On Wholesalers Endangered

The heydays of wholesale broking into the London Market may be over

The increasing dominance of the global brokers and the economic leverage that this provides is a strategic challenge for all insurers dependent upon them for significant premiums flows. Responses in the industry have varied but a growing number of companies are re-engineering the way they procure business from the big three; either paying to obtain data services or participating on proprietary risk placement platforms and in some cases offering automatic facilities to capture portfolio slices, or all of these things.

The big boys are making no bones about their desire to radically shorten the list of carriers they use so being viewed as a ‘strategic partner’ is becoming a necessity for insurers if they are to avoid being commercially marginalized. Yet in the London Market many underwriters enthusiasm to wholeheartedly embrace the big three has been tempered by a loyalty instead to the independent wholesale broker network. At least that was arguably the case until recently but attitudes may soon change.

In October it was reported by Insurance Insider that wholesale broker Miller, strongly independent in character, was in advanced discussions about selling to the Willis Group, the world’s third largest broker. This followed the news that JLT, a large but predominantly wholesale business was re-entering the US retail market to get closer to the customer. Those clinging on to wholesaling for their revenue are recognizing the need to scale up in order to survive as evidenced by the tie-up deal that RK Harrison and Hyperion are reportedly working on. This rush of activity led Tom Bolt, Lloyd’s Performance Director speaking at the Xchanging conference last week to declare the heyday of the wholesaler to be long gone and not coming back any time soon.

In a world of cross-border connectivity, enabling technology and stricter customer conduct regulation, the pressure to engage more fully with the end-client and deal directly with their retail broker is likely to lure underwriters away from wholesale and towards shorter channels of distribution. To the extent that this might also repair a perceived cost disadvantage of trading with London, then it is a trend that most will find hard to objectively argue against. However, the problem for underwriters is that there is a vast amount of specialist product expertise, market acumen and deep relationship history residing within the independent business producers. If the market moves too aggressively away from wholesaling, the danger is that a key source of competitive differentiation for London and Lloyd’s may disappear along with it.