market still needs to improve the
level of efficiency.
“We are still handling
business using paper in
London and this is the most
expensive country in which to
do business. Certain processes
are handled electronically and
then re-submitted on paper.
Unfortunately there does not
appear to be a simple answer
as there are a lot of different
platforms and a lot of brokers are
frankly holding the evolution
back and are not willing to make
the change,” he said.
A common complaint among European
risk managers is that the expert that they
agreed to work with at the broker when
signing the deal moves on and they don’t
like the discontinuity.
Mr Esser agreed that this is a valid
complaint and says that customers of CGSC
will not come across such a problem on a
regular basis.
“When you look to buy a professional
service such as legal advice you tend to go
with the individual that you like and trust,
not necessarily the law firm. If you choose a
partner then you make sure that he attends
the meeting. If the other party in the dispute
chooses an expert partner who does not
turn up to the meeting because he is too
busy then your partner tears the junior
replacements to pieces.
“It is exactly the same in our business
surely. What is the sense in choosing
to do business with a guy who is never
subsequently involved I still have client
meetings and we demand that everyone in
our group is still handling accounts. This is
the only way to carry out this business,” he
said.
28

PART III — BROKER PROFILES
Some brokers regard in-house brokers
such as those that are common in Germany
as a threat but for CGSC this is not the case,
according to Mr Esser.
“We have the capability to service them
because you can offer them placement
services that they cannot necessarily find
in their local markets. In-house brokers in
Germany for example can place some of
the programme in the German industrial
insurance market of course but if the
exposures go beyond Germany then they will
need help to access other markets and if they
buy a layered programme they will need help
for that. They also need to use international
markets to a degree to keep the German
market on its toes and honest. For this
they need a wholesale broker to help place
specialty lines too.
“If they work with a major broker then
there can be a tendency for the in-house
broker to be worried that the big broker
intends to replace them, make them
effectively redundant. A wholesaler will not
do this and so is the natural service provider
on a commission basis. So long as the
payment is transparent then that is the way
to go,” he explained.
Mr Esser said that he is not that ‘well
qualified’ to comment on whether it is fine
for brokers to take payments from insurers
as well as risk managers and base their
payments on the volume of business placed
with an insurer.
Retail questions
“This is more of a retail question and I am
not that well qualified to comment. But from
my perspective it is all about transparency to
justify what you make. If a broker is ever in a
position whereby he does not want the client
to know what he is earning then there is a
problem and he is not able to justify what he
is doing.
“If I were an insurance buyer I would be
interested to know what the broker is making
and would justifiably ask. If the broker is not
willing to say then I would sack him. So it
is not a question of fees or commissions but
just a question of knowing how the broker is
rewarded and for what,” he said.
When pushed on whether it is OK for
brokers to take payments from insurers, full
stop, Mr Esser said that it is the broker’s job
to get as much brokerage as he can.
“There is nothing wrong with trying to
maximise commissions and say to insurers
I give you significant premiums and want
more. They are wielding the big stick. It is up
to the customer really and they do have the
choice to move the business if they do not
like it. It is supply and demand.
“If I was the customer I would move the
business if I did not like the commission level
being demanded and demand that they try
to make their margin by selling more. We
are not pushing for extra commissions from
insurers as has happened in the London
market recently among some of the big
brokers. Standard commission is fine for us,”
he concluded.
Dutch broker De Keizer operates
as a national and international
broker for medium-sized and
large corporations and has
clients in the government,
the semi-public sector and
non-profit organisations as
well the as private sector
DE KEIZER SAYS THAT IT PRIDES
itself on providing innovative
solutions and finding a way to
insure anything and its services
range from non-life insurance
to group pension schemes and employee
benefits.
It stresses the importance of the bespoke
approach. “We assist our clients in assessing
potential risks and in finding solutions to
manage these risks. Since every organisation
is individual and unique, made-to-measure
solutions are essential,” said the broker.
In 2010 De Keizer generated total revenue
of €7m out of two offices and 55 brokers.
The business comprised 15% life
insurance and 85% non-life. The latter
comprised 65% non marine, 30% employee
benefits and 5% marine.
By territory an overwhelming 99% of
revenue was generated from the Netherlands
and 1% abroad.
Some 5% came from personal lines,
90% SME commercial business and 5%
large corporate. It handles cross-border
coverages through an independent broker
network. It is also a Lloyd’s Open Market
Correspondent.
De Keizer says that risk managers should
use brokers because they provide market
knowledge, buying power, in-depth product
knowledge and international access via the
networks.
Apart from market knowledge and
> DE KEIZER
A fish in water
product development other benefits offered
by brokers are claims handling, independence
of position and all round buying power.
The optimum model for brokers in
10 years’ time will be the broking and
consulting of complex risks.
For this reason brokers will increasingly
focus upon consulting services on risk
management, concentrating on medium
and large commercial risks. “There will be
no focus on simple risks,” according to the
Dutch broker.
The ability to offer true advice on
enterprise risk management, wide market
knowledge and access to the best insurance
products are the main strengths of brokers
today and what should differentiate them
from the competition, according to De Keizer.
Risk and insurance managers ought to
use more than one broker when working
out their complex insurance and risk
management needs because this approach
offers more flexibility and ‘dedicated service
in a competitive arena’, it stated.
Not surprisingly, De Keizer believes that
risk managers with cross-border coverages
could and should rely on independent
networks to help them cope with local laws
and the role of local brokers on the ground is
essential.
In territorial terms brokers should focus
29
their efforts on financial centres around
the world particularly in emerging markets,
according to De Keizer.
For large and complex emerging markets
like China the best strategy is to take the
long-term approach according to the broker
and set up an ‘excellent network with local
insurers and government’.
De Keizer believes that brokers should be
paid for their services on a fee basis and this
would improve transparency for all. The net
pricing system is ‘the future’ it believes.
Insurers should pay brokers for services
such as policy issuance, collecting of
premium, claims handling, risk reports and
visiting clients on behalf of insurers.
The key emerging risks for De Keizer are
currency risks, natural disasters and fraud.
Overall the key to success is creativity and
investment in staff and skills, claims
De Keizer.
“Our specialists are like fish in water
when it comes to insurance and this is why
we are able to instantly grasp the specifics
of your situation. It all comes down to
craftsmanship. The strength of our experts
lies in how they combine professional
knowledge, a personal touch and a creative
approach to provide you with a made-tomeasure
advice,” it concluded in its message
to customers.
De Keizer believes that brokers should be paid
for their services on a fee basis. Insurers should
pay brokers for services such as policy issuance,
collecting of premium, claims handling, risk
reports and visiting clients on behalf of insurers

Norbert Noehrbass, Managing
Director of Detmold-based
broker Ecclesia, told Anne-
Christin Groeger that brokers
are more important than ever
for corporate customers but
they need to clearly define what
service they provide
ECCLESIA’S REVENUE GREW BY 3.8%
and reached €140m in 2010, higher
than the average premium growth in
the German insurance market which
was 0.7% in non-life and a decrease
of 1.4% in life. Norbert Noehrbass, Managing
Director, said that the group’s growth was
entirely organic and was driven by large
accounts.
Ecclesia’s clients are generally found in
welfare, healthcare and the church. Clients of
Deas GmbH, an Ecclesia affiliate, are mainly
from industry, commerce and the public
sector. Its strategy for growth is to offer a
broad range of services included as add-ons
to pure broking.
Mr Noehrbass said that
this is done by first inviting its
corporate clients to participate in
the placement and purchase of
cover. Then it includes insurance
management for all lines,
claims management and risk
management. And third it involves
its clients directly in the writing
of their worldwide insurance
programmes.
In July Ecclesia signed a
Trading Partnership Agreement
with Jardine Lloyd Thompson
(JLT) to creating an exclusive
international network with JLT in the UK and
SIACI Saint Honoré in France. The trading
agreement includes compatible branding
and the mutual development of insurance,
reinsurance and employee benefits services
and products.
Mr Noehrbass said that in all structures,
procedures, services and products are
discussed annually and constantly updated
or if necessary redesigned to help improve
service for customers.
“In Germany insurance brokers have
still failed to explain what the profession
stands for, although it is more than 100
years old. We need fixed benchmarks to be
able to differentiate between excellent or
only average suppliers and services. Part of
the problem is that there are no transparent
quality benchmarks for services. Almost
every broker offers a claims handling
service. However, such services may range
from internal experts to the often executed
‘mail services’, which is nonsense and not a
service,” he said.
Mr Noehrbass said that one of the core
reasons why risk managers should use brokers
is that they can allocate their time to assess
concepts, suggestions and alternatives.
“Where no broker is involved they have to
waste time checking the possibilities offered
on the market and talk to every insurer
Norbert Noehrbass
PART III — BROKER PROFILES
> ECCLESIA
Clarity of purpose
separately about the corporate risk situation
and their history,” he explained.
Although transparency may be
fashionable, it is not the smartest approach,
according to Mr Noehrbass. Platforms like
Inex 24 are for bulk risk and standard product
marketing, not for sophisticated and tailormade
wordings and confidential data, he
argued.
To derive maximum benefit from their
brokers, insurance buyers must first make
sure that their brokers are not selling to the
insurance markets as reinsurance brokers and
at the same time to them as a retail client.
Secondly, he said, they should ask to be
part of the team, and not to be considered
only as customers.
“Risk managers want to be in control,
yet the sheer amount of knowledge and
experience larger brokers acquire on a day
to day basis on the markets is a benefit the
‘lone’ risk manager lacks. You should not only
be the paymaster, you should be involved in
team management,” said Mr Noehrbass.
Most large brokerages are split into retail,
wholesale and reinsurance, into
benefit and captive affiliates and
operate like a ‘department store’
said the broker.
“Good brokers can deliver
volume and tailor-made products,
they are organised like modern
automotive suppliers, who have
Skoda, Seat and Volkswagen as
well as Porsche, Bentley and
Bugatti as their clients. You can
find some components in all of
their products, but there are some
special ones that are only built for
20 cars a year,” he said.
On the question of whether brokers
should opt for the one stop shop or unbundle
services Mr Noehrbass said it is up to each
broker to work out how to organise their
company. “There are specialised brokerages
with limited scope as well as big brokers with
customised services. Personally, I know it is
much easier to run a small focused business
which leaves management more time to be
directly involved,“ he said.
In 10 years’ time the workforce allocation
between experts and consultants will change
significantly within the brokers. This will
be a ‘huge challenge’ since some European
countries already suffer from a deficit of
young well-educated staff. Sales and field
service is not very popular with academics
CLIMATE CHANGE
Mr Noehrbass ranks the following as
the most important risks that face his
customers in the current climate:
■ Reputational risk
■ Credit risk
■ Non-damage business interruption/
supply chain risk
■ Cyber risk
■ Political risk
30
but the demand for consultancy and more
frequent service capacities is growing, he said.
Mr Noehrbass is by no means the only
broker that believes too much attention is
paid to the question of remuneration. “The
answer is that brokers should be paid in such
a way that pleases both parties. I prefer the
fee model where clients pay for products sold
or for a specially created product. I prefer
fees for working on proposals, projects, risk
management and claims. But some clients
prefer to pay a set charge rather than hourly
fees. Some clients want to decide what
happens to the commission and how it is
invested in services. Others may want to see
us working on a fixed or structured budget.
Life is colourful, so why narrow down one’s
choices” he asked.
But he said he is ‘totally against’
commissions that are not performancerelated.
“We must assume that they are just
being used as a kind of cover-up to conceal
large commissions which only benefit large
brokers. The latter should not be paid in a
different manner to smaller brokers unless
they generate additional benefits for the
insurer,” he argued.
Commissions that Mr Noehrbass said
are ‘camouflaged’ as ‘knowledge transfer’
such as Aon’s GRIP system are ‘extremely
problematic’ in his opinion both for
competitive reasons and also because they
affect the collaboration between brokers and
insurers. “You get the impression that insurers
are trying to create more goodwill for their
companies in order to obtain more orders,”
he said.
Commissions. OK!
Generally speaking Mr Noehrbass said that
he believes that most of the time the current
commission level is sufficient to refinance
the brokers’ work. “But I must say that is not
always the case and still we continue to work
under these conditions hoping that things
will improve. Insurers spend much more
money on their tied agents than brokers do.
They often pay higher commissions and, in
addition, agents receive fringe benefits such
as a company car and a rent subsidy,” he
added.
Mr Noehrbass said that it is tricky to say
what services a broker should provide to an
insurer, as it cannot be answered in broad
terms.
“Insurance brokers are building markets;
they package volume, they mix risks, they
take on the commitment to guarantee claims
services over a rather long period and they
allow insurers to underwrite which means
they allocate capital to risk. So, the answer
to this rather sophisticated question should
be that brokers need to offer all kinds of
services to capable insurers so that they can
underwrite, service, accept risks or claims in a
more competitive way,” he explained.
As to payments from insurers, Ecclesia
Group does not charge or collect ‘licensing
fees’ or ‘production fees’. “It might be
reasonable or adequate to ask for such fees

PART III — BROKER PROFILES
and even if we do not have the intention
to change our paying model yet, we might
change our mind one day. The most
important issue is transparency. If you
charge the insurer not only for the services
you provide, but claim an additional
commission, that would be disgraceful,” said
Mr Noehrbass.
A broker’s cost is generally broken down
to 55% to 70% for client services, 15% to 30%
for marketing including sales, 5% to 20%
for insurer services and 1.5% for corporate
overheads, he estimates.
Mr Noehrbass said how brokers
make their profit, how much comes from
clients and how much from insurers is a
‘good question’. “Only brokers that have
their operations organised into several
departments, such as an agency, wholesale,
reinsurance, retail, will be able to break down
their profit from services to clients or services
to insurers. Brokers that collect payments for
claims services from insurers may have a 5%
to 10% margin after costs,” he estimated.
Mr Noehrbass said that there is
unfortunately no black or white answer about
whether risk managers should use global
brokers or networks of independent brokers
to arrange their global programmes.
“In my opinion the most important thing
is that brokers in charge of such programmes
have the workforce and in-house expertise
to control the global offices they use. The
Ecclesia Group collaborates with companies
like JLT, SIACI and GrECo via an exclusive
trading agreement,” he said.
Mr Noehrbass said that brokers have two
reasons to expand abroad. Firstly, to follow
their clients or secondly to introduce special
services and products. The Ecclesia Group
operates on both levels, he said. It expanded
its niche brokerages on a selected European
map and expanded its multinational business
via GrECo, JLT and SIACI.
Risk reversal
Many European risk managers are currently
worried about the level of total insurable risk
and that it is falling. Mr Noehrbass estimates
that the market currently insures 12% to 15%
of all occurring corporate risks. He said that
this is less than five years ago since corporate
risks grew faster than the insurance appetite.
But he believes that the percentage will
increase in the next five years if economic
growth picks up. Though it will inevitably fall
if financial problems arise, he said.
Ecclesia defines ‘emerging risks’ as
foreseeable or measurable loss trends or causes
which will have an impact on the balance
sheet of more than 5%.
As to the key emerging risks that Ecclesia
believes its customers face in coming years
he said: “Let me answer this in a little more
detail. If we define emerging risks as risks
which are well-known but not sufficiently
insured I would say: weather risks, limit risks
and legal risks. If we talk about the ‘really
new’ emerging risks, which means risks that
were not known before of course we are
dealing with reputation, supply chains and
cyber risks.”
The implications of the Japanese
earthquake and subsequent tsunamis are that
brokers have to draw the clients’ attention to
the new risks such as weather, supply chains
and natural catastrophes, according to
Mr Noehrbass.
And new products that Ecclesia is
developing to help risk managers cope with
the emerging risks include a bundle of new
products designed to tackling cyber, IT,
reputational, credit and supply chain risks.
It also refined its products that insure weather
and natural catastrophes to be more attractive
to customers.
POLISH BROKER EIB GENERATED
revenue of €7.5m last year from
seven offices, around 70 brokers
and 100 employees in total.
Non-life insurance accounted
for 95% of the cake and was exclusively
Polish business, roughly derived 20% from
SMEs and 80% from large corporations.
To handle cross-border business the
broker has been associated with Brokerslink
since January 2009. It has also operated as a
service partner of EOS Risq since 2010.
According to EIB, the major reasons for using
brokers are:
■ Consulting activities because brokers have
a wealth of experience gained by work
with many clients across industries and
are able to take a look at corporate risk
from many different angles. “A company
that structures and places 40 insurance
programmes for the energy industry in
just one country probably has a much
better overview of the market, trends
and capabilities rather than a lone risk
manager,” it stated
■ Access to the broker’s international
network, worldwide but still local
expert advice and the ability to retain
control over the global corporate risk
management policy
■ Access to traditional services on
training, loss prevention surveys, claims
management and insurance-related legal
consulting, and
■ The fact that the risk manager transfers
part of his liability and ‘mistake risk’
outside the organisation.
EIB believes that the core benefit of
using a broker depends on the corporation,
the place of risk management in the client’s
priority list, the scale of activity, degree of
specialisation of the risk management team
and type of business.
Thus the optimum model for brokers
in 10 years’ time will be to provide risk
management-related services that offer access
> EIB
A question of value
to global markets and advice, said EIB.
It believes that the broker should be able
to provide comprehensive services including
risk management-related services such as
risk prevention, risk mapping, self-insurance
vehicles, captives and the like.
Local brokers should have the ability
to address the multinational needs of their
clients, as well as to provide access to the
global market whether through a network
or partnership with recognised wholesale
reinsurance brokers.
EIB believes that the range of services
offered by key brokerage companies will be
quite similar in future. “The field on which
brokers can build a competitive strength
is IT resources and quality of services
including communication with the client.
One demanding aspect will be assuring the
same and highest level of quality in all links
of the global network. The IT solutions—
GLOBALISATION GROWTH
Which are the black swans that you
will focus upon for your customers
over the next 10 years
■ Risks that arise from rising globalisation.
Polish companies are still focused on the
domestic market. However we expect that
this situation will change significantly
during the next 10 years
■ Environmental liability and
ecological risks
■ IT and cyber risks
31
ensuring security of information—will play
an increasingly crucial role. This is what
will differentiate one broking company or
network from another,” said the broker.
EIB believes that risk managers should
consider their broker as a ‘partner’ of their
risk management team that works outside the
corporation.
The Polish broker believes that companies
with cross-border exposures must use brokers
that have international capabilities and
partners, whether they be part of a global
group or within a network.
It pointed out that in 1990 there were
about 3,000 multinational companies in the
US. Today, that number has grown to more
than 65,000 and it is the same the world
over as companies seek new revenue and
competitive advantage through overseas
expansion.
EIB reckons that multinationals want
to address their domestic and international
needs through a single resource.
This means that smaller independent
brokers need to work out solutions which
bring international capabilities and
expertise to their operations and customers.
“Otherwise they will not be able to follow the
development of their customers’ needs. In our
opinion a cross-border insurance buyer needs
to work with a broker that is able to handle
both their domestic and international needs,”
stated the broker.
But it is clear that independent networks
are better than global brokers for such
companies. “Independent brokers work with
each other only when they want it (they are
satisfied because the client is satisfied) not

