Is specialization the best route to broker independence?
A bevy of challenges, including M&A frenzy, rapidly evolving technology, automation and directs, has spurred some independent brokerages to focus on specialization. And some are even divesting of personal lines.
“From a client perspective, it’s great to have a broker that specializes in their line of business,” said Canadian Broker Network president Lorie Phair. “But can the whole firm really afford to specialize? What if something happens? It’s a slippery slope.”
Phair pointed to the COVID-19 pandemic, which hurt several specific industries, leaving many niche brokers wondering whether specialization was the right strategy.
“Maybe the best approach is to offer some specialization, or partner with a firm that does,” Phair said. “You can also gain access to specialists within a network like ours. What is critical, however, is to focus on how best a broker can bring value to their client.”
Beyond M&A and other pressures, Canada’s talent crunch creates barriers for brokers looking to specialize, said Jeff LeGrow, chairman and CEO of Cal LeGrow Insurance and Financial Group.
“Unless you have talent and people with the right expertise, the massive talent gap in the industry puts a huge damper on specialization effort,” LeGrow said. “Independent brokers today, when thinking about gaining scale and staying relevant, really don’t have many options.
“We’ve gained indirect scale to influence and compete, and we can rely on peer specialists we wouldn’t necessarily have had and access talent by collaborating within the network.”
From a commercial insurance perspective, organic growth involves committing to an accountable and sustainable prospecting process, because a prospect pipeline only produces accounts if there’s a steady feed at the front of the cycle, said Excel Insurance Group CEO and managing director Douglas Morrow.
“Prospect cycles may be as short as a few months, but those are the exceptions,” he said. “Most prospects will reside in the pipeline, getting attention on a regular and planned basis, for up to several years.”
For personal lines, he said prospecting among high-net-worth individuals and families, or employee groups, can work well, and added investing in direct marketing or other online tools that attract steady business can help.
Phair added independent brokers should apply growth strategies like using data to discover new opportunities and potential markets; technology and digitization to address changing processes between brokers and insurers, as well as brokers and their clients; and investing in employee training and education.
Morrow outlined three ways for brokerages to create growth:
Increase sales;
Enhance equitable value through organic growth or by scale that comes with consolidation. “More scale equals more market access, and market access positively impacts both retention and new business growth,” said Morrow. “Profit-sharing with insurance carriers is also enhanced by scale, adding to equitable value.” He adds this is the reason people own brokerages, and why consolidators try to buy them; and
Reduce operating expenses. “With scale comes the ability to share resources within a brokerage or group of brokerages,” he said. “Consolidating things such as legal, accounting, banking, HR, payroll, market management and even office supplies results in real savings for all members of the ownership group.”
This article is excerpted from one the appeared in Canadian Underwriter‘s June-July issue and contains files from Gloria Cilliers and Philip Porado. Feature image by iStock.com/Olga Kurbatova