PART III — BROKER PROFILES
because they share the same global logo. As
a result they are better motivated to deliver
high quality work,” stated EIB.
But national brokers can only deliver
effective global programmes if they are part of
an independent broker network, according to
EIB. “The ability to work together with these
companies allows us to structure and manage
effectively global programmes. Otherwise it is
impossible,” it stated.
The simplest answer to the question of
how brokers should be paid for their services
is ‘fairly’, according to EIB. “Fairly means
appropriate for the work, energy, know how
and responsibility involved. Brokers should
be also paid in a way that assures optimal cost
of coverage.”
The question of brokers’ remuneration
should never be separated from the total cost
of insurance. Of course broker’s remuneration
is an inherent part of the premium, however
it is not certain that the fee always changes
insurers’ calculations. In many cases
acquisition costs included in the premium
simply transform into additional insurer’s
margin,” it added.
Brokers should be paid commissions or
fees, exactly as now, stated the broker. And
there is no question that insurers should pay
brokers for valid services delivered, according
to EIB.
“The broker acts as an intermediary
between insurers and corporations. Despite
the fact that they represent the insurance
buyer they also indirectly work for the
interest of the insurance company. The broker
identifies and addresses potential product
buyers, makes clients aware of the (new)
risks and gaps in coverage, informs about
insurer products and explains how they work,
provides objective information to the client
about the reasons for choosing an insurer’s
offer, collects all information for underwriting
and bears some liability towards the insurer,”
stated EIB.
“Brokers give very important feedback
to insurers about the competitiveness
of their products and areas that require
improvements. Brokers also facilitate loss
handling processes as well as improve
insurance and risk management awareness of
clients. All the above mentioned actions lead
to savings for insurers or the development of
their business. The broker is perceived as a
distribution channel by the insurer. It is much
cheaper and more effective to pay a broker
that has well-qualified resources rather than
employ and train their staff to perform all of
this work,” the broker argued.
And the reasons for not shifting to a net
pricing system are clear, according to EIB.
Product driven
It pointed out that when a new product
appears on the market brokers approach
hundreds of potential buyers. They prepare
information campaigns, leaflets, brochures,
arrange dozens of meetings, collect
information and gather quotations from the
market. They write recommendations and
arrange meetings to present the risk.
Eventually the broker places only 10%
of potential contracts, estimates EIB. In the
following years more and more clients decide
to buy the product thanks to work done by
brokers at the outset.
“When the broker is paid a fee the client
is focused only on the work which the broker
has done for him, and services he provided
directly to him. He often doesn’t know
(because he doesn’t need to know) how much
effort, cost and work has been done by the
broker for the benefit of the whole insurance
market and insurers in particular. When the
insurer pays a commission it remunerates the
broker not only for this particular contract
but also for being a part of his distribution
channel and the savings that arise from these
services,” continued EIB.
If insurers did not pay brokers then
they would have to bear higher operational
costs and this would inevitably lead to rate
increases, added the broker.
Moreover, according to EIB, net pricing
favours global brokers. This is because a
mandatory net pricing system would eliminate
from the market many local intermediaries
that would switch from brokerage
to (multi)agent activity and hamper the development
of emerging markets in particular.
Thus, in conclusion, net pricing may be
an attractive solution for large corporations,
but is not necessarily for small and mediumsized
companies, says the Polish broker. The
cost of brokers’ advice on an investment
project based on fees often exceeds 30% of
insurance premium and, in certain situations,
may be even higher than the total premium.
“The traditional commission would never
reach such a level,” it added.
According to EIB the question of
transparency is more complicated. “When
you buy a car do you ask the dealer how
much he is paid Does lack of information
mean that offer is not transparent for the
customer” it asked. The solution, EIB
believes, is a code of good practice that would
regulate the standard level of commission.
Brokers would be required to inform the
client whenever the commission is different
(higher or lower) than standards determined
by the code.
HAMBURG-BASED FUNK
Group is one of the leading
independent brokers in
Germany and reported another
good year in 2010 with organic
growth of 5.4% and a retention rate of 98%
that offset the negative effects experienced
across the German market in 2008 and 2009.
Dr Funk said that a highlight for this
year was the ‘reactivation’ of a partnership
between Funk and international broker
Lockton. “This extends not only the range
and quality of our Funk International
Alliance, but also brings together various
cultural identities and adds capacity,” he said.
The Funk Group client base is mainly
larger medium-sized companies. In Germany
these are companies that are internationally
active and have a turnover of between €100m
and €5bn. In addition to placement of
insurance for these companies, the brokerage
focuses on risk management and transfer
solutions.
Dr Funk said that the basis of the group’s
strategy for corporate customers is to listen to
them instead of offering ready-made services
or products. After that the broker can then
decide how to adjust its response to the risk
or insurance needs of the customer, he said.
In the initial period Dr Funk said that
it ‘almost exclusively’ focuses on the risk
management element and offers coaching
and consulting services. As an ongoing
element of the service it also offers an
> FUNK
A risk-based strategy
Dr Leberecht Funk, partner of Funk Group, is a well-known
and outspoken figure in the German corporate insurance market
who believes that brokers need to be prepared to listen to their
customers and not shove off the shelf products down their throats,
focus on risk management services as well as traditional placement
and follow an international strategy to survive and prosper
report Friederike Krieger and Anne-Christin Groeger
electronic network which allows a permanent
exchange of information with its clients, he
explained.
Dr Funk said that it is difficult to
generalise about the basic benefits of using
a broker. “Risk managers know the risks in
their companies like the back of their hand.
Brokers can play a part in that game by
bringing in their experience in risk evaluation
and the construction of a risk transfer
programme. Brokers can offer support not
only by determining the company’s position
32
in a complex and international environment,
but also by their ability and experience to
solve problems properly. This makes them
interesting for corporate clients,” he said.
Also there is no general recommendation
on how a corporate risk manager can derive
maximum benefit from its broker. It is rather
a matter of approach according to Dr Funk.
“Clients should challenge their brokers
but also treat them in a fair manner and
cooperate on the basis of trust. They should
avoid being dependent on a single broker.

PART III — BROKER PROFILES
In my experience much depends on risk
managers themselves. The more they
understand the risks of their own company
and the difficulties of the markets the more
benefit they can derive from the relationship.
For this reason alone we recommend
linking risk management with insurance
management,” he said.
Again, on the topic of core services that a
broker should offer in the modern economy
to differentiate them from the competition,
Dr Funk believes that the answer lies more
in the realms of quality rather than specific
content.
“Generally speaking the services provided
by large brokerages are comparable and leave
hardly any leeway to differentiate.
At the end of the day it depends
on the parties involved. Things
like a lack of support, the wrong
person in the wrong place at the
wrong time. All these factors
can anger clients and increase
their willingness to look for a
new broker. And if this scenario
occurs very often, this could do
serious damage to the broker’s
reputation.”
There is a debate about
whether brokers should offer A-Z
services in future or increasingly
unbundle the services to offer more niche
services.
Dr Funk believes that one stop solutions
are and will continue to be the most popular
and most efficient solutions. However,
product and line specialties such as D&O,
marine or aviation are probably more suited
to niche brokers as well as special customer
segments where expert professionals know
what is needed, he explained.
Looking forward to the optimum model
for brokers in 10 years’ time and the kinds of
services that will be the key focus, Dr Funk
does not see a sea-change coming.
Professional development
“In ten years’ time many traditional broker
services will still be relevant, as long as
brokers remain oriented towards their
clients. Changing client demands, the
future regulatory framework and a market
consolidation with probably less participants
will affect the services provided. The legal and
economic framework will be characterised
by greater insecurity. To master the future
challenges, brokers must develop greater
professional expertise, enlarge the value chain
to new areas and outsourcing and improve
consulting quality,” he explained.
Dr Funk has been quite outspoken as
head of the German brokers’ association on
broker payment. He said that the bottom
line is that brokers should receive adequate
payment. The actual form of remuneration,
whether a commission or a fee, is not so
important. “One of the main points is to
interact in a transparent and trustworthy
way. No more hidden remuneration should
be paid,” said Dr Funk.
If measured by traditional services the
current commission level is ‘completely
adequate’ said Dr Funk. But he said that the
system has become ‘unbalanced’ because
clients tend to ask for more and more nontraditional
services but expect them to be
included within the existing commission
paid. Insurance companies also neglect
Dr Leberecht Funk
their sales-related core services and this has
negative consequences for the brokerages
which have to fill the gap, he added.
The services that a broker needs to
provide to the insurers with which they place
a risk depends on the insurer and its access
to local target groups, said Dr Funk. “Brokers
can only be successful when they are able
to compensate the insurers’ performance by
their own professional services,” he added.
“Outsourcing has become one of the
central needs of the insurance sector. Insurers
have understood that they cannot provide all
possible services at optimal costs. Examples of
this can be found in administrative segments
and technical services as well as in claims
handling,” continued Dr Funk.
The broker is not happy with
the concept of insurer payments
to brokers in principle. “This
does not comply with the clients’
expectations that a broker should
offer a wide range of possibilities
available on the market. We
consider this remuneration
as a counterproductive and
undesirable development. There
is a serious danger of collusion by
mixing the service components.
That is why I say an explicit no
to this kind of commission,” said
Dr Funk.
So where do the main costs go among
brokers in the German market Dr Funk
estimates that about 12% of total costs
apply to the acquisition of new clients,
15% on client support, 35% on dealing
with contracts, 12% on claims management
and 25% for internal matters and in-house
training. For the insurer, he estimates that
about 8% to 10% of total costs apply to debt
collection, issuing policies or support in
claims management.
For a cross-border insurance buyer Dr
Funk does not believe that the key question is
whether to choose a global broker or network
of independents but rather the quality
offered.
“The fact is that both peculiarities work
and survive in competition. Nevertheless
the partners in a network have to have a
good reputation and achieve a high market
penetration in the local markets affected.
This has to be questioned in some cases.
In any case I would recommend that
corporate clients deal with an internationally
experienced broker,” he said. As with so many
of his peers, Dr Funk is not sure that 100%
compliance on global programmes can ever
be assured.
“A binding confirmation that a global
programme is fully compliant is more and
more difficult given the heterogeneity and the
speed with which law and tax rules change
in the different markets. You end up chasing
reality. We have observed that programmes
have partly been divided and local markets
33
are taken into account more if they offer
enough capacity. There is no perfect solution
to the conflict between the risk management
need to have uniform cover for uniform
risk profiles and the governance needed to
achieve compliance,” he explained.
To help risk managers ensure that their
global programmes are compliant and
actually pay up when needed brokers need
the help of their local partners across the
world and can also use external knowledge
platforms, he said. “The real challenge
consists of assessing and designing the
programmes,” added Dr Funk.
For meaningful growth European brokers
need to look further afield than western
Europe.
“All internationally active brokers
should have a strong partner that takes care
of the growing outgoing business. Growth
markets include the BRIC countries and other
developing countries in Asia, South and Latin
America, central and eastern Europe and
Turkey. Brokers that think and act on a longterm
basis should expand their presence in
those regions,” he argued.
But Dr Funk said that it is too early to
forget about western and central European
home markets. “There are still some chances
of growth there although these markets are
congested,” he said.
Dr Funk ‘guestimates’ that the
percentage of corporate risk that is actually
insurable today is about 1:7. He said that in
future ‘black swans’ will bother the market
more and their importance will rise more
than the willingness and ability of the
insurers to carry such risks. “Naturally there
will be an outcry that the insurers are not
innovative enough. But we have reached
the limits of potential calculation. The share
of insurable risks may stay the same in the
best case scenario. But it is more likely that it
will decrease,” he predicted.
Definition and therefore measurement
of so-called emerging risks is the crux of
the problem, said Dr Funk. “It is difficult to
measure new risks. There are not enough
claims to assess the causes and the risk
potential. Only analogies, and potential
realistic scenarios can form a basis for
simulations with the goal of allocating a
probability factor to the different scenarios.
The risk of miscalculating with such
approximations is naturally very high,”
he explained.
Fringe cuts
In his view the major risks for any
company’s balance sheet and continuity
of business are those that are detected,
but not sufficiently addressed. The recent
crisis revealed connections and risks
which were ‘not conceivable’ in the past
or had been rejected because they were
considered unrealistic.
A binding confirmation that a global
programme is fully compliant is more and
more difficult given the heterogeneity and
the speed with which law and tax rules change

PART III — BROKER PROFILES
“There are credit risks, first and foremost
counter-party risks, and supply chain risks.
These are not new risks, like the problem
with volcano ash hampering the logistics
which were not so obvious to risk managers
and insurers before, but a very dramatic
specification of risks already known.
Major topics are also the phenomenon
of interconnectivity and infection risks like
pandemics,” he said.
The ranking and importance of the
high profile emerging risks for any company
depends on the industry and how it has
positioned itself. “Reputational and cyber
risks have moved to the centre of attention
lately because data security and corporate
governance have become more important,”
he added. Dr Funk said that he sees hardly
any lessons to be learned with regard to the
improvement of broker services from the
Japanese earthquake. “The claims adjustment
in radioactive contaminated areas cannot
be speeded up because claims surveys are
not possible. Private risk carriers won’t
insure subsequent damage to property from
radioactive contamination. Only political
action can help. It is conceivable to offer
assistance cover to help the people concerned
to return to normal life after losing all their
belongings. However, the willingness to pay
a premium to insure against such a rare event
quickly declines,” he said.
The key focus for brokers and the rest of
the market to try and tackle emerging risks is
to raise awareness so that risk management
can intervene, concluded Dr Funk.
Oliver Cullmann, Managing
Partner at Bremen-based
broker Gebrüder Krose, told
Anne-Christin Groeger that
partnership between a broker
and the expert in-house risk
management team within its
customers is critical to success
in the large corporate market
GEBRÜDER KROSE IS A BREMEN,
Germany-based broker that
describes itself as the ‘strategic
partner’ of in-house brokers and
insurance departments in large
German-speaking companies.
Oliver Cullmann, Managing Partner,
explained that its business model is to
strengthen customers by offering support in
their core business and know how in areas
where they seek additional service.
“This can be D&O, terror, aviation or
any line of business, especially new ones or a
captive placement. In these segments we are
convinced we have excellent know how and
we expect sufficient growth opportunities,”
said Mr Cullmann.
The broker said that he is ‘content’ with
recent business development and last year
acquired three more large corporate clients
and did not lose any, the ‘highlight’ of 2010.
For larger corporate insurance buyers
the key offering is the design of insurance
programmes, help with requests for proposals
and the placement of risks, supported by
negotiations. Increasingly customers seek to
use its tools for mathematical calculations
and ask for help with the calculation of
prices, improvement of deductibles and
simulation of risks, he said.
Inside job
Mr Cullmann believes it is essential for
large companies to have their own in-house
insurance expertise for several reasons.
“The importance of risk management
is increasing and executive boards and
management are increasingly focused on
this topic. You can achieve a certain
independence from external service providers.
During the time of an acquisition you only
want to involve internal experts in the first
step, instead of giving sensitive information
> GEBRÜDER KROSE
Partners for life
to an external supplier,” he explained.
But the external broker can contribute
the experience and know how gained from
arranging insurance for other clients across
the market. Moreover it is more cost-efficient
to use a broker’s service in niche areas rather
than using your own resources for every job,
added Mr Cullmann.
Corporate risk managers can derive
maximum benefit from their brokers by being
in constant cooperation with their broker.
This is because consulting set-up times will
be minimised and continuous improvements
can be achieved. “Consider it as an increase
in efficiency, just because you get to know the
working process of your partner better and
better,” he explained.
To differentiate themselves from the
mass, brokers have to offer high quality
consulting advice, must be reliable, and of
course offer an ability to solve the client’s
insurance problems, said Mr Cullmann.
“It is important that your
contact person stays the same.
Additionally, you have to
inform your clients about new
risks, to show them the transfer
possibilities on the market, but
also understand their needs. Based
on this information you have to
work on an individual insurance
solution,” he continued.
Whether customers in future
demand a one stop service from
brokers or seek to increasingly
unbundle the services and use
more niche brokers will depend on
size in Mr Cullmann’s view.
“Smaller companies which do not have
their own insurance departments will surely
look for a broker who can offer complete A-Z
services. When it comes to larger companies,
we expect that they will have their own
insurance expertise and buy selective
services,” he said.
Mr Cullmann said that it is difficult to
predict what will be the optimum model for
brokers in 10 years’ time and what different
services they will they provide.
“The business model is always changing.
Services are continuously being refined.
But we expect a stronger individualisation
on international insurance programmes,
especially for big companies. I expect tailormade,
flexible and selective consulting to
34
Oliver Cullmann
become more important in the future,”
he said.
Mr Cullmann thinks that the type of
remuneration should be agreed between
client and broker individually. “In general, we
believe that money should be paid only by
one partner, either on the part of the client or
on the part of the insurer. In agreement with
the clients there are other ways of paying
imaginable, which can also be payments from
both parties, such as in cases where the broker
also conducts specific services for the insurer,
for example documentation,” he added.
The services provided to the insurers are
mainly to collect and prepare professional risk
information and documents for the tender
and the placement. Gebrüder Krose also
offers a ‘transparent communication’ with
the insurers, and expertise that enables it to
conduct technical negotiations. “We offer
fairness and reliability,” he said.
Mr Cullmann believes that cross-border
buyers can rely on smaller
independent brokers in networks
to arrange their coverage.
“We have some positive
experiences in cooperation
with smaller broker companies
integrated in a network. That is
why we are part of the Unison
brokers network. You can choose a
local partner which is appropriate
for the individual case. Usually
there are several local partners,
so you can make your individual
choice. These small broker
companies are highly motivated
and more flexible,” he explained.
Whether or not global programmes
can ever be 100% compliant is a difficult
question, said Mr Cullmann. “When it comes
to master programmes, of course we can
arrange them in a compliant way because
they are based on German insurance law.
Dealing with local contracts is more difficult.
First you need special information to
see if a local policy is wanted or needed
and how it fits into the master programme.
Even inside the market we have different
statements about whether and how to
arrange a local contract in a certain country,“
he explained.
For brokers to help ensure that global
programmes are compliant and actually pay
up when needed needs discussion between all

PART III — BROKER PROFILES
parties, said Mr Cullmann.
“The leading insurer of a master
programme should be acting on an
international level. And of course, we
also offer our know how gained in the
arrangement of other international
programmes and based on information we get
from our international network,” he added.
As a first step Gebrüder Krose’s German
clients usually ask it to focus on its
German master policies when dealing with
international insurance programmes. Mr
Cullmann said he believes that this is the
correct strategy, because the master policy
defines the protection for the entire group.
“The international focus comes in a second
step and mainly depends on the international
needs of the insured,” he said.
On the topic of emerging risk and
insurability Mr Cullmann said that it is
impossible to say how much corporate risk is
actually insurable today.
“Of course we have risks to focus on
now which we paid less attention to in the
past. But to state a percentage does not lead
anywhere. New insurance solutions always
need a balance of interests of the insured
and the insurer with regards to terms and
conditions. It is not easy to find this balance.
On the one hand the client needs to agree
internally on a budget to buy a new cover
for a risk that might never have occurred
so far. On the other hand the insurer has to
understand and calculate the risk, which is
also difficult when there is little or no loss
experience,” he said.
On the thorny question of definition
Mr Cullmann said: “An emerging risk is
a risk that clients have not been aware of
before, or a risk which has emerged due to a
changing legal, organisational or technical
environment.”
The key emerging risks for customers,
according to Mr Cullmann, in descending
order of importance are political risks, supply
chain risk, non-damage business interruption,
reputational risks, cyber risks and credit risk.
Others on the radar of customers include loss
of intellectual property or weather risks.
“You cannot determine the most
dangerous risk for our customers in general.
It depends on the client. For a credit
card company cyber risks might be more
important than political risks. And a clothing
manufacturer with a collection that changes
every six months might have to watch out
for reputational risks more than for others,“
he said.
The implications of the recent Japanese
earthquake for brokers are that one has to be
aware of the fact that something like that in
Japan can happen any day and therefore is
further proof that insurance covers are up to
date, said Mr Cullmann.
In terms of risk management companies
should remember that diversification reduces
risks in the supply chain. “The same applies
to insurance buying. In our opinion one
should use different insurance capacities to
avoid dependence on only a few insurance
companies.
“In addition, we could think of
alternatives to classical insurance. Securing
risks on the capital market for example as
insurers already do is one example,” he said.
Giles is one of the fastest
growing brokers in the UK
and has adopted a strategy
that enables it to access
national and international
markets but remain very local.
Sarah Lyons and Peter Jones
explained how it works
GILES INSURANCE BROKERS
LTD was formed in 1967.
Current CEO Chris Giles,
who is the son of the founder,
joined the business in 1988 at
which point the business mix was 80%
personal lines and 20% commercial lines.
Since then the business has grown
rapidly through organic growth and
acquisitions and it is now one of the UK’s
biggest independent insurance brokers.
Sarah Lyons, Group Managing Director,
said: “We’re large enough to have a
national voice and to negotiate great deals
for our clients, but small and local enough
to care about our people and look after our
customers personally.
Key influence
Ms Lyons said that the Giles Group now
‘influences’ in excess of £600m in premium
and has 1,300 staff. It is made up of three
companies—Giles Insurance Brokers Ltd
(retail), Ink Underwriting Agencies Ltd
(wholesale) and Rossborough Group (retail
and offshore) in the Channel Islands
and the Isle of Man. The mix is now 90%
commercial and 10% personal lines.
Ink Underwriting Agencies includes
many trading styles and these are FSJ
Broking (Lloyds & London market), Ink
> GILES
Think global, act local
Underwriting (MGA/underwriting), Ink
Insurance (wholesale to other regional
brokers), Westinsure (a network alliance of
200 brokers), Arnott Marine (marine, hull
and vessel broker) and DKRI (recruitment
and estate agent specialist).
Ms Lyons said that the plan was always
to grow as a business moving from a very
successful regional broker to providing
coverage on a national basis. Since 2006,
it has acquired 35 companies both retail
and wholesale, which is ‘unique’ in this
market. “The way for us to achieve this
aim was through acquisition
activity as well as organic
growth as it enabled us to grow
quicker. Giles has always been
about being a local broker with
national backing and so we have
maintained a number of offices
across the UK—45 in total and
growing,”
This strategy means that
Giles retains local knowledge
and understanding but also
offers the benefits and buying
power of a much larger
organisation, she said.
Size and buying power is important
because it enables the group to secure
better deals with insurers and other
suppliers for its network of members and
brokers, explained Ms Lyons.
“This is not just about higher
commissions, though we do benefit
from that, the volume and quality of
the business that we place also gives us
access to specific solutions, products,
and service levels that otherwise would
not be available. The higher commission
also means that we are able to pass on
35
Sarah Lyons
a generous level of commission to the
network members and brokers that use
our products. It is all about the value we
can add (or pass on to) our clients. We’ve
achieved this through the choice and
flexibility we can offer them,” she said.
On the wholesale side Giles had its
own in-house Lloyds & London Market
team for many years and Ink bought
Lloyds’ broker FSJ Broking (from Cooper
Gay) in 2010. The Giles’ Lloyds team was
merged with FSJ and now trades under the
FSJ Broking brand as part of the Ink family.
This allows Giles, network
members and other brokers to
use FSJ Broking to gain access to
the Lloyds’ and wider London
market.
Peter Jones, UK Trading
Director who joined Giles
after his own brokerage
was sold to the group, said
that this enables it to offer
a wider range of products
beyond standard property
and liability such as aviation,
marine, life sciences, offshore,
professional indemnity, medical,
pharmaceutical, high risk exposures and
the like so that it can be a ‘one stop shop’
solution to all the regional brokers it
works with. “Whatever query they receive
about an ‘out of the ordinary’ insurance
requirement we can probably help them,”
he said.
Ms Lyons said that she is not surprised
that the global brokers are currently
turning their attention to the mid
corporate and SME markets because they
are ‘attractive’ segments. To compete,
brokers like Giles need to look outside their

PART III — BROKER PROFILES
traditional territorial confines, she said.
“The insurance market is now
truly global and to remain competitive
brokers need to look at being able to
place international and global risks. We
can place all over the world through our
partnerships with [networks] Unison
Broking and TechAssure. We place business
at Lloyd’s and on the London markets,
and we have offshore insurance centres in
Jersey, Guernsey, and the Isle of Man. And
as members of a global independent broker
network [Unison], we can deliver anywhere
in the world,” she said.
Consultative approach
Giles provides bespoke insurance and risk
management solutions for large businesses.
Ms Lyons said that the group aims to build
long-term relationships with its clients
in which they benefit from competitive
premiums, trusted advisers, reliable
solutions, intelligent risk management,
and access to hundreds of the UK’s leading
insurers. “Giles’ large corporate clients
benefit from a strategic, consultative
approach to insurance which goes far
beyond the supply of policies and helps to
assure the company’s stability, profitability
and growth,” she said.
Mr Jones pointed out that Giles
were subsidiaries or sister companies of
UK domiciled clients. “My business was
acquired three and a half years ago and
we were placing overseas business via the
London market,” he said.
“As we continue to grow there is an
increasing need to place overseas risks.
This is where our wholesale and Lloyds
& London operations come into play.
There is also an increasing capability with
mainstream UK insurers that provide access
to their overseas sister companies which
ensures that our clients’ global insurance
programme is dovetailed,” he explained.
Giles’s membership of Unison [the
German-based network of independent
brokers worldwide] helps it deal with local
requirements. “Over time we will need to
develop our own international department
but this is a while down the road. If a
risk needs to be placed in a local overseas
market then we go to Unison which pairs
us up with a local broker in that country
which places the business on our behalf,
and vice versa,” he said.
Independence is the reason why
Giles does not work with a global broker
instead of the network. “We are fiercely
independent and so are the brokers in our
network and so the Unison model fits well
with our philosophy. In some cases, other
Unison brokers may be much bigger than
We will need to develop our own international
department but this is a while down the road.
If a risk needs to be placed in a local overseas
market then we go to Unison which pairs us
up with a local broker in that country
and carries out evaluations to make sure
that companies have adequate insurance
in place. This is a very valuable service
for a company without a dedicated risk or
insurance manager,” she said.
Mr Jones said that he thinks that it is
important to try and make the customer
more ‘insurance savvy’. “This is because
it makes the relationship easier and
closer if they have a greater knowledge of
insurance. If customers really understand
insurance then they can more readily
perceive the value of what you are
recommending or advising them on. The
downside of this is that the buyer becomes
more confident about insurance and is
more likely to invite competition, but that
is worth it in the long run.”
One thing that Mr Jones said he has
noticed is that the communication with
clients is less about the price of insurance
and more about service and the protection
of business. He said that the relationship
between a client and their broker is now
similar to the relationship that they may
have with their accountant or solicitor, for
example.
“Twenty years ago a business would
have asked their accountant for advice on
how they could help increase the value
of the company. It is now the same with
insurance brokers. Clients are seeking the
advice of their insurance broker for the
benefit of protecting their business against
risks rather than seeing us as the provider
of a necessary product.
“They are looking for more value
and service than pure product placement.
This is why I think it is important that
we are at last being recognised as a proper
profession the same way as accountants
and solicitors are, because we are their
consultant for the protection of their
business,” he said.
has a great number of schemes, affinity
partnerships and associations too. “This
is a good strategy for us as an SME broker,
as most SMEs fit into one of our many
schemes or ‘specialisms’ as we call them.
Being a specialist in a number of areas
gives us an incredibly solid SME platform,”
he said.
Mr Jones’ background is in the
corporate insurance market and he
said that he sees a lot of business being
‘churned’ around between the big brokers.
This is why they are ‘going for’ the SME
market, he said. “But size is not necessarily
the key. We have a lot of people at Giles
who used to work for the big national and
international brokers. They joined Giles
because they want to do business in a more
traditional way and more successfully, and
have realised that there is great business
in the SME sector as well as the corporate
sector. After all most corporate businesses
were probably SMEs at some stage of their
business life,” he said.
Mr Jones said that a nationally focused
group such as Giles can cope with new
demands from customers as they expand
into overseas territories so long as they
have the experience and knowledge.
He said that a lot of the businesses that
Giles has acquired were already dealing
with overseas clients, usually ones that
Giles but they too are independent and
wish to remain that way, so Unison brokers
makes sense,” he said.
On the topic of changing demand and
how Giles is responding to it, Ms Lyons
said that customers are becoming more
educated on insurance generally and risk
management partly through discussions
with their brokers. “In the corporate sector
we find that the approach that we use
complements their corporate governance
needs in that we understand their business
risks and ensure that our insurance offering
provides full protection,” she said.
Gamekeepers required
Giles has a service called Giles Business
Assist which employs loss controllers so
that if a customer has a large property
loss it can provide a service to get their
business back on track much quicker
than normal. “This makes sure that the
customer is protected and has their hand
held throughout this difficult time. Our
loss controllers are actually all qualified
loss adjusters who will have previously
worked on behalf of insurers but are
now working for Giles on the side of the
customer when a big claim occurs. We also
have a separate risk management team
that provides health and safety advice
Economy of scale
Remuneration generally depends upon
the size of the customer, said Ms Lyons.
In the SME market Giles tends to receive
commissions only from insurers whereas
for the larger corporate customers it
usually operates on a fee-only basis.
Mr Jones said that the customer has
always been king and if this were not the
case then brokers would have no business.
“I observed the whole Spitzer case as it
evolved [Eliot Spitzer, former New York
Attorney General, who campaigned to
tackle conflicts of interest in the insurance
business] and it is still talked about
even today, however, this was about
inducements and bribes.”
He noted that there continues to be
a debate about how much commission
brokers earn but little recognition given for
the additional work that brokers carry out
for the insurers that removes expense for
the insurers.
“This is work that insurers used to do
themselves, particularly in the SME client
sector. Brokers now input the data into
our computer systems to generate a range
of quotes, print the quotes, present them
to the client, bind the cover, issue the
policy documents and send them out to
the client. The insurer no longer touches a
single element of this work,” said Mr Jones.
36

PART III — BROKER PROFILES
Patrick Lucas, Chairman and
CEO, Gras Savoye, the leading
French broker, told Rodrigo
Amaral that listening to clients
is its key to success
GRAS SAVOYE INCREASED ITS
global income by 2.9% in 2010,
which was a slight improvement
on 2009 but lower than pre-2009
levels. The results were mostly
driven by organic growth. Acquisitions
contributed only 0.2% of the increase. The
number of staff was roughly the same. “It
was a reasonable performance, but we were
not completely happy,” said Patrick Lucas,
Chairman and CEO.
“We expect to do better next year. It
has been a very soft market, with a lot of
competition and decreasing rates in roughly
every business line,” continued Mr Lucas.
The broker said that the business model
at Gras Savoye is built around providing as
much advice and consultancy as it can, and
securing the best price, coverage and rates for
its clients.
“We believe that, to provide the basic
service of a broker, which is intermediation to
find the right price and the right coverage, we
need to offer, in advance, a lot of consultancy,
to make our clients eligible to the best
market,” explained Mr Lucas.
He said that Gras Savoye would continue
with this basic model and continue to carry
out a lot of administrative work, particularly
claims which he says is critical for client
retention.
“We believe that claims payments is a big
part of our job too. We do all of that because
our first focus is to retain our existing clients.
It makes no sense to seek new clients, while
losing our current ones,” he said.
Range of solutions
Mr Lucas said that another key element of
the strategy is to offer new insurance lines.
“We are one of the few brokers in the French
market to offer a number of solutions in all
lines of insurance. That is not very usual
in France. Other brokers tend to specialise
in particular lines. But we think we can get
new accounts by offering new solutions for
existing clients,” he explained.
Gras Savoye is also busy extending its
operations to new markets. It already has
a presence in the African continent, where
it has just started to work in the Central
African Republic and the Sudan. This takes
the broker’s operations in the region to a total
of 24 countries. Another ‘highlight’ for the
company in 2010 was the development of a
new risk management system for clients.
“We have always had some kind of risk
management information system. But we felt
that something was lacking with the systems
on offer in the market. In other words, there
were information systems to provide risk
management, analysis of risk, claims and the
like but there was no tried information system
that could deliver overall, interconnected
information on all aspects,” he explained.
Consequently Gras Savoye linked up with
> GRAS SAVOYE
The listening broker
an IT company called Enablon to set up what
it calls a ‘complete, globalised and unique
information system.’
Mr Lucas said that the system called
Universe is aimed at big and medium-sized
companies and gives risk managers the ability
to synchronise all interconnected data in
a single system. The system development
started in 2010 and was launched late in the
summer.
Another area that Gras Savoye has
focused upon for its large European corporate
insurance buyer is employment benefits and
health insurance.
“We do that as consultants, as brokers and
third-party administrators. We are taking this
service to different countries too. For instance,
to all African countries where we currently
operate, and also to Vietnam. It doesn’t mean
we are not developing other lines, only that
this is one we are putting a lot of effort into,”
explained Mr Lucas.
To help customers cope with emerging
risks and the changing structure of the global
economy Mr Lucas said that this is one of the
many reasons brokers need to be close to the
market and listen to the needs of corporate
clients. Only this way will they understand
their problems in the future, he said.
“There is ever more interconnection
between risks, firms, and countries. Therefore,
companies have got a number of property
and liability exposures linked to their supply
chains, and we have to help them find new
solutions. For example, some of our clients
that had big problems with the Japanese
earthquake told us they were very happy with
their coverages,” said Mr Lucas.
“For its part, employment practice
liability is an emerging risk in France, and I
believe in other markets too. If we think of
new technologies, we believe that cybercrimes
are on the rise. There are more claims about
identity theft than auto theft claims in a
country like France today.
“Another issue is reputation and
intellectual property risks, which can affect
a company in any part of the world where
it operates. It is very costly to fight against
reputation risks, so companies need to have
the right policy in place to deal with them.
Product recalls are not new, but are an
emerging risk too. We have to be innovative
and to respond to these emerging risks,” he
continued.
Mr Lucas said that the broker’s ability
to observe and analyse the evolution of the
market on a day to day basis, and the appetite
of insurers for each market and sector of
business is the core topic of why a corporate
insurance manager should use a broker in the
first place.
“The market is permanently changing,
and we have the expertise to make changes
or develop wordings to reflect these changes,
to provide the best coverage at a particular
moment and to frequently check whether
it still is the best one and also to tell clients
which company has the best ratings and is
better equipped to deal with claims and the
like,” said Mr Lucas.
Mr Lucas said that role is even more
appropriate now because the market is
‘continually expanding’ with new insurers,
new reinsurers and new products arriving in
the market ‘all the time’.
On the topic of the core services that a
broker needs to offer clients to differentiate
themselves from the mass, Mr Lucas said that
he strongly believes that, to find ‘proper’
solutions from the market, a broker has to
listen and give advice to clients, and then
foment competition between carriers.
“We are not the type of brokers who only
want to make a sale right away. We wish to
understand our clients and listen to their
needs. Whenever our people visit a client,
they don’t try to close a sale right away. First
we have to listen, and that is a difference,”
he said.
Judgement day
“Another one [difference] is that we are
involved in all aspects of the job, from
insurance consultancy, risk analysis and
prevention of all kinds of risks, to issuing the
wording, collecting the premium, running
the claims to a certain extent, and having
experts in different kinds of claims.
“The time when the client judges a broker
is when there is a claim. If he knows that
he has a complete team available to get the
right answer at the right time in a fair way,
that’s when the client will congratulate you,”
explained Mr Lucas.
Mr Lucas believes that there is ‘some
potential’ for investors in brokers. “We are
living in a risky world. In terms of business,
the world is riskier than it has ever been,
because of the interconnections, because
everybody relies on each other. There are no
limits. Every year there are new factors that
affect significantly the profits of companies,”
he said.
“We were not used to having a volcano
affect the aviation business, as we’ve seen
recently. We were not significantly prepared
for political risks in countries where people
were not expecting anything to happen for
some time. Overall, the world is underinsured.
Even in mature insurance markets, there
are new risks to take care of. Worldwide
there is a need for insurance brokers to help
corporate and private individuals, as well as
to help carriers to provide their services,” he
continued.
Mr Lucas said that Gras Savoye is ‘very
flexible’ on the question of payment and, at
the end of the day, it is up to the customer.
“If the customer wants to work on a
commission basis, for any reason, for example
if he does not want to discuss a new fee every
time a progress takes place, like the building of
a new factory, we can agree on that too. Also,
if the customer wants to remunerate us on a
fee basis, we can discuss the services and the
fees and reach an agreement. A mixed system
is very usual. As long as everyone knows what
to expect from each other, it is fine,” he said.
37

THE GRECO GROUP IS AN 80
year-old privately-owned stock
company based in Vienna. Since
the fall of the Iron Curtain GrECo
has worked hard to expand
into the region and is probably the leading
commercial risk broker.
The group services multinational as
well as local companies in all areas of the
economy and is also a reinsurance broker.
The group’s turnover increased by 18%
to €68m in 2010 driven by organic growth
in the Austrian, Russian and Polish markets
and by the acquisition of VMG. Premiums
handled rose by 24% to €476m and it made a
steady profit of €7.5m, equal to 2009.
The group made two big transactions
in 2010. First, it sealed a cross-selling
cooperation agreement with Erste Group
Bank, one of the leading banks in Austria as
well as Romania, the Czech Republik and
Slovakia. It also took over its captive broker
VMG in Austria.
The second big move was the signing of
a strategic partnership with London-based
broker Jardine Lloyd Thompson (JLT).
JLT bought 20% of GrECo’s shares and
the Austrian broker took over JLT’s Russian
and Polish operations. Friedrich Neubrand,
CEO, said that the partnership
with JLT was very important for
the brokers and its clients because
JLT has a good network in Asia,
Latin America and Australia and
wholesale and specialty capacities
in energy, construction and other
areas.
GrECo is active in 15 markets.
It has been active in the Czech
Republic, Hungary, Slovakia,
Slovenia and Poland for ten years
and also fought its way into
south-eastern Europe, where it is
active in Serbia, Croatia, Bulgaria
and Romania. It also expanded into the
Ukraine, Russia, Lithuania, Kazakhstan and
Uzbekistan.
In western Europe it has cooperation
agreements with Ecclesia in Germany, with
JLT in the UK and other countries and with
SIACI Saint Honoré in France.
Regional champion
But, according to Mr Neubrand, the
expansion does not stop here. “There is still
much to be done in our 15 markets. We plan
to open up more offices in these countries.
We currently have 52 branches, to be closer
to our clients and to do more business with
small and medium-sized enterprises. That
is what distinguishes us from our biggest
opponents, who operate from only one
location in each market,” he said adding that
the group also plans to expand into Turkey,
Azerbaijan, Bosnia and Albania.
The attraction of GrECo for large
European corporate insurance buyers is
its network in Eastern Europe, which, Mr
Neubrand says, makes it very attractive for
international insurance buyers. “Through
the JLT network we also have pillars in
Asia and Latin America. These regions
are becoming more important for our
clients. Because of the JLT cooperation
agreement we also offer know-how in
captive consulting and can access wholesale
capacities in the UK market,” he said.
Walter Schenk, member of the executive
Friedrich Neubrand
PART III — BROKER PROFILES
> GRECO
Risk analysis is all
board, said that the core advantage of a
broker for corporate risk managers is that,
when they are large enough, they can provide
an overview of the market and somebody
who knows the strengths and the weaknesses
of the insurers and their products.
“Due to their position in the market,
brokers have purchasing power and leverage
when it comes to claims. For international
clients, brokers have their international
networks or they are part of an international
network,” he continued.
According to Mr Schenk the main service
provided by a modern broker is risk analysis.
“What kind of risks does the company face
What claims were lodged in the past What
is the company’s attitude towards risks Does
the company want all risk cover or limited
ones Based on this information, brokers
should design risk concepts, insurance
programmes and then market their concepts.
Then they have to provide
service in case of claims and deal
with the administration of the
contracts. There should be an
annual assessment to review the
existing solutions with regard
to changes in the company and
the environment. This must
be supported by reporting and
reinsurance cover, if necessary,”
he said.
Mr Schenk agreed with other
brokers surveyed for this report
that the decision to go for A-Z
service or unbundled services from
a number of brokers largely depends upon the
size of the customer. But overall he thinks
that it is best to stick with one provider.
“Small and medium-sized enterprises
tend to buy the whole range of services while
big companies tend to buy single services.
In general we are open to selling selective
services, but we also point out the danger of
doing so. When I buy the design, concept
and placement of an insurance programme
from a broker and this particular company
is not responsible for the claims handling
afterwards, this may lead to problems. We
think that whoever designs a concept and
places the risks should also deal with the
claims management.”
Mr Schenk thinks that brokers will offer
many more services in the area of general risk
financing in future. Brokers will not only offer
solutions for insurable risks as this is only
a relatively small part of the risk spectrum.
But they will care more about other risks and
38
try to find risk management solutions, he
suggested.
Mr Schenk said that brokers could be paid
by commissions or fees. He said the problem
with commissions is that the broker receives
the same percentage, on average 15%, for
risks with few claims as for risks with many
claims. That, he says, is the disadvantage of
being paid on a commission basis.
“Working on a fee basis might be better
in this respect. Big companies tend to go
for this solution. The problem is that the
companies want to have flat-rate fees. Brokers
will not refuse to give the client security,
but the actual amount of work is not always
considered. Only one or two years later, will
the broker know if the fee was high enough
to cover the costs However, we are open for
both fees and commissions. It depends on
the client,” he added.
Hard cash
Mr Schenk said that the current system is
transparent, for GrECo at least, because it
reveals its earnings to customers. Whether
the commission is fair or not is a different
question, he added. “At the moment, we
have a low premium level on the market,
so brokers’ earnings are also low. When the
market hardens again and premiums rise,
brokers’ earnings will also rise. Is that fair
I do not know.
“In general brokers’ earnings should
not be dependent on market conditions.
This fact suggests a fee solution. But the
ideal world is neither to be found in fees nor
commissions. Each model has its advantages
and disadvantages,” he said.
Brokers have to convey documents to
insurers which they need to decide whether
they will underwrite a risk or not and what
the conditions will be. That is information
about security measures in the company and
about claims in the past etc. It is the duty
of a broker to provide finished submissions,
so that the insurer does not have to gather
information on its own.”
A number of insurers interviewed for this
report have said that they are not comfortable
paying brokers as they also take payment
from their prime clients, the risk managers.
Mr Schenk said: “At present, we do not
charge insurers, but we do not rule this out
completely for the future. We would demand
money from insurers if they decided to
outsource some of their services, such as the
whole claims handling or debt collection. We
Small and medium-sized enterprises tend
to buy the whole range of services while big
companies tend to buy single services. In
general we are open to selling selective services,
but we also point out the danger of doing so

PART III — BROKER PROFILES
would not do that for free.”
Mr Neubrand said that the main cost
factor for GrECo is staff and this accounts for
55% of its net turnover. Some 3% is allocated
for depreciations and the rest is for normal
business operating costs. The profit margin is
about 13%.
“It used to be higher in the past, but
the rapid expansion to eastern Europe has
brought down the margin. We are satisfied,
however. At the moment, we have to gain
market share and turnover,” he said.
For global coverages and programmes,
Mr Schenk said that both the global broker
and network approach have advantages and
disadvantages. “I know dedicated networks,
which have an excellent performance in some
countries, but not in others. It is difficult for
big brokers to find top-class staff in every
country and have top-class know-how.
“So when risk managers use brokers
with their own network, they are also
affected by its weak points. On the other
hand, a loose non-owned network without
clearly defined service standards, authorities
and without reporting services is also not
the ideal solution. I think the truth lies
somewhere between the two models. I know
risk managers who rely on owned networks
in some countries and on associations in
others,” he said.
To follow their customers’ changing
demands brokers need to focus on Asia
above all, said Mr Schenk. But, he said, they
will soon also need to focus their attention
on African countries. “That was one of the
reasons for our deal with JLT, so we’d be able
to offer services to our customers in these
countries,” he said.
Mr Schenk reckons that about 50% of
risk is insurable today but pointed out that
it depends on the individual company. “A
pharmaceutical company has a different risk
profile to a steel company. It all depends on
the industry. To a certain extent there is a lack
of proper insurance offers for reputational
risks, risks connected to intellectual property,
cyber risks and commodity price risks.
“However, insurers have become more
open to those risks in recent years due to
pressure from the industry. There are also
arguments that clients will not pay for some
new insurance solutions or that the lack
of experience prevents insuring new risks.
It’s possible that there will be no insurance
against climate change, but insurers are
working on business interruption policies
without a preceding property loss. I am
optimistic, although we still have a long way
to go,” he said.
Risk realignment
The key risks identified by GrECo are an
increasing demand for liability cover,
especially for environmental liability cover
as a result of new legislation and companies
are also asking for business interruption
policies without a preceding property loss,
said Mr Schenk. Product recall policies are
also popular currently, he said. The most
important risk currently for customers is
non-damage business interruption and
supply chain risk as highlighted by the recent
earthquake in Japan, said Mr Schenk.
“The supply chain risk has become a
hot topic for companies, the dependence on
suppliers and consequential damage. They
want to discuss these topics with the brokers.
I think insurance solutions are only second
best here. First comes risk management.
Risk managers have to check which suppliers
they are dependent on and to what extent
and where there are alternatives. Insurance
can only supplement this risk management,”
he said.
Mr Schenk said that systematic risk
management is the answer for emerging
risks. “You have to sit down with clients and
check what risks they have, how high the
probability of a loss is and what it might
cost them. After that, you have to think of
technical and organisational measures to
reduce the probability of a loss. The rest is an
issue for the insurers.”
And GrECo, like all good brokers, is
working on new products and services to
help its customers cope with new risks. “We
are working on cover for gradual losses and
renewable energy. In addition, we developed
the GrECo Online Services.
This is an internet-based tool which
clients can access any time to check their
contracts and claims data and to add
additional data. Furthermore we created
underwriting guides about specific risks
in certain industries. The main risks are
described and quantified there. It is an
interesting tool for benchmarking clients
with regard to claims history,” explained
Mr Schenk.
JLT’s Mark Drummond Brady,
International Chairman of Risk
& Insurance and Executive
Director, and Rory MacLeay,
Managing Director of the JLT
International Network, told
Adrian Ladbury about their
plans for the broker’s corporate
insurance customers in Europe
and why its approach makes
sense for insurance buyers
LONDON-BASED JARDINE LLOYD
Thompson Group is one of the
biggest insurance brokers in the
world, formed in 1997 by the
merger of Jardine Insurance Brokers
and Lloyd Thompson Group.
The merger combined Lloyd Thompson’s
specialist skills in the London Market with
Jardine Insurance Broker’s international
network which included a significant
presence in the Asia Pacific region.
JLT delivered a strong trading
performance in the first half of 2011 as total
revenue increased by 9% to £411.3m with
organic growth of 7%.
> JLT
Strength through partnership
Underlying trading profit increased by
8% to £76.1m.
JLT operates three business divisions:
Risk & Insurance (80% of revenue); Employee
Benefits (16% of revenue); and Thistle
Insurance Services (4% of revenue).
Combined revenue increased by 10% to
£327.3m, driven by organic growth of 8%.
The group said that the growth was
underpinned by the strong
performance of its combined retail
operations around the world,
which generated organic growth
of 14%.
This, it said, illustrated the
benefits of the broker’s continued
investment in the faster growing
economies.
Mark Drummond Brady
said that the strategy for the
more mature markets of western
Europe is to work closely with
the domestic markets via owned
or partner entities, and export its
own specialty skills when appropriate.
“In certain European countries foreign
ownership of service providers is still not
necessarily a popular concept, and we also
need to respect the interests of our clients,
who would often prefer to partner with
39
Mark Drummond
Brady
indigenous companies,” he said.
Thus in France, JLT has an equity stake
in Siaci Saint Honoré (S2H) and lets it take
the lead in the domestic market, providing
specialist support when required.
“We definitely do not feel the need to
own, control and rebrand a French operation,
although the network association is clear in
their branding. Each country provides its
unique challenges and culture,
so the key for us is individual
focus. We need to combine strong
domestic expertise with our
international know-how for the
benefit of our clients. Therefore, if
ownership is not a viable option,
we will look to partner with the
strongest independent broker in
that country. We expect them to
have the capability to compete for,
and win, the largest accounts in
their territory.
Mr Drummond Brady said
that if JLT had a huge balance
sheet it would like to be in full control.
“Where we can, we do have a controlling
interest, such as the partnerships that we have
in Latin America. These are all joint ventures
where we have a managing ownership. In
Europe the firms that we partner are of a

PART III — BROKER PROFILES
significant size. Ecclesia for example has a
total revenue of about €150m, so we do not
have the appetite or firepower to take control,
even if that was an option,” he said.
“We do have minority interests in
S2H and GrECo and in these cases, as with
Ecclesia in which we have no equity interest,
we manage the partnership effectively
through an exclusive trading agreement. This
agreement encompasses compatible branding
and mutual development of all insurance,
reinsurance and employee benefits activities,
including shared technology, for the benefit
of clients across all industry sectors.
“We have a European Business
Development Forum that includes the CEOs
of our key partners, which meets three
times a year, and focuses on marketing,
business development, and the continual
improvement of service to our clients, all
measured with financial targets,” continued
Mr Drummond Brady.
The key benefit for the partners is
knowledge-sharing, said Mr Drummond
Brady. He said that JLT can learn a huge
amount from Ecclesia about healthcare for
example.
“We are encouraging them to develop
some specialty lines for which we can offer
support and for which we have individual
specialists, such as in life science. In France
for example we have developed, with Siaci
Saint Honoré, the energy business which sits
alongside their strong nuclear business within
JLT Energy SA France, a joint venture,” he
explained.
This makes it is a very ‘actively driven’
partnership that carries JLT’s branding and
paperwork, said Mr Drummond Brady.
“With GrECo, Ecclesia and Siaci there is a
focus to help develop specialty business and
target major corporate clients, to work with
local markets and to offer our structuring and
syndication skills. We are trying to shake up
how business is placed in local markets—not
necessarily looking to extract the business
from them into London, but to change the
way it is transacted, for the clients’ benefit,”
he said.
Flexibility is the main reason why a
corporate insurance buyer would use JLT
rather than Marsh, Aon or Willis, according
to Mr Drummond Brady.
“I would say that JLT’s approach is one
of partnership; we have no set mandate, nor
model. With global programmes, for example,
we can offer a great degree of flexibility from
both a marketing and service perspective.
We can provide the structuring skills and
technical understanding that is perhaps
not available purely in the local market and
from this mix you can extract real price and
coverage advantage. The real advantage from
our western European system will come from
just better collaboration between us and our
partners. Obviously anyone can say that, but
we really do not just leave it to happen ‘by
magic’. We actively manage our relationships
and don’t just wait for the business to move
from A to B,” he said.
Rory MacLeay, Managing Director of
the JLT International Network, added: “We
have to be prepared to listen to our global
clients and provide alternative solutions,
which can often challenge the traditional
global programme model. Value is key to our
approach, and the local broker on any global
programme must add value to be part of the
arrangement.”
Mr Drummond Brady said that insurance
buyers today do not necessarily want to pay
for all services and, in some cases, he has also
seen that some local broker service is not
always up to scratch.
Structural upheaval
“Global programmes are currently under
severe pressure. Markets are currently soft
almost everywhere and no finance director
wants local subsidiaries to pay more for their
coverage when they can obtain comparable
coverage for half the price locally, particularly
if the integrity of a global programme is in
doubt. Ultimately if the premium is cheaper
and the coverage roughly the same it is
difficult to argue against the advantages of a
global programme but understanding how to
structure it properly is so important. There
are some current ‘hot topics’, such as fronting
of Directors’ & Officers’ coverage through
a global programme, where, for example,
compliance issues have come to the fore. It
is critical that the client understands these
questions,” he said.
Mr Drummond Brady said that there are
obviously significant insurers that have the
capability to arrange global programmes, but
not many which have true global coverage.
He said that service is normally good, but
still always needs ‘policing’. The problems
arise when ancillary and compulsory local
insurances are needed, where, in his opinion,
the ‘global’ non-life insurer is not the best
insurer for these classes and therefore cannot
really provide a ‘one stop shop’.
“We can effectively be the ‘global
policeman’ and provide advice on the myriad
of compliance issues which our clients are
facing. We would advocate that if a client
does not have a broker in the process, they
may be at the mercy of the insurer selling
only their own line of product, and also
may not be able to accurately monitor gaps
and duplications in coverage. This is the
same argument as to why use a broker at all.
But particularly with global programmes a
buyer can enter into an insurer’s system, or
put together a bespoke programme with a
broker,” said Mr Drummond Brady.
Mr MacLeay said that risk managers
currently live in ‘difficult times’ and
adherence to compliance and tax regimes is
vital.
“The ‘head in the sand’ approach
will now simply just be too expensive.
Governments worldwide are looking to
maximise tax income, and insurance is under
as much inspection as any other area. Global
programmes are rarely going to be completely
compliant, when you still have DIC and DIL
covers to place, which are often in theory
illegal,” he said.
“There is a lot of pressure for the fronting
policies to mirror more closely the master
policy, as payment of a claim from a DIC
policy into a country can be deemed illegal,
and if the claim is paid to the head office,
movement of money back into a country will
only attract the tax man. As a broker we have
to provide our clients with the best advice
possible, but of course compliance comes at a
cost,” said Mr MacLeay.
JLT has a specialist multilingual global
service team that coordinates global activities
into its network so that it can centralise the
knowledge and communicate changes to
regulations.
“We are trying to provide a proactive
rather than reactive service to our global
clients. Interestingly a few major global
clients, which before may have only used
us for access to the London market, have
also now appointed us to handle their
international programmes. They have been
attracted by our flexible service model,
where we do not superimpose a fixed menu,”
continued Mr MacLeay.
LEUE & NILL REPORTED A
turnover increase of about 3% last
year and acquired some new clients,
which was a bonus in a tough year
for all. “We are mainly glad that
our clients remained stable in their core
business and that they left the crisis stronger
than before. In other words, we chose the
right clients,” said Stefan Nill, member of the
executive board.
Leue & Nill works mainly for German
medium-sized companies which are generally
owner-managed, with a turnover of between
€50m and €500m.
The strategy for growth revolves
around industrial associations like the trade
association for steel and metal companies,
Wirtschaftsverband Stahl und Metall. The
broker cooperates with the association via its
> LEUE & NILL
Knowledge is all
Stefan Nill, member of the executive board of Dortmund-based
broker Leue & Nill told Anne-Christin Groeger that only by
specialising in industry segments and delivery of state-of-the-art
IT solutions will brokers enhance their value
affiliate Versicherungsstelle Stahl und Metall.
Mr Nill said that the company wants to
concentrate on international projects such
40
as plant and engineering construction, with
the exception of nuclear power plants and
therefore has its own engineering staff and

PART III — BROKER PROFILES
can act as consultants.
“We want to concentrate on special
concepts for various industries like
automotive suppliers, trade chains and
the food industry. We want to expand our
engagement in these industries with measures
like special training programmes for our
employees,” said Mr Nill.
Like all brokers Leue & Nill needs to
differentiate itself from the crowd by offering
something special.
“We have a department which develops
tailor-made IT systems for our clients,
especially in the liability segment and
for clients with generally high claims like
retailers, supermarkets, fast food chains. In
addition to that we offer completely paperless
communication. These systems should make
life easier for clients,” he said.
Through the looking glass
As with many of its peers, Leue & Nill argues
that brokers are needed because they offer a
broad market overview and can help to make
the market transparent for the risk manager.
“Brokers can inform them [customers]
about legal changes, trends, market
participants. We also observe the ratings of
insurance companies. These are services risk
managers can hardly attend to themselves.
They would have to hire specialised staff.
We see ourselves as our clients’ outsourced
insurance department,” he said.
And the main reason for using a
broker is that they are able to protect the
company’s balance sheet. “The company
transfers the liability for signed contracts to
the broker. In my opinion this is the main
reason,” said Mr Nill.
Mr Nill said that the core service that a
broker should offer in the modern economy
is the creation of market transparency and
the ability to deliver a knowledge of market
trends. “Again IT plays an important role in
this process. It is essential to offer tailormade
IT solutions especially in the areas of
claims and contract management. Brokers
should be able to develop their own insurance
concepts, exclusively developed for a certain
client or the special industry that the client
works in,” he said.
“Of course, these services are nothing
special, almost all brokers have similar offers
in their portfolio. We place importance
on having one’s own claims management
department in each insurance segment. It
is essential to have appropriately qualified
personnel. That is why we train apprentices.
Many brokers face the problem of finding
young and well-educated staff because they
do not train apprentices. We also try to
distinguish ourselves from our competitors
by having a solid equity base,” continued
Mr Nill.
There is a question currently about
whether customers will demand that brokers
offer a complete A-Z service in future or will
seek to increasingly unbundle the services
and use more niche brokers.
Mr Nill said his company’s strategy is to
focus on niche markets. “We are on the right
track here. There is a trend towards requesting
special know-how. But it should come from
a broker which can cover the whole range
of services. The broker’s employees have to
know how a certain industry works. They
have to understand and speak the client’s
special language,” he explained.
As to the future model, Mr Nill thinks
that the market will consolidate even more
and that brokers will have to specialise, in
order to achieve ‘appropriate payment’ for
their services.
“Brokers have to network. Companies
which cannot rely on international
cooperation agreements, networks or affiliates
will fall behind, especially in Europe, where
almost every large company operates on an
international level,” he said.
In industrial business brokers should
be paid an hourly rate or a daily fee as
is common practice with lawyers or
accountants, said Mr Nill. “Sometimes I have
the feeling that the broker’s achievements
are neither paid appropriately, nor are they
appreciated by the clients,” he said.
Mr Nill thinks that the current
commission level is transparent enough but
added that ‘appreciation’ for good brokers’
performance could be improved by improved
commission schemes.
Brokers have to be able to calculate rates
on their own and prepare risk documents that
the insurance company can access easily in
the future said Mr Nill.
“Brokers must be able to handle claims
in a way which supports the insurer. And
they have to have access to special IT
systems which allow data exchange with the
insurer. There is a trend towards insurance
companies transferring administration duties
to brokers, especially in connection with
contract handling, debt collection and risk
engineering.
“This is due to the many job cuts in the
insurance industry. I think daily fees are the
most appropriate way to charge insurers for
this work. In our day to day business we are
satisfied with the way insurers pay for our
services. We believe we can deal with things
faster and more economically than insurers
can.” Mr Nill is not happy with the level of
transparency involved with insurer payments
to brokers based on the volume of business
placed with them.
Client side
Asked if he is happy with the situation, he
said: “Absolutely not. We already had this
scenario a few years ago. There definitely
would be a conflict of interest. This is not
in the interest of the client who suffers as a
result. Brokers represent the clients’ interests,
not the insurers’ interests.”
Mr Nill believes that, to arrange global
coverages one needs to play a clever game
to best represent the interest of the client.
“You need to cooperate with global brokers,
who are part of an international network,
irrespective of whether they are large
brokers or a smaller independent company
which is part of a network. Insurance
markets are becoming concentrated, legal
situations change constantly. The broker’s
job is to accompany the client through these
processes,” he said.
The growth markets for brokers are Latin
America, India, Russia, and South East Asia,
according to Mr Nill. “The insurance industry
is still growing there. Brokers will have a
prosperous future there if they are able to
position their services in a sensible way. In
Central Europe, however, the slices of the
cake are becoming smaller and smaller,” he
said.
Business interruption without preceding
property loss is one of the most important
topics for Leue & Nill’s customers. “This is
one of the consequences of the catastrophe
in Japan. If a country and its industrial
production stop for 30 days companies feel
the consequences. This can even take 90 to
150 days,” said Mr Nill.
Danger money
Most important current risks for customer
are credit risks, then reputational risks,
supply chain risks, cyber risks and political
risks. “Political risks are also important,
And the main reason for using a broker is
that they are able to protect the company’s
balance sheet. “The company transfers the
liability for signed contracts to the broker.
In my opinion this is the main reason.”
because of the uprisings in the north of
Africa. Everybody is worried about being
expropriated although this has not happened
yet, as we have seen in Egypt,” said Mr Nill.
As to the implications of the recent
Japanese earthquake for brokers Mr Nill said
that supply chain risks have been ‘totally
underestimated’.
“Even large companies which have
established a satisfactory risk management
programme have been affected. They did
not know their supply chain risks as well
as smaller companies and did not know
how severely they would be affected by this
standstill of business,” he said.
To help customers cope with such
emerging risks Mr Nill said that brokers need
to know their market. “You have to find those
products a customer cannot construct on his
own. After that you have to familiarise your
customer with these products and to analyse
the real risk potential. We are all still looking
for a solution in the segment of business
interruption without preceding property
loss,” said Mr Nill.
To tackle this Leue & Nill are working
on tailor-made products for reputational and
cyber risks, said Mr Nill. “They have been
specially created for individual clients. I do
not think that it is possible to sell ready made
insurance contracts without considering the
individual client’s needs,” he added.
41

Julian James of Lockton
explained how the
privately owned international
brokerage attempts to stand
out from the crowd through
a focus on customer service
and quality staff
US-BASED PRIVATELY OWNED
broker Lockton was founded in
1966 and is the world’s largest
privately owned, independent
insurance brokerage firm.
The year it was formed it generated
$50,000 in revenue. By 2011 that revenue had
grown to $836m on the back of over $16bn
premiums placed on behalf of clients.
It boasts more than 4,100 employees
around the world in 55 offices. Some
25 offices are in the US and the rest spread
across Europe, Latin America, the Middle East
and Asia.
It bases its European business in London
and has nine other offices in the UK and one
in Dublin, Ireland.
Knowledge & advice
Julian James, Chief Executive Officer of
Lockton International who joined in 2007
from Lloyd’s of London where he was
Director, Worldwide Markets, said that the
broker’s basic role is to provide dynamic,
independent and objective advice, coupled
with a knowledge of what is happening in the
underwriting market.
“Brokers can add real value to the
customer’s knowledge base. On top of this,
most multinational companies need access
to a partner which can provide local support
and an intimate knowledge of insurance
regulations and requirements in their key
trading countries. How much any individual
risk manager needs depends on their own
capabilities and resources, so the broker then
complements what they have,” continued
Mr James.
How to differentiate oneself in the
corporate risk market is important to Lockton
because its fundamental philosophy is that
its structure should not get in the way of
what the client needs. “So we are organised
around our clients. This gives us the ability
to think long-term about what resources we
need and how they can best be used for the
clients. Most importantly, no one is more
senior in our organisation than the individual
who looks after the client. No one at Lockton
PART III — BROKER PROFILES
> LOCKTON
Striving to be different
can be prioritised away from the client, and
people have to be totally focused on servicing
them. Typically we have a lot of intellectual
‘grey hair’ working closely with the clients,
and our most experienced people remain
client facing and are taken away to do more
general management,” explained Mr James.
With this philosophical basis then the
structure of the company becomes ‘quite
simple’ said Mr James because anything that
is not designed for the benefit of the client is
a ‘failure’ and needs to be fixed.
Asked why all brokers do not structure
themselves this way, Mr James said that the
size of some companies means that they need
rigid organisational structures to make the
cost base work effectively. In others, listening
to their clients is just not part of their culture
and ethos, he added. “They think
they know better than the client
which can never be right,” said Mr
James.
The core services offered to
customers have not changed much
over time because the basis of the
client need has not really changed,
said Mr James.
“Risk managers say that they
want insurance placement and
structured advice, then a global
knowledge of the insurance
market, the risks themselves
and rules and regulations are
clearly critical. Finally a degree of objectivity
and independence about risk analysis and
evaluation is needed, along with market
intelligence. And, we must never forget that
one of the key services is to make sure that
the insurer is willing and able to pay the
claims when they occur. That is what we are
all here to ensure,” he explained.
Some risk managers have complained
recently that brokers are failing to give clear
advice about the security of their insurers,
especially when they appear to be struggling
perhaps because they are fearful of being sued
if it is subsequently proven that the brokers’
advice to pull business actually caused the
ultimate demise of the company in question.
Mr James said that security advice is
actually quite important. “Like many of
the major brokers we look at security from
both a public and private perspective. In any
marketplace where you are an active player,
you tend to know your stuff, much more
so than people who are not involved in the
market on a day to day basis,” he said.
How to differentiate oneself in the
corporate risk market is important to
Lockton because its fundamental philosophy
is that its structure should not get in the way
of what the client needs
42
Julian James
Mr James said that he does not perceive
the need for a one size fits all model across
the industry for brokers in the future.
“We are clear that our model does not suit
every single buyer, and we are not trying to
build a solution that works for everyone. So,
the key is flexibility and adapting to different
issues and concerns. Certain types of clients
suit our flexible structure better than others.
We are happy with how we are organised
currently and, if you look at our track record
in insurance over the last five years, we have
achieved consistently above average growth.
So clearly we have a strong and attractive
model,” he said.
Lockton’s mainland European strategy
is based on its partnership with a number of
European brokers via the EOS RISQ network
which has combined revenues
of over €1.2bn. The partner
companies are Assiteca (Italy),
Diot (France) and Vanbreda Risk
& Benefits (Benelux).
“This gives us excellent local
partners in key markets. The
strength in a network, rather than
building a global structure, is that
you can use the broker who is best
placed to solve the problem for
the client. You can choose to work
with the best in any particular
market,” said Mr James.
“We have chosen privately
owned brokers—each a market leader in
their country—which share our philosophy
on client service and providing consistent
contact at every stage of the process. As
independent, practitioner-led businesses, we
provide a unique combination of insight into
local customs and practices, and access to
international expertise,” he continued.
Pace of change
As to the risk environment, Mr James said
that it is clearly evolving very rapidly for
everyone. In some cases this is caused by the
rise of new risks such as cyber liability or data
breach problems, in other cases the risks are
just new to that client because they have not
seen that problem before, he said.
“For example, any company that trades
online should expect to be a victim of
data breach, and must have robust crisis
management plans and excellent risk
management protocols in place. Firms should
frequently monitor their online security
systems, collect and retain as little customer
personal information as possible and encrypt
any information held. Crisis management
plans should include client notification
as well as operational risk management
systems,” he said.
“In addition, there is now specific,
tailored, cyber liability insurance that will
help to transfer some or all of the financial
costs associated with client notification,
IT audits and brand reputation management
from their balance sheets. Anyone
questioning the value of these measures

PART III — BROKER PROFILES
should just take a look at Sony and turn
the question around: ‘Can I afford not to
take these steps’ This is just one of the
topics that we are discussing with increasing
frequency with our clients,” continued
Mr James.
The advantage of going to a broker is they
see in one year what an individual company
may only see over a decade, he pointed out.
“We can share our experiences. It is very easy
to focus on the new and exciting risks but it
is always surprising to look at a business’ risk
register and see that the amount of risk that is
actually transferred to the insurance market is
relatively minor,” continued Mr James.
He said that this presents a ‘huge
opportunity’ for the insurance carriers and
brokers to help the client bridge that gap.
“The insurance industry has always done
a very good job providing traditional lines
of business such as property, liability and
more recently D&O. It does a very good job
for commercial customers with competitive
policies. But there are a lot of companies
that have large areas of their business that is
simply not insured and both the carriers and
brokers need to do a better job collectively,”
he said.
People are important to Lockton and
this is another one of the areas that it feels
enables it to stand out from the crowd
and perhaps impress customers that often
complain about the lack of qualified staff,
continuity and loss of experienced people
once the account is won.
Pace of change
“More than 15,000 clients rely on Lockton’s
4,100 plus associates for their expertise in
managing risk and creating employee benefit
programmes. We attract top talent by giving
associates the ability to maximise their skills,
making Lockton a great place to work and a
better place to provide the best service to our
clients,” said Mr James. He said that private
ownership allows Lockton to invest more in
its people. For example, each new associate
spends the equivalent of two weeks in their
first year alone on development and training.
Lockton clients consider their service team
an extension of their own risk management
and human resources teams, according to
Mr James. “We place a tremendous emphasis
on assigning the right service team members
to each client. In addition, our associates
understand the critical importance of
learning clients’ businesses and industries.
Each associate is strongly encouraged to
participate in specific industry organisations
and societies and many of them do so on a
regular basis,” he said.
“You will note that we use the word
associates instead of employees. That’s
intentional. It’s a sign of respect for our
colleagues around the world. And it’s a daily
reminder that we are professionals with a
commitment to serve the greatest clients in
the world,” concluded Mr James.
Martin South, CEO of Marsh
UK, told Adrian Ladbury about
Marsh’s plans for expanding its
base in the UK mid-corporate
market as an example of how
the global giant is developing its
strategy to meet customer needs
MARSH UK IS THE BIGGEST
part of Marsh in the Europe,
Middle East and Africa region
in terms of both profitability
and revenue and in many
ways the test-bed for the development of the
global broker’s strategy across the region.
Last year was a busy year for Marsh both
across the EMEA region as it embedded its
acquisition of HSBC Insurance Brokers [Marsh
completed the acquisition of HSBC Insurance
Brokers Limited in the UK and other key
markets in Asia and the Middle East in April
of last year].
Mr South said that through this business
the broker acquired pockets of excellence and
other business lines with great potential. The
ongoing relationship with HSBC continues
to grow and Marsh has also entered into an
agreement as a Preferred Strategic Partner to
HSBC which provides the broker with the
opportunity to provide insurance broking and
risk management services to corporate and
private clients referred by HSBC. “The HSBC
banking operation could not have been more
positive; it has worked well and become a big
business driver,” he said.
Over the last two years Marsh has focused
on profitability with an aggressive analysis
of expenses and the back office. “We are
seeing the fruits of this now and growth is
strong, especially organic growth. This has
been driven by more closely matching our
structure and processes to the needs of our
clients and a close attention to our operating
platforms. This is important because Marsh,
as a worldwide organisation, needs to be
> MARSH
Drilling down
able to support clients’ global operations,”
explained Mr South.
One important focus for the UK operation
has been on the SME sector—companies with
less than £25m in turnover.
Leadership qualities
Mr South said that in the UK Marsh had
a modest market share. “Despite some
scepticism about our prospects, I said: ‘You
cannot look after these companies the same
way you do for a FTSE 350 business; you
cannot offer a cost-effective service that
way’. So we carried out a strategic review.
We decided that we wanted to play in this
segment but recognised that if we wanted to
grow we needed to work out the operational
model and distribution strategy to build a
leading position,” he said.
Mr South said that in the
education sector, HSBC had a great
franchise. Marsh was the leader
in the state education sector and
HSBC in the private sector. “Now
we are a good size and looking
at how to roll out our offering to
the wider SME sector and develop
our commercial offering,” he
explained.
The overall market remains
highly competitive despite
tentative signs of a hardening or at
least flattening in some sectors. To
achieve continued growth in such
conditions Marsh very clearly segments its
business, but it is not easy said Mr South.
“In education we have a very high share
in the UK market and a greater top line
than last year because specialism works.
It is the same as what we do in the large
account space where we have strong client
relationships. However, organic growth is
tough for all brokers. Clients are very loyal.
43
Martin South
You take three steps forwards and two steps
back,” he said.
Growth in the large client segment is
about never losing clients because of poor
service, said Mr South. Innovation is where a
broker can really make a difference [See panel
on innovation from Airmic debate on the next
page], he added.
“You have to be fully resourced and find
innovation where no one else has sought
or found it. We have created an innovation
council through which we have pulled
together our top technical brokers. Rather
than manage a department, we set these
people the task of creating ideas to get deals
going. George Davies, the Head of our Risk
Management Practice, runs this council and
has created a collegiate atmosphere.
One key area for this is supply chain and
business interruption. There are so many
different triggers for liability
policies nowadays and you have
to think carefully and creatively
in this area,” he said.
One of the problems with
innovation for brokers is that
they do not often talk to the real
decision-makers in the larger
corporations especially and risk
and insurance managers have to
build interest with a wide range
of interested, or not so interested,
parties within their companies.
Mr South agreed with this
argument to an extent but noted
that this is why innovative approaches
can work better in the mid- to large-sized
corporate sector because the broker tends to
deal with CFOs and CEOs.
“This means that effectively the
value proposition is that we will be
their risk management function. We love
the sector because we are right in the
middle of the decision-making process.

PART III — BROKER PROFILES
We talk to the owners of the companies
with turnover between £25m and £750m.
These are good-sized companies.
“They see the value of insurance for
sure, perhaps more than any other type
of company because it really is a form of
funding and the idea of unlimited liquidity
has clearly gone now. These companies also
increasingly tend to operate overseas in
countries like India and so need technical risk
management advice and need to be aware
of their risk exposures,” he explained.
A number of European risk managers
have said recently that they like the idea of
working with such smaller niche brokers as an
alternative to the big brokers such as Marsh.
Mr South responded that Marsh is ‘multiniche’
adding that he would argue ‘strongly’
against the niche concept as things can ‘slip
through the cracks’.
“It is difficult to expand the product box
via silos. We can do our job as efficiently as
we do it because we do it overall. Of course
we can access Lloyd’s. We are providers of
unbelievable guidance and expertise. We have
experts in policy wordings who have worked
all their lives in particular disciplines and
markets and our job is to bring it all together.
It is often a tough job and the unsung heroes
are the client executives who get it all done,”
he said.
European risk managers also often
complain that the big brokers move their
skilled staff around too frequently and rely
on large numbers of low skilled individuals
to deliver the revenue once the deal has been
sealed. Mr South recognised the complaint
and said that talent management is a ‘vital
question’. He pointed out, however, that
despite popular belief the problem may
actually be worse in smaller brokers than the
big ones.
“If you work in a small organisation
you start in general management. But if you
want to get on you have to move into senior
management.
“I feel, however, that you can do very,
very well at a large organisation like Marsh
if you stay doing what you are good at
and what you feel comfortable doing,” he
explained.
“We have plenty of people who are very
good at their specialist area and we do not
want or need too many general managers.
We are investing significantly in quality with
clients. That means hard analysis and review
of profitability and when we do that analysis
we execute the findings. This drives growth.
Mr South pointed out that certain
individuals may not be ‘cut out’ to be general
managers but are passionate about what
they do. “The key is to ensure that they are
rewarded and valued for this,” he said.
He also said that Marsh had ‘opened the
gates’ to graduates in 2009 and in 2010. Some
15 out of 1,100 applicants ‘made it’ and the
UK arm of the group has another graduate
intake this year.
“You need to create the funnel so that
if good people leave you can replace them.
We made the decision to pay them very
well compared to other professional services
firms. But we do expect our graduates to be
ACII qualified within two years,” explained
Mr South.
HARD WORK LEADS TO INNOVATION
Martin South took part in the main panel debate at Airmic
hosted by CRE Editor Adrian Ladbury. One key question
posed to the panellists was how the brokers and insurers
could up their game on innovation because many risk
managers in Europe feel that the market is failing to come
up with the right solutions at the right speed, missing
opportunities and losing market share as a result
Mr South said that innovation has never been easy for the insurance
industry for many reasons.
One barrier is that insurers and brokers face potential anti-trust
issues if they sit around a table with each other to exchange ideas
which has meant that some good ideas have been ‘buried’.
Mr South also said that egos also have a role to play because
inevitably the discussion about which insurer takes the lead and
which follow are also factors.
But he also conceded that perhaps the brokers can work harder
and in a more focused way. “I think, in fairness, brokers run off and
develop ideas and concepts possibly without the right input from
insurers or having thought and worked hard enough with clients.”
Another barrier to innovation in insurance is the natural desire
by risk managers, brokers, insurers and reinsurers to protect the
information they generate or gather as ‘proprietary’.
And also Mr South believes that the new breed of regulations
such as Solvency II will certainly prove to be a further barrier to
innovation.
Despite all these impediments, however, the Marsh man
believes that now is currently the perfect time for innovation and an
opportunity for a broker or insurer with the right level of desire and
capability.
“I don’t think there has been a better time for us to think about
innovation because the world is so different to when most of our
products evolved. Just go back twenty years, most utility companies
took the coal out of the ground, they shipped it to the power
stations and that was then taken by their own facilities to peoples’
homes,” said Mr South.
“These companies also sold white goods. Whole industries were
virtually integrated. That is almost unknown today and yet our
insurance products haven’t changed in the supply chain area,” he
added.
Mr South said, in his opinion, innovation is one area where
the insurance industry can make progress. He pointed out that the
industry remains well capitalised despite the credit crisis and recent
catastrophic events.
“The industry has a good reputation and a chance right now
to look at products where the insurance industry understands
44
frequency of events and then can redesign products where maybe
the severity could be worse,” he said.
Mr South said, however, in order for real innovation to occur
the insurance industry may need to rethink the fundamental model
somewhat. He said, for example, that perhaps different control
mechanisms around aggregation of risks would be needed.
Also it is possible that the market needs to acknowledge that
such innovation could lead to a new way of buying insurance and he
conceded that many brokers may see this as a threat because it could
lead to ‘substitutional’ purchases.
“If I recommend to my client that they buy broader or different
supply chain coverage, what is going to happen to the requirement
to buy other types of coverages I think we just have to have a very
open discussion and try to understand the real impacts on our
clients’ organisations...what are the things that are really going to
make a difference” he said.
“Try and look at the triggers that are there and see whether they
are relevant in today’s treasury world. Are the triggers providing
liquidity in a timely enough fashion for them to be considered
appropriate capital relief or P&L relief products You can then use
forums, like Airmic, to debate these issues with a lot of candour.
I think at the moment there’s still a little bit of wariness and not
enough ambition to change some of the products,” said Mr South.
The broker also suggested that the structure of the underwriting
process as it has developed within insurance companies has perhaps
not helped too.
He said that it can be tough to reach decision makers to discuss
new ideas and have a real discussion about an innovative product or
approach without having it cleared by general management.
“Then it gets bounced around to line underwriters that cover
multiple silos in different divisions in insurance companies. If you
look at supply chain, there’s political risk, there’s an environmental
aspect to it and there’s property damage. There’s a whole range
of areas and getting people to connect the dots is tough; it is
challenging. When innovations such as D&O or offshore rigs in
Lloyds were happening, you were speaking to the underwriter,”
explained Mr South.
Mr South agreed with one delegate who said that perhaps more
importantly the industry has a similarly big challenge as it attempts
to market new ideas outside to the real world customers.
Mr South said that the industry ‘falls short’ in the way it sells
itself. “If you take business interruption for example. I was with a
client recently and a while ago they’d had a couple of big BI losses.
It took forever for them to get paid. Admittedly it was for loss of
profits so it wasn’t as binary as you indicated about how losses play
out. Had we just started out with a more simple product whereby if
this happens the policy will pay X, frequency would have been the
same,” said Mr South.

PART III — BROKER PROFILES
PORTO-BASED MDS CLAIMS TO
be the largest insurance broker
in Portugal and the third largest
corporate insurance broker in
Brazil, an emerging market
where the company is increasingly involved.
Revenues in the South American country
increased by 14% last year, and in the domestic
market the rate of growth reached 8%.
The MDS group is owned by Portuguese
industrial group Sonae, which has a 50.01%
stake in the company, and Brazilian paper and
pulp group Suzano, which owns 49.99% of
the total.
MDS defines itself as a full service broker.
It works in several different areas, including
industrial and corporate risks, employee
benefits and affinities. The company provides
risk management consultancy services, and in
2010 it created a specialised subsidiary, Herco,
which operates in Portugal, Brazil and Angola.
It owns a unit that specialises in motor
insurance, MDS Auto, and a wholesaler, MDS
Partners. The group also holds a 25.4% stake
in Cooper Gay Swett & Crawford, the world’s
fourth largest reinsurance and wholesale
insurance broker. With Portuguese companies
increasingly looking to expand their activities
to other countries, MDS strives to follow them
wherever they go, said CEO José Manuel D.
Fonseca. For that reason, it is a member of
Brokerslink, the global brokerage network. Mr
Fonseca argues that the membership enables
it to provide coordinated global services to its
clients, while at the same time keeping the
advantages of local proximity.
Mr Fonseca said that its partners in the
network are entrepreneurial, independent
brokers with a particular focus on
international clients. Brokerslink is currently
chaired by MDS.
Mr Fonseca said that networks can be
very efficient, with the capacity to deliver the
global service and vision that cross-border
clients need.
“At Brokerslink, there is an effort to
make sure that local partners are in tune with
> MDS
On the march
originating brokers, as the ability to promptly
respond to needs is a guarantee for the client,”
said Mr Fonseca.
“Members strive to share know how
and skills, which represents an interesting
alternative to the centralised teams of the
large global brokers,” he continued.
There is also much less red tape and no
conflict of interests, argued Mr Fonseca. The
bottom line is that a good network boosts
competition and guarantees independent
dealings with insurers, he added.
And in emerging markets
the advantages of networks
are particularly relevant, as
local partners have a better
understanding of the local culture
and ways of doing business.
Mr Fonseca said that he
believes that the market is the
best tool to determine the most
effective model for insurance
brokers.
The fact that premiums have
fallen for a number of years reflects
a high level of transparency and
the effort made by brokers to obtain the best
prices, he said.
Clients are not obliged to work with
brokers and can choose to employ more than
one broker to look for the best insurance
solutions. In the end it depends on the quality
of the people involved in the process, said the
broker.
Mr Fonseca noted that some buyers decide
to invest in strong insurance departments in
order to skip the services of brokers. He said
that many of the professionals who work in
such departments are highly competent, but
José Manuel
D. Fonseca
there are others that are just the opposite, and
prove to be too expensive and incapable of
finding creative solutions.
“As in any market, including brokers and
risk managers, there are players of different
degrees of quality to be chosen from,” he said.
Mr Fonseca claims that brokers have the
capacity to optimise the different interested
parties involved in the market. He argues
that brokers can find long-term solutions
that benefit clients while, at the same time,
allow providers to offer a range of
products at sustainable levels.
“The worst solution is to try
and define a model of brokerage by
the stroke of a pen, via regulatory
measures. Clients, especially
large insurance buyers, have a
great capacity to intervene in the
market. Plenty of risk managers
are competent at their jobs and
are perfectly capable of properly
managing their risks. And the
sector is very competitive in most
markets. Buyers will therefore
make the choices that look the
most suitable for their needs,” he said.
On the remuneration side, Mr Fonseca
argues that a fee-based system may not be the
solution that some people believe it could
be. “Clients sometimes lose sight of the fact
that total insurance costs are not the same
as what the brokers charge them. It is, in
fact, the sum of premiums to be paid, plus
the remuneration due to brokers. As result,
sometimes, with a fee-based system, clients
end up paying more than what they would
pay, had they opted for paying commissions,”
he explained.
MEDIATOR IS ONE OF THE
leading independent
commercial insurance brokers
in Portugal and generated
€1.5m in revenue last year
out of two offices and total staff of 19,
including 10 ‘front line’ brokers.
Commercial lines (mainly property,
casualty, marine and special lines) account
for 50% of the business, employee benefits
25% and personal lines the remaining 25%.
By territory the group generates 95%
of its revenue from Portugal and 5% from
international programmes. Of the commercial
business 55% comes from SMEs and 20%
from large corporate accounts.
The international business is handled
through partnership with the Assurex
network. For Mediator the main benefit of
using a broker is market knowledge and access
to latest products and services, independence,
know how in the different risk areas and a
tailor-made service.
The optimum driver for brokers in 10
years’ time will overwhelmingly be to focus
on customers’ needs, it said.
“Brokers will need more focus on risk
management as customers will value more
> MEDIATOR
Transparency will be key
and more risk management advice,” said the
company.
Insurance buyers should use more than
one broker for risk transfer but just one for
risk management advice, said Mediator.
To help manage cross-border exposures
customers need to use a global broker or a
network and national brokers can deliver the
goods so long as they use an ‘efficient’ broker
network, it stated.
To help customers entering challenging
emerging markets brokers need to ‘combine
expertise with an open mind and flexible
attitude to cope with the emerging markets’
way of doing business’, it added.
In the long run, brokers will be paid by
their customers for their services, especially
large customers, stated Mediator.
It said that the traditional commission
level works but added: “We all have to agree
45
that it is still not transparent.”
The shift to a net pricing system is
inevitable according to Mediator. “It is
required to have a clear definition of what
services are provided by brokers and what
services are provided by insurers. This shift
will happen sooner or later,” it stated.
For now, insurers should pay brokers
for the provision of administration services
including claims handling and the like.
To help insurance buyers manage tricky
emerging risks, brokers need to work closely
with the customers, listen to their concerns,
react with creativity and the wider market to
design new products that meet customers’
new needs,” said the broker.
The key emerging risks over the next
10 years will be cyber risk, financial and
environmental risks, said the Portuguese
group.

PART III — BROKER PROFILES
MEIJERS IS A DUTCH BROKER
that is focused upon
commercial and large
corporate business and a
founding member of the
WBN global network.
Total revenue generated in 2010 was
€14.4m out of its office in Amstelveen, just
outside Amsterdam.
Roughly 75% of the business was
property and casualty, marine and automotive.
The balance was employee benefits.
The broker operates all over the world
through the WBN network and receives
incoming business from the partners. Some
30% of its income is based on cross-border
clients. This comprises 80% from EMEA, 10%
from the Americas and 10% from Asia. By
line of business, about 8% is derived from
personal lines, 49% from SME commercial
business and 43% from large corporates.
Fellow travellers
The WBN network has around 60 members
worldwide and is the cornerstone of Meijers’
international activity. “This is a network
comprised of like-minded brokers, they are
independent, entrepreneurial and servicedriven
professionals,” stated the company.
For Meijers the long list of valuable
services brought by an insurance broker for
a corporate risk manager are: provision of a
‘sparring partner’ to evaluate treatment of
corporate risks and to design and structure
risk transfer solutions according to market
capacity and opportunities; information on
market developments; support branding
of the client in the insurance market;
support centralised approach of insurances
in an international operating company;
support transparency of all insurances of
clients on a worldwide basis; marketing,
placement and administration of insurance
solutions; international coordination of the
programmes; claims consulting and claims
handling and settlement.
Looking forwards 10 years Meijers
believes that the optimum model for brokers
in 10 years’ time will be as a consultancy firm
providing expertise on risk transfer strategy
and solutions.
To set themselves out from the crowd,
the best brokers will need to deliver efficient
> MEIJERS
Small can be big
insurance administration in the short-run.
“Transactional activities of brokers will
become secondary. Consulting services to
help assess risks and create adequate and
creative solutions will be central for the
corporate client,” predicts the broker.
The core services that a broker should
offer in the modern economy are an indepth
knowledge of the client activities and
operations to enable it to offer risk-based
advice and integrated international services.
On the question of to bundle or not to
bundle, Meijers states that the relationship
between the client and the broker should
move from one based on buying to
consulting. “For this, the advice on all risk
transfer solutions should be bundled by
one service provider only (the same as the
company accountant or lawyer),” it stated.
According to Meijers, small independent
brokers can also provide integrated
international services. “One is not in
contradiction with the other,” it said.
“A good mix between local and
global knowledge is essential. Insurance
is also driven by the local laws applicable.
Knowledge of the specific environment in
which the client operates is a must,” it added.
To help facilitate expansion in emerging
markets such as China brokers need to create
partnerships with local professional offices
that can bring inside knowledge of the local
market, it said.
RISK RATED
What are the key emerging risks—
which are the black swans that you
will focus upon for your customers
over the next 10 years
■ Reputational
■ Environmental
■ Catastrophes
because of global
warming
■ Political
■ Credit
■ Insurable benefits
■ Pensions
■ Supply chain
■ D&O
■ Demographic
Meijers believes that a fee system for
large corporate clients is the way ahead. It
also stated that transparent commission is
needed for SME clients because the income
alone does not cover the costs of the advice.
“If SME clients need to pay for all the hours
of service, it will be too expensive for them to
buy quality advice,” stated the broker. Meijers
does believe that the current commission
level works and is good for competition.
“Ferma and Bipar have identified rules
of conduct. These rules have been accepted
by risk managers and brokers. However, we
believe that over time, the fees that now only
apply to the large corporates, will also apply
to smaller organisations. The limit will come
down a bit,” it added.
Quality costs
Meijers said that it already sees a shift to net
pricing with large corporate clients. “The
system is too expensive for small companies.
Even consumer organisations agree with this
reasoning. For example look at the mortgage
market. A client with a small mortgage of
€60,000 needs to pay a price for advice,
that is many times the amount of 1% of his
mortgage,” stated the brokerage.
Meijers agrees with most brokers in the
survey that insurers should pay brokers for
the services they carry out on their behalf.
“Our job involves the organisation and
monitoring of the administrative process, the
collection of income and a quality check on
issues across the board.
“To be precise, [brokers] draw up policies,
take care of claims payments, provide
financial statements and deliver the efficient
and effective structuring of risk information,”
stated the broker.
To help customers tackle emerging
risks, Meijers believes that investment in
knowledge accumulation in emerging regions,
global collaboration with local experts and
intensive contact and knowledge sharing with
the client are all needed.
Miller has decided to take
no volume-based payments from
insurers as part of its strategy
to build a more transparent
approach that is 100% focused
on customers’ needs
MILLER IS A LONDON-BASED
broker with a strategy to
build its European corporate
insurance business that is
based on technical know how,
experience and transparency. Ken MacDonald
was hired from Aon as Head of Corporate
> MILLER
The lone ranger
Risks, Miller Insurance Services Limited, with
a goal to build this business.
Mr MacDonald says that Miller’s decision
to recently establish a unit to address the
needs of major corporate buyers in the UK
and continental Europe was centred on a
more ‘boutique’ approach with a ‘foundation
of talented people, technical excellence,
independence and excellent service’.
Mr MacDonald summed this up in one
word: ‘choice’ which he says is even more
valid in today’s environment of continued
46
broker consolidation.
Miller offers an alternative to the big
three or four global brokers. “We have all
the experience without the baggage that
can come with the bigger firms. This is
especially the case around the issue of market
remuneration where our independence
from any volume-based payment, insurer fees,
or other variants really sets us apart,” said
Mr MacDonald.
“The experience of the last 12 months
has demonstrated that it is a transparent

PART III — BROKER PROFILES
approach that most major buyers really want.
They also want true expertise, technical skills
and great service. Our structure as a private
company with no external shareholders
means clients benefit from significant levels
of attention on a day to day basis from senior,
experienced personnel. Our senior people
spend more time with clients than any other
broker in my experience,” he continued.
Miller carried out its own research two
years ago and found that many customers
are not satisfied with the quality of services
offered by the larger brokers. Mr MacDonald
said that the research also told Miller
that there is a willingness within the risk
management community to
consider unbundling and to look
for more specialist bespoke service
providers.
“Why Given the economic
climate and increasing complexity
of risk, more and more companies
want to look at a wider field of
potential partners. Increasingly it
seems buyers feel they are being
offered all or nothing, worldwide
coverage and service from one
broker or nothing at all. It is
inconceivable that a single broker
can offer better value on every
line of business or service the client requires.
That is the starting point for the à la carte
approach Miller takes and has been attractive
to buyers,” he said.
The new business was built on the
foundations of an existing retail team which
was a subset of its professional risks business
unit. Mr MacDonald said that, while Miller
is renowned for very high quality specialty
broking, it had no major account property or
casualty offering.
Because this forms the ‘bedrock’ of most
buyers’ programmes, it simply was not seeing
opportunities, nor was it set up to handle
them if they arrived.
“Now, with the addition of one of the
best property and casualty teams in the
market we have a great platform; one that
has already proven successful and is rapidly
growing,” said Mr MacDonald.
Retail business accounts for roughly
15% of Miller’s revenues and it would like
to see this grow to at least one third of the
overall business alongside its wholesale and
reinsurance activities. Mr MacDonald said
that Miller is good at pulling together teams
of experts from different specialist areas such
as terrorism, trade disruption or marine, in
order to suit a client’s risk issues.
“With truly one company-wide P&L,
we all work closely together to the benefit
of each client. Our current mix of business
is approximately 60% UK, 25% continental
Europe and 15% international. Continental
Europe is a key target area for us. Continental
Europe will account for a larger share of the
business,” he said.
Ken MacDonald
In this highly competitive and diverse
market Mr MacDonald said that the strategy
for growth is based primarily on the
development of existing accounts through its
existing people.
“We do not really have a sales developer
model. There is no central sales team that
moves around doing purely that. This reflects
our strategy of being quite selective about the
types of companies that we work with. We
look for those that we think would benefit
from our approach,” said Mr MacDonald.
“We advocate that the team the
prospective client meets is the one that will
maintain contact and handle their business
if we are successful. As such, our
senior people go out there and
talk to clients about our values
and demonstrate their technical
knowledge and ability. Clients are
attracted to us for our skills and
knowledge and the fact that we
have a transparent approach,” he
added.
Mr MacDonald said that
the broker does not ‘shy away’
from difficult problems and risks
and seeks to provide innovative
solutions on an individual, not
commoditised, basis.
“We also have strong industry specialism
in sectors such as transport, mining,
technology, telecommunications, food and
banking. We’re also adept at handling clients
with large natural catastrophe exposures. That
is a great fit with our international property
team. We are doing a lot of mining business
for example that involves the placement of
natural catastrophe business into Lloyd’s,”
he said.
According to Mr MacDonald the benefits
of Miller’s approach are spreading by word
of mouth. “Risk and insurance managers do
talk to each other about their experiences,
especially through forums like Airmic and
Ferma, and we get favourable mentions
from our clients. This is the best form of
marketing,” he said.
Big push
Mr MacDonald said that Miller will not wait
for market conditions to drive its strategy.
But he did concede that, in a harder market,
customers do demand more skilled advice to
help deal with the changed conditions.
Mr MacDonald said that he does not see
that the market’s approach to emerging risks
will improve in a harder market. This is partly
because customers traditionally retain more
‘bread and butter’ business in a hardening
market to control costs.
“With more complex, or so-called
emerging risks, we have been able to do this
via ‘risk incubation’ whereby we look to put
together net line capacity behind the client’s
captive. Working in partnership with several
The market could do better in how the advice
is provided. There has been a big turnaround in
transparency. Miller does not accept insurer fees
or commission on volume of the
business placed with insurers
47
markets, the client can build experience and
data and look to generate more capacity over
time,” he explained.
“This is one way to tackle complex
risks for individual clients. It is a different
approach but one example of how solutions
can be found to such problems. The
Japanese disaster will carry a lot of business
interruption losses and I do think that brokers
can do a better job explaining to customers
how to handle and manage such exposures
using scenario analysis to show what could
happen. Clients are prepared to pay for such
advice and it is part of the broker’s role to
help clients think about how they might
respond to risk,” continued Mr MacDonald.
Mr MacDonald believes the broking
model will evolve into a more professional
service-style relationship with brokers
engaged that are able to offer the advice
required.
He believes the market will therefore be
more advice rather than transaction driven,
‘more à la carte, if you like’, he said.
“The market could do better in how
the advice is provided. There has been a big
turnaround in transparency. Miller does not
accept insurer fees or commission on volume
of the business placed with insurers. We like
to be seen by our clients as independent of
the markets we recommend,” continued Mr
MacDonald.
“I think that insurance buyers are
becoming more strategic and this means that
brokers need to broaden what they offer from
not just the provision of insurance coverage,
but solutions to the management and
financing of risk. Risk managers spend much
less time on insurance procurement than
most brokers believe,” he said.
The key role of a broker is to provide a
view of the market that exceeds the client’s
view. On this basis the client therefore
outsources to an organisation that can
perform a function better than they can.
If this cannot be done then it is value
destroying for the client, he said.
“Brokers should have a much better view
of the wider market because they are dealing
with similar risks every day, across different
sectors and geographies. Therefore if they
can’t find a better solution than the client
itself could, then they are not doing a very
good job,” argued Mr MacDonald.
The critical attributes required of a
broker are a good understanding of risk
management, risk financing, decision making
(retain or transfer), technical insurance
and negotiating skills, and excellent
communication and interpersonal skills, said
the broker.
“For brokers, the latter two skill sets tend
to be very well developed, but the first two
are areas for improvement. By developing
these areas, brokers can better put themselves
into the shoes of their client, and offer more
rounded advice and solutions based on a
broader skill set,” he added.
Mr Miller says that in-house brokers, as
are typical in Germany, have a real advantage
because they have a more ‘intimate’
knowledge of their client-owners’ risk profile
and business. But he does not see the concept
spreading and posing a threat to independent
brokers.
“Broadly speaking, in-house brokers
prefer to partner with skilled independent
brokers to gain access to London and other
markets they are less familiar with. This works

PART III — BROKER PROFILES
well for Miller and is why Germany is one of
the areas that we want to develop next year.
We already have significant business that
comes via in-house brokers in Germany either
on a direct basis, via fronting and reinsurance
or when a local market is not capable of
delivering the needs and services. This is also
true of the Netherlands and Scandinavia,” he
said.
Miller has its own offices in key trading
markets such as Asia, Bermuda and within
continental Europe through its Brussels office.
But it also recognises that clients want to see
a local presence to help with their crossborder
coverages so it also has the option of a
network approach.
It joined Assurex last June, and this gave
it access to the world’s largest independent
network as Assurex members handle over
US$29bn in annual premium volume.
“Notwithstanding the Assurex platform,
which is very good, our approach is to deliver
the best advice and we are quite relaxed if,
when we are engaged to design and place
a global programme, other brokers remain
in place to service the programme, rather
than trying to force customers to use our
network every time. If the existing local
service provision works for the client, then
why change” he asked. In cases where Miller
works with the existing broker network, as
the controlling broker, it looks to improve the
processes in place, said Mr MacDonald.
“Notwithstanding all of the above, the
client can also consider using an insurer
network for all, or part, of their needs. That
can be a more efficient and less expensive
option. As I said before, we are here to offer
the best advice, not to sell network services,”
he added.
Mr MacDonald is a fan of the single
global database idea updated by regulators
first mooted at Commercial Risk Europe’s
seminar in London earlier this year and
backed by Airmic, Ferma and others.
“I think it would be beneficial for all if
there were generally accepted standards in
this area. It would be much easier to go to
one source that the industry invested in, and
could be relied upon.
“It is not really an area of competitive
advantage as this information is almost
entirely publicly available, however I do
accept that certain parts of the market have
invested heavily in this area and may be
reluctant to share when others have sat on
their hands,” he said.
Corporate risk managers
must value their brokers and
use their expert knowledge of
the market to secure the best
terms and advice according
to UK broker Oval
UK–BASED OVAL INSURANCE
Broking was established in 2003
and has grown rapidly through
the acquisition of regional brokers
and financial advisory companies.
The group describes itself as an
‘integrated group comprising insurance, risk,
healthcare and financial advisory specialists’.
Last year it generated revenue of £96m of
which insurance brokerage represented £70m.
The group offers a wide range of
coverages, has 28 offices and 700 people
working in its broker division. Some £91m of
the total revenue was generated from the UK
and just over £3m from mainland Europe.
Oval said that corporate insurance
managers should use a broker because they
understand the insurance marketplace and
are up to date with market changes.
Importantly, according to Oval, the
broker also understands how to use that
marketplace to best effect on behalf of his
client.
“A broker can and should tailor a risk
transfer or risk acceptance programme to the
clients’ wishes and capabilities. A corporate
risk manager should only use a qualified
broker,” stated the broker.
Future thinking
The optimum model for brokers in 10 years’
time will see them segmented into high
quality and personal consultative service
providers for large corporates, high quality
service delivery to the mid corporate market
and desk/electronic delivery for SMEs, in
Oval’s opinion.
The services that the best brokers will
provide will be specialist consultative services
built around real expertise in each industry
segment such as expertise in utilities or
food and drink or captive solutions and not
> OVAL
Delegated authority
generalist services, it stated.
To beat the rest, clients need to be
confident with the level of expertise of the
broker, that he or she understands their
business inside out, that they understand
exactly what the client wants from the
relationship and that they can trust them,
stated Oval.
“Above all a broker should demonstrate
that they care about the client rather than
just shoehorning them into an arrangement,”
it added.
One broker is the answer for insurance
placement and risk management advisory
services, according to Oval to avoid any risk
‘falling between the gaps’.
“One broker should be able to provide
a complete service and find the expertise
necessary on behalf of the client even if that
brokerage does not have the expertise in
a particular area. One broker becomes the
consultant adviser for the business,” stated
Oval.
The UK broker does not believe that
risk managers should feel they have to use
a global broker to service their cross-border
needs. “Good quality independents are as
good if not better than the global brokers.
Sometimes the internal quarrel over fees and
payment within the global brokers can be
to the detriment of client service. Whereas
in a network of independents their local
reputation is a high USP and they have
acceptable arrangements with the host broker
that is two way,” it argued in its written
response to our survey.
Oval said that there is no ‘rocket science’
to global programmes. “There is a lot of
smoke and mirrors around these programmes.
As long as you understand the business and
its dynamics and put in enough work and
you have insurance and risk understanding
and expertise then you do not have to be part
of a global broker,” it continued.
Territorially brokers need to make sure
that the network of associated companies
can adequately service their clients’ overseas
business units at the same level and
48
concentrate on the growth economies in the
Far East and India in particular to do that,
said the broker.
The key to doing business in emerging
markets such as China is to work with agents
in the first instance and attempt to set up
brokerages with local involvement, it added.
As with many other brokers that took
part in this survey Oval believes that brokers
should be paid in fees by corporate customers
and commission by SMEs. It said that the
current commission system works as long as
brokers are transparent.
Satisfaction quotient
“The important issue is the total cost of
insurance for the client. If they are happy
with the total cost of insurance (which may
include commission) and feel that they are
getting good value then that is the measure.
If they are unhappy, the market is highly
competitive and will allow them to move to
another broker. This is all about trust and
value,” stated Oval.
Oval is not sure that a net pricing system
would work in the SME market sector. It
agreed with most surveyed that insurers
should pay a broker because it is their
distributor.
“It’s a model adopted in the retail market
and helps control costs and efficiency. Both
drive each other to improve efficiency,” he
said. The consultative approach is the way
ahead for trying to tackle emerging risks
presented by the globalisation of trade,
according to Oval.
“By keeping clients fully informed of
developments and solutions to emerging
risks. This is about understanding clients
and caring enough to work hard at
communication,” it said.
For Oval the main ‘black swans’ that
brokers need to focus upon for their
customers over the next 10 years are energy
failure risks, electronic attacks, reputational
management because of social network issues
and fraud.

Florian Karle, Managing
Director of German broker
Südvers, told Friederike Krieger
that independent brokers can
comfortably handle the rising
cross-border exposures faced by
clients by working cleverly with
other brokers in networks
SÜDVERS IS A GERMAN BROKER
that has three segments to its
business: a commercial segment
where companies have a turnover
of up to €20m; a medium-sized area
of up to €500m; and an industrial line that
starts at €500m.
Florian Karle, Managing Director, said
that in 2010 the business with medium-sized
customers was the most difficult area with
regards to their willingness to change to
another broker.
The big industrial client business was the
biggest growth driver last year. But he said
that the broker wants to generate more new
business in the medium-sized segment in the
future. “That is the solid base we
need,” he said.
Mr Karle says that the key
for an independent broker in
this sector is to offer extremely
transparent international cover.
“We analyse existing global
programmes and display results
online—that is the main benefit
for the majority of our clients. We
created an online tool for handling
our customers’ claims. We can
offer economies of scale with
regard to staff too. Clients can
outsource complete divisions; we
can handle the full process for big industrial
clients. We have a large staff and we can offer
services 24/7,” he explained.
Whether or not customers will demand
brokers that can offer a complete A-Z service
in future or will seek to increasingly unbundle
the services and use more niche brokers will
depend on the industry and the size of the
company, said Mr Karle.
“There will be specialised companies,
which will also demand specialised brokers.
Florian Karle
PART III — BROKER PROFILES
> SÜDVERS
The power of the network
This is true for alternative energy, modern
logistics and for financial damage cover
for lawyers. When dealing with mediumsized
companies brokers will have to be
all-rounders in the future. They can offer
industrial clients certain selected services.
But brokers will only be able to do this if and
when the fee is appropriate,” he said.
“Clients cannot expect to pay next to
nothing for services. A change of mindset
has to take place. Brokers have learned not
to sell additional services because they were
included in the big companies’ premiums
in the past. Brokers now have to make their
services transparent and find ways to sell the
benefits to the client. And customers have to
understand that additional services have to be
paid for,” continued Mr Karle.
On remuneration from clients, Mr
Karle said that in traditional business with
medium-sized clients a rapid shift from
commissions to fees will not be possible.
“It works as a mixed calculation over the
law of large numbers. When operating on
a fee basis, we will lose money with private
and small-scale commercial
business and will thus not be
able to afford this business
any more. It will revert to the
insurance agencies. The result
will be a rise in premiums and a
lack of independent advice,” he
explained.
Mr Karle said that none
of the big industrial clients do
business on a commission basis
but rather pay a daily fee rate. In
the medium-sized segment this
approach would result in services
becoming more expensive rather
than cheaper. “With daily fee rates, the sky is
the limit as regards costs,” he said.
Mr Karle is a big fan of the network
approach to manage customers’ cross-border
needs.
“Our nightmare scenario is what
happened to Jauch & Hübener in 1997.
Overnight they lost their entire network to
a competitor. We don’t want this to happen
to us, so we created our own network named
WBN, which is internationally focused with a
presence in more than 70 countries.
“Brokers have to decide for themselves
whether to build up their own network,
which is very costly and time-consuming,
or use the network of another company. But
being internationally active is very important
for brokers, they cannot do business without
it,” he said.
Mr Karle said that he does not know
if global programmes can ever be 100%
compliant but is sure that it is not possible
today.
“We do not have a global tax authority
that is responsible and can give binding
statements. We will never have a global
government that stops countries from
banning insurers from foreign countries
writing business in a particular jurisdiction.
It is one of the most interesting topics for the
future and one of the reasons why companies
need a broker,” he said.
Price premium
Mr Karle said that it is difficult to pin down
exactly how much risk is currently insurable.
He did say, however, that when the premium
level is low, companies buy a lot of cover for
their risks.
“However, the risk only appears to be well
insured as an insurer’s willingness to pay for
claims is lowest in this situation—because it
is not possible to pay everything with a low
level of premium income. When prices rise
again, companies reduce their cover. This is
not good. The amount of insurance should
correspond to the amount of risk, not the
premium level,” he said.
Apart from natural catastrophes,
insufficient product quality is one of the
major risks that faces customers in future, said
Mr Karle.
“I am not sure if the level of quality is
keeping pace with the speed at which the
German economy is growing at the moment.
This is an unhealthy trend. During the
financial crisis qualified staff were laid off,
insufficient quality became apparent and
then we had a growth spurt. Too much up
and down may lead to product liability cases
in the next three or four years,” he said.
Belgian broker Van Dessel
belives that line specialism
will be a powerful drive in
future for brokers
> VAN DESSEL
The special one
VAN DESSEL IS A BELGIUMbased
broker focused on the
SME commercial market with
revenue of approximately
€14m in 2010 and 9 offices,
8 in Belgium and 1 in Bratislava, Slovakia.
About 60% of the business handled is
property and casualty, transport accounts for
30% and employee benefits 10%.
Personal lines accounts for 5% of the
cake, SME commercial business 80% and large
corporate 15%.
To handle cross-border risks Van Dessel
has a membership of a network.
The key advantages of using a broker,
according to Van Dessel, are as follows:
■ Objective view of the insurance market
as it has relationships with all insurance
companies
■ Knowledge of the market, new products
and impact of legal issues on insurance
49

PART III — BROKER PROFILES
policies
■ Risk management expertise
■ Line specialism
■ The ability to negotiate special insurance
conditions and clauses with insurers
■ Expertise in claims management
According to Van Dessel the core benefit
of using a broker is to tap into its objective
view on the market. “With the additional
expertise a tailor-made insurance portfolio
can be set up,” stated the company.
The optimum model for brokers in 10
years’ time will be based upon their ability
to offer specialists through all lines. “They
should also be backed up by a skilled back
office in production and claims. As many
lines as possible should be underwritten in a
cost effective manner,” it stated in a written
response to the survey.
Van Dessel foresees a more prominent
role for risk management services, including
that of prevention. “Due to the pressure
clients are under to receive a response in an
adequate time, the broker has to become less
independent of the insurance companies.
“This means its own underwriting
capacities and the ability to handle the
production as well as claims management
through an integrated computer program,
giving the client the ability to follow the
changes in their insurance portfolio,” it
suggested.
The core services that a broker should
offer in the modern economy to differentiate
them from the competition are: risk
management; line specialists in order
to find the best proposal; legal counsel;
online database; own policy wordings and
underwriting capacity, believes Van Dessel.
Van Dessel believes that it is better to
have the whole insurance portfolio handled
by one broker in order to avoid ‘double
insurance’ and gaps. But it reckons that there
is the option to defer between insurance lines
such as employee benefits, fleet and property
and casualty. It also expects niche brokers
to continue in certain lines of business such
as employee benefits, kidnap & ransom and
directors & officers.
For cross-border exposures clients should
use a global broker or network, according
to Van Dessel. “Implementation of an
international programme is one thing, the
follow up and coordination a second thing.
As communication and the knowledge of
international files is so important, depending
on smaller independent brokers per country is
too dangerous,” it stated.
Into Africa
National brokers can help deliver effective
global programmes but have to rely on a
network, according to the Belgian brokerage.
“They certainly have the knowledge to
implement a programme, but for the fine
tuning they need the assistance of their
foreign partners. As stated, communication is
very important, an adequate network brief is
therefore of major importance. This way all
parties know their specific responsibility,” it
stated.
In territorial terms brokers have to
expand their footprints in China and Brazil
as emerging markets. Van Dessel also believes
that a presence in Africa will become more
important.
To help deal with expansion in emerging
markets such as China Van Dessel believes
that the broker needs to build good
relationships with Chinese insurance brokers
if only because they will develop more and
more international business as Chinese
companies invest more abroad.
Currently most of Van Dessel’s income
is generated on a commission basis while for
larger accounts fees are more common. It
stated, however, that the pressure to use fees
‘down the line’ is growing.
The Belgian brokerage does not believe
that the current commission system works as
well as it could because it does not properly
reflect the work carried out on a certain
account.
“It is however not easy to implement a
cost-driven follow up, based on the hours
spent on an account,” stated the company.
Insurers should pay brokers for the
business generated portfolio and the
combined ratio performance, according to
Van Dessel.
To help customers cope with emerging
risks, new exposures and the changing
structure of the global economy brokers
must keep talking with their clients to detect
these emerging risks and transfer the relevant
information to insurers to find a good
insurance solution.
“They also should follow annual meetings
within the networks, Rims, Ferma and the
like, in order to follow the needs country per
country,” stated the broker.
The solvency of the insurers and the
globalisation within the insurers are possible
black swans to look out for according to Van
Dessel. “The number of insurers country per
country becomes smaller and smaller,” it said.
Francois Leduc told Rodrigo
Amaral that Verspieren has a
key advantage over rival brokers
because its private, familyowned
structure enables it to
take a longer-term view
GROUPE VERSPIEREN IS ONE OF
the leading independent brokers
in France. It offers insurance
broking services, risk analysis and
prevention, insurance audits and
contract management.
Groupe Verspieren’s products include
personal lines, commercial property and civil
liabilities, motor fleet business, marine cover,
transport, aviation and reinsurance.
The company owns and operates through
various subsidiaries that include Cirano,
Labalette, Mercier Assurances, Montmirail,
SAAM, SAFIR, Solly Azar, and SLA.
Groupe Verspieren was founded in 1880
and is based in Neuilly Sur Seine, France.
Francois Leduc, Deputy Managing Director
at Verspieren, France and Director of
Services to corporate clients said that 2010
was a ‘better than expected’ year, especially
given the tough global trading context.
Revenue reached €25m, which
represented a 1.6% drop from 2009. This was
> VERSPIEREN
The risk family
caused mainly by Verspieren’s subsidiaries
in Spain and Portugal, where the market
depressed. For the French activities, revenues
were stable last year.
“We had some highlights, like the closing
of a deal with Bouygues Immobilier. We won
a tender with the Caravelle transportation
group, and also a tender to provide services
for a housing estate by Paris Habitat and
Immobilière 3f. We arranged for them
damage insurance for 18 million square
metres of property assets,” said Mr Leduc.
Horses for courses
Verspieren works all over the world, but in
different ways. It has subsidiaries in Spain
and Portugal, and a network of partners all
around the world. It also had a subsidiary in
Belgium, which was sold last year, and which
also explains to an extent the slight reduction
in revenues, explained Mr Leduc.
For larger corporate insurance buyers the
group offers a global and a multi-specialty
service. It works with general insurance for
large risks at the international level, but
also with personal and health insurance for
professional groups.
50
“We work with all kinds of services for
large and mid-sized companies at national
and international levels. We are not general
brokers which do everything. But we want to
specialise on the maximum number of sectors
that we can,” said Mr Leduc.
Corporate risk managers should use
brokers for a number of reasons, according to
Mr Leduc. “First of all, the flexibility that is
provided by outsourcing some activities. For
a company, it is an advantage to externalise
part of their risk management and advice
activities.
“It is a real trend and there are several
of these activities that can be performed
by brokers. Brokers also provide a level of
advice that a risk manager cannot find if he
works directly with an insurer or an agent,”
he said.
Advice encompasses several topics
including risk management, risk mitigation,
risk financing and the choice of insurance
players with which to work, said Mr Leduc.
“We can also provide international
services for our clients. We can tell them the
capacity that each insurer has in countries
where they are going to do business,” he
added.

PART III — BROKER PROFILES
Mr Leduc said there are no rules for
how a corporate risk manager should use a
broker to derive maximum benefit.
“There are no rules for that. Certain
clients have a policy to trust as many
insurance lines as possible to their brokers.
It is true that, for brokers, the best option is
to work with all the risks of a client, not the
least because of their interconnections,” he
explained.
“But in general, clients more often
than not think in terms of families of risk.
There are the non-life international risks for
one part; everything that is connected to
personal insurance and benefits for another;
and health insurance for professional groups.
We also have big clients that are banking
networks or mass retail companies, and for
whom we design insurance products. We also
run call centres to manage insurance products
that they will themselves sell to their clients.
The trend therefore is for clients to think in
terms of families of risks,” added Mr Leduc.
The broker explained that because
Verspieren is privately owned it provides the
chance to work with a medium- to longterm
framework. “We don’t suffer with the
dictatorship of presenting quarterly results
to financial investors who don’t know
the industry. This enables us to have an
investment policy for the long run, which
meets the interest of our clients in terms of
stability and permanence,” he said.
Another difference from other players in
the market is that the family-owned character
of the group’s capital means that it is ‘100%
French’.
“I would say that, among the top five
insurance brokers in France, we are the only
one in this situation. For some French clients,
this could be an important feature, even
though it may not be determinant,” added
Mr Leduc.
As to the optimum model for brokers in
10 years’ time, purely generalist brokers will
have a ‘hard time’ according to Mr Leduc.
“It is necessary to nurture this multispecialist
aspect and the international
network that we have today. Servicing
and advice are activities that are gaining
strength too. Today, when we make an offer
of services for a client, there is a dimension
of risk management advice along with an
offer of risk management tools developed by
ourselves,” he said.
Another of Verspieren’s advantages,
especially in the field of IT tools, is that it has
an in-house team that develops its own tools.
This gives it the flexibility to adapt itself
Corporate risk managers should use brokers for
a number of reasons, according to Mr Leduc.
“First of all, the flexibility that is provided by
outsourcing some activities. For a company,
it is an advantage to externalise part of their
risk management and advice activities”
to client demands in the reporting area for
example, said Mr Leduc.
“Increasingly, the offer of insurance
products is associated with the offer of tools
that will help the risk manager to have a
realtime, extensive view of the risks of the
company and its losses.
“When we are working on an offer, we
send IT experts along with our insurance
people in order to answer specific requests
from the client in this area, which are
becoming more usual,” he said.
On the question of payment, Mr Leduc
said that the most important thing is that
brokers are paid a ‘fair price’ for their services.
Value added
“Maybe the biggest problem today in our
sector is that brokers are not remunerated
according to the value that they add. The
main principles should be transparency and
simplicity. In other words, for complex and
large risks, payments should take the form of
fees reflecting the time spent on the subject.
In the case of smaller risks, it is necessary
to go simple, and that means charging
commissions,” he said.
Sometimes it is necessary to cut down the
multiplication of invoices and protocols, and
commissions can be transparent too, said Mr
Leduc.
“But for large risks fees are the best
option. Commissions are not yet adapted
to the sophistication of tasks that brokers
do. It is also true that insurance premiums
have been on the way down for seven years
already, and fees are a natural means also to
compensate losses of revenue as insurance
premiums come down,” he added.
For the future Mr Leduc said that because
of Solvency II, insurers will increasingly turn
themselves into financial institutions focused
on their role of carrying risks, and not as
much in the provision of services for clients.
“In this context, there is a bigger role to
be played by brokers. Brokers will increasingly
act as intermediaries and buffers between
insurance companies, regulatory constraints
and insurance buyers. Brokers will have
to make sure that services are provided to
clients,” he said.
In future logic suggests that brokers must
be paid by clients, said Mr Leduc. “But if
there are a number of services to insurers that
are commissioned by them, something that
already happens today, it is only natural that
insurance companies pay for them. The main
point is that they don’t generate conflicts of
interest for brokers,” he said.
Mr Leduc said that brokers must help
their clients deal with emerging risks and in
foreign markets as this is ‘at the core’ of the
activities of a broker.
“That’s why we emphasise our
international network. It is true that we share
a certain amount of our knowledge, not the
least via the expertise of our clients, and this
experience sharing benefits all our clients, of
course respecting confidentiality and secrecy
concerns. The very meaning of our work is to
help our clients in certain activities, and
especially at the international level with
our network of partners. We can give clients
information about the legal and regulatory
contexts that affect the insurance market
in whatever countries they operate,” he
explained.
In geographical terms Mr Leduc said
that Verspieren’s philosophy is to be present
wherever its clients go. “Today, it is true that
there is a lot of demand for help in countries
like China, India, Russia and Ukraine.
“So we must be capable of following
our clients there. We have partners there
and in other parts of the world, but we
also consider setting up subsidiaries in
other countries in the future, just like we
have in Spain and Portugal today,”
concluded Mr Leduc.
Adam Garrard was appointed
Chief Executive Officer of
Willis Continental Europe in
January of 2009. He said that
industry knowledge, a sharp
focus on customer needs and
a truly committed culture is
the way ahead for Willis in an
increasingly demanding world
> WILLIS
Joining the culture club
ADAM GARRARD HAS TRAVELLED
the world during his time at
Willis and believes that the main
difference between the way risk
management is approached in
Europe and elsewhere is that a more ‘holistic’
approach is taken.
For this reason he says that risk managers
51
naturally expect and demand more of their
brokers and the role is therefore more ‘far
reaching’.
“In China, for example, it is
predominantly about risk transfer and the
broker’s ability to effectively structure and
price such a transfer. In Europe the risk
transfer remains an important aspect of the

PART III — BROKER PROFILES
brokers’ role, however, this is augmented with
more detailed advice on risk identification,
risk analytics, risk evaluation and risk control
and mitigation strategies,” he said.
Mr Garrard said that in Europe the
risk manager is more a seller of risk rather
than a buyer of insurance. Consequently,
armed with the correct broker support, they
should be knowledgeable about the risks the
organisation faces.
Deep impact
“Armed with such knowledge the European
risk manager will have a deep understanding
of the potential impact of risk and will
therefore be much better placed to decide
whether to retain it or ‘sell it’ to the capital
markets,” he said, adding that he referred
specifically to insurable risk as opposed to
operational or treasury.
Willis is one of the top three global
brokers in the world now alongside Aon
and Marsh. The group has owned mainland
European companies since the early 1990s
when it was decided that to survive it needed
to become global, explained Mr Garrard who
joined Willis in 1994. This was not just a case
of boardroom megalomania but hard business
sense, he explained.
“You then saw the acquisition trend
of the early 1990s by which hundreds of
broking companies were bought by the
major companies so that they could offer
a large global network and the support
that customers needed. Look at some of
the companies that did not go global like
Alexander & Alexander, Minet, J&H and the
like. They were swallowed up by others and
we prospered in part because of our global
franchise and our ability to offer seamless
global support to organisations,” said Mr
Garrard.
But the acquisition trail was not
inevitable. Many argued, and still do argue,
that the brokers could happily remain
nationally or regionally focused and work
with others in networks to deliver the goods
for global customers.
Mr Garrard does not agree with that line.
“They [the customers] were going global and
we needed to service them on a global basis.
We talked about a network but that offers no
control and it is important that your service
levels and expertise are consistent,” he said.
“We were mainly London-based with
huge expertise in specialty business such
as marine, energy and construction. This
is quite difficult to replicate on a country
basis. Our owned network gave us the ability
to do this and this expertise could not
have been delivered so effectively through
an independent network,” continued Mr
Garrard.
The idea of a global broker sounds
great on paper but as many risk managers
readily attest it does not always result in the
seamless, cost-effective and truly cross-border
approach that is offered at point of sale.
According to Mr Garrard the key is
fluidity. It needs to mandated but equally a
team culture across geographical boundaries
is ‘paramount’. “We have a ‘one flag’ culture
and have spent ten years on the concept. We
are one company and the brokers wear the
badge all over the world. We are Willis and we
are proud of it and this really helps get away
from the silo mentality.
“You have to live, breathe and speak it
every day and every time you talk to each
other you believe that you will be better and
stronger together. We are not perfect but
the main thing is that it is recognised as an
important practice here and we are working
hard on it,” he explained.
Mr Garrard believes that the unity of
purpose and approach delivered by the one
flag culture, a sharp focus on the customer
and quality staff will help maintain growth
in what continues to be a highly competitive
market.
“Over the last five years Willis has
demonstrated the best organic growth of
any of the big brokers. I believe that this is
the result of our one flag culture and our
relentless determination to put the clients’
interests above all others. We are very choosy
about the people we employ because it is
paramount that they believe in the same
things we do. I believe this is why we have
and will continue to grow organically.
Despite the obvious economic challenges
Willis managed to grow in every European
country last year and better than 5-6% in
some countries, said Mr Garrard.
The strategy that has helped maintain
this growth in this mature market is ‘very
clear’, he added.
First Willis takes a highly segmented
approach by which it offers large corporations
a different range of services to mid-sized
companies and SMEs. This is built around
an understanding of the client and industry
knowledge and an effort to get ‘into’ the
organisation, he said.
Head room
“There was a belief 15 years ago that all
brokers did was risk transfer. But we don’t
think you are able to do this effectively if
you don’t truly understand the client, their
ambitions, their goals and their desires.
You have to carry out the analysis, evaluate
the risk and work with the client to structure
the optimum risk retention and risk transfer
strategy,” explained Mr Garrard.
“I appreciate that this is the mantra
that most brokers would suggest they are
working to. The important thing here and
the differentiator is how you go about it. We
want our clients to really understand that we
are part of their team. We like to think our
people are employed by Willis but work for
the client. To do that successfully you need
to embed yourself in the client’s culture and
become a truly trusted adviser having not just
industry insight but also deep client insight,”
he continued.
Ultimately the key is to try and help
the risk manager increase the value of their
company by reducing their total cost of
insurable risk. “If we can reduce the cost of
insurable risk through the optimum blend of
transfer, retention and administrative costs
we will improve the bottom line and thereby
the value of the company,” he explained.
Some risk managers question the point of
using a broker in the first place and whether
the profession has a long-term future.
Mr Garrard said that insurance buyers need
to recognise that insurers have a different
agenda to brokers.
“Part of the job of a sales person in
an insurance company is to protect the
underwriter. Our job is to provide the client
with a risk programme that provides the
best economic outcome for them, we are not
employed to do that role for the underwriter.
Therefore, there is a fundamental difference,”
he explained.
As to the future model for the broker in
the European corporate insurance, Mr Garrard
pointed out that in 1991 brokers were first
allowed to enter the Swedish market and
that twenty years later over 95% of the major
Swedish corporations now use a broker.
“There is a reason for that and it is
not because it is compulsory. It is because
the customers see the value. We cannot be
complacent, but I do see a very bright future
for the brokers. This is because the risks
become evermore complex and prevalent and
companies need help. Risk is a by-product
of what companies do. It is not their core
business. We are here to help them transfer,
manage and avoid their risks,” he said.
On the topic of remuneration Mr
Garrard said that the key consideration is
transparency. “This is a confused issue. It
is not about how we get paid. It is about
whether we are transparent about how we are
paid and what we are paid,” he said.
“We are very disappointed about the lack
of transparency in the market and would like
to see more of it. Every client of Willis knows
exactly what we earn and how. It is not about
where we get it from because if the client
knows how we are paid and what we are paid
it does not matter whether it’s commission,
fees or anything else,” said Mr Garrard.
Conflict resolution
Despite that Mr Garrard did stress, however,
that the broker payment method should
not conflict with their desire to put the
client first. He said that Willis is the only
global broker that does not take contingent
commissions in retail business because it
believes there is an inherent conflict of
interest.
“Taking commission based upon the
results of insurance companies is a complete
and utter conflict. I am frustrated that some
brokers take them, because it may lead to
a broker consciously or subconsciously
providing advice that may not be wholly in
the best interest of the client. The threat to
the broking industry is that we forget who
we are there to serve. Any conflict of interest,
such as contingent commissions, has the
potential to lead to flawed business models,”
said Mr Garrard.
The broker said that provided brokers
focus on providing what the clients want its
value as a broker will continue to grow and
they will continue to prosper. “We would like
a level playing field but one which excludes
contingent commissions. So currently we
have chosen not to play on a level playing
field because to us integrity to the client is
more important than short-term revenue
gains,” he added.
As to the services that brokers need to
focus upon to deliver the goods for customers
in future Mr Garrard said that ‘industry
knowledge’ is the critical one.
“Twenty years ago you did not have to
have this. But now to service our accounts
effectively we need to have a thorough
understanding of their industry. Clients may
not be explicitly demanding it of us but we
need to have real industry knowledge to do
52

PART III — BROKER PROFILES
the best job possible,” he said.
Coupled with the base understanding of
the business brokers also need to possess the
ability to provide in-depth analytics around
potential catastrophe risks and retention
analysis, he argued. And, this must be done
on a client-by-client basis not a general
industry basis.
He said that it is one thing to use an
earthquake model and calculate a 1-in-
1,000 year probability but the broker needs
to work out what is the actual site impact
potential and ramifications for that particular
business. Then the broker needs to carry
out the financial modelling to work out the
company’s ability to retain risk.
“We have become much more
sophisticated about how we can model such
impacts on the P&L and EPS. Clients do want
more detailed analysis and they expect their
broker to utilise that analysis when advising
on the best blend of transfer, retention and
management of risk,” he continued.
For this approach to work, however, a
broker needs to hire the best people, retain
them and offer customers consistency, one
key area that the risk managers polled for
this survey say that the brokers fail to do too
often.
Mr Garrard said that essentially what
Willis presents to its clients are its people,
their knowledge and the combined expertise
of the group. This is why the broker is so
choosy about the people it employs, trains
and develops and why it is so important that
they are retained too, he said.
“In order to retain them we clearly have
to pay them appropriately but we also have
to provide them with an environment where
they feel truly empowered. We work very
hard to empower our client advocates. At
Willis, if you are the client advocate you are
empowered across geographies and across
business divisions. Are we perfect in this
respect No. Are we advancing and making
sure we do what the client wants Yes,” he
said.
The big issues that will dominate the
agenda in corporate risk circles in years to
come will be transparency and integrity
according to Mr Garrard. “This is a big issue
and we would like the regulators to be more
forceful about this. No broker should be afraid
about transparency because it should help the
business. It is difficult to do it unilaterally. But
we decided to take that course and it will pay
dividends in the long run,” he said.
Club class
Mr Garrard said that Willis would also like
to assist in the elevation of the risk manager
to the ‘C-Suite’. He said that he is surprised
that many risk managers, whose role and
responsibility is vast and ever-changing,
do not sit at the top table, despite the
ever-rising frequency and severity of
corporate risk.
“I think they should be at the top table
and we are trying to elevate their position,
through thought leadership and emerging risk
analysis. I think the role of the risk manager
deserves more high level exposure. You can
get your product right and your strategy right
but have you got your risk position right
This is definitely an issue,” he said.
Corporate governance is another topic
of concern that Willis believes will become
an even hotter topic in the future and will be
fuelled by the current economic turmoil.
And then of course there is the need
for a holistic view of risk. “You have to ask
why a number of corporations still consider
three types of risk in isolation to each other.
Operational risk, boardroom risk and people
risk are, for many organisations, considered
separately to each other.
“Why do most companies separate
employee benefits from operational and
boardroom risk To get the most optimal
risk transfer and risk retention programme
all insurable risks should be considered
together. This holistic approach
would, I believe, ensure that scarce risk
expenditure is utilised most effectively,”
he concluded.
CRE EDITORIAL DIRECTOR
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53

PART IV — DATA ADDENDUM
54

PART IV — DATA ADDENDUM
AT: Austria
BE: Belgium
CH: Switzerland
CY: Cyprus
CZ: Czech Republic
DE: Germany
DK: Denmark
EE: Estonia
ES: Spain
FI: Finland
FR: France
GR: Greece
HR: Croatia
HU: Hungary
IE: Ireland
IS: Iceland
IT: Italy
LI: Liechtenstein
LT: Lithuania
LU: Luxembourg
LV: Latvia
MT: Malta
NL: Netherlands
NO: Norway
PL: Poland
PT: Portugal
RO: Romania
SE: Sweden
SL: Slovenia
SK: Slovakia
TR: Turkey
UK: United Kingdom
55

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