Will Insurance Premiums Ever Get Cheaper?

Recently our CEO David Perry was interviewed for the Insurance Brokers podcast with Sarah Myerscough from marketing specialists Boston Tullis. Whether you work in a large corporate broker, or a small provincial, David Perry has that T-shirt and has some wise words to say about how the SME market is faring.

Sarah Myerscough: Good morning, David. Thank you so much for joining me this morning on The Insurance Brokers Podcast. I'm really excited to have you here and about the conversation we're about to have. So welcome.

David Perry: Thank you, Sarah. A big pleasure to be here.

Sarah Myerscough: Would you like to start? I'm sure many, many people in the industry know the name David Perry. Do you want to give us a bit of background as to who you are and where your career has taken you?

David Perry: Of course. I'm getting old now, so I won't go all the way back, Sarah, but maybe I'll go back to the late nineties and early two thousands when we sold our broker Warren Hill to what became the Towergate world.

My broker was predominantly involved with the Federation of Small Businesses at the time. And that's a relationship that I have again. Recently during my Towergate years, it was an interesting learning curve. I enjoyed it a lot. I was the Retail Sales Director for Towergate. I then went to work with Michael Ray and firstly Tim Johnson on establishing CCV where I gained a huge amount of experience in acquisition.

I think our record in one year was 26 in 12 months. And more recently, I've been working with the FSB again because in 2017, 2018, they decided that they'd like to set their own advisory business up supported by an external investor. So I've become the Managing Director of a startup, small insurance broker.

So my career over a lot of years has taken me all around the broking industry and that probably, I've seen most things over that time.

Sarah Myerscough: Interestingly, you've also got the perspective of, sort of the big corporates and from a startup journey. And they're very, very different mindsets, aren't they?

David Perry: Yeah, very different indeed. And you know, working with the Federation of Small Businesses in a past life and now, it sort of helps to have done your own thing in the sense that you do understand that bills aren't going to be paid by the big checkbook in the sky.

You know, you need to generate that income to pay the bills. There's no head office. There's no sort of Big Brother that's going to come in and rescue you. So it's helpful to recognize that. But having said that, having worked in much larger organizations.

I like to feel it gives us the experience in setting the business up and also the relationships to perhaps help us punch a little bit above our weight and get the help we need to deliver for our customers.

Sarah Myerscough: Absolutely. And your sort of professional experience extends to sitting on various boards and being involved in various sort of professional groups. Do you want to tell us a bit about that?

David Perry: It's true. Yeah. I mean, I must admit I am a compulsive committee joiner. I have to admit it. You know, people have said it to me and I, okay, it's true. Excuse me. I've been involved with Biba since my Warren Hill days.

And that's because I felt it was really important for the smaller broker to be represented. Biba's membership, probably 90% of members employ less than 20 people. And, you know, quite rightly Biba get a lot of their support, help, advice from the bigger brokers, and that's very valuable to the smaller firms. But the smaller firms have, we have our own issues and it's important for those voices to be heard.

So yes, I have done my various duties with Biba. I sat on the board for a little while when we reorganized how it works.

David Perry: And that was quite fun when Andy Homer was in the chair. I recently joined the Insurance Brokers Standards Committee, where they asked me to get involved helping to write the startup section, because obviously as that committee was being formed, I'd literally started a broker from scratch. And I'm also on the what's become known as the SME Broker Advisory Panel, which, it gives a voice to all of those of us who are smaller brokers who are members of Biba, and gets the issues into the board that we are facing.

Sarah Myerscough: Absolutely. And I do think it's really important. And I did a podcast not that long ago with Steve White and we talked a little bit about compliance and a little bit about the kind of smaller broker as well. So I think that's fantastic. And I loved the compulsive committee joiner.

David Perry: Well, that's me, that's me. Actually to be fair, Steve White, Graham Trudgill and the team there, do a huge amount of work that sort of goes unnoticed.

And particularly over the last year or so where brokers, particularly smaller brokers without in-house departments to, deal with it have had to face all of the issues thrown at them that every small business has had to deal with around COVID, around Brexit, or all the other things.

They've done a huge amount of work to help us get through that and the issues that have been raised by those situations.

Sarah Myerscough: Absolutely. Tell me a little bit about sort of the FSB, the last three years of your startup journey. And I know that within the FSB, you guys do quite some interesting research on various different aspects of our industry. Do you want to talk a little bit about that?

David Perry: Yeah, of course. The FSB was established in 1974 and it was originally a sort of a Trade Union for the self-employed, was how they originally described themselves. But they've grown and grown over the years and they're now Britain's largest business organization in all respects. Number of members, balance sheet, everything else. They have around 165,000 members. The only thing that binds them together is that they're all small firms and you have the whole sort of range of trades from architect to zoo, across the whole of the country, of the UK.

So, they really do represent the SME community very, very strongly. They're well represented in Westminster. They're well represented in the devolved parliaments as well. And they're a strong voice for small firms.

We were asked to set the business up because they, as I said earlier, they wanted some ownership in their own advisory firm, that they were a bit concerned that with the ongoing commoditization of SME business, that there wasn't really an advisory platform for many small firms to actually talk about the more complex aspects of insurance with the sort of drive to online business and so on.

David Perry: So really they wanted to set something up that didn't have that sort of commercial prerogative to perhaps look at the profit and loss as the main issue, but wanted to invest in providing the advice. So that's what we were set up to do really.

As a result, we've been heavily involved in all of the stuff that's been going on in the last year, but the prevailing issue is the hard market. And that's primarily because at the SME end that there isn't a huge amount of science in the way insurers tend to deal with it.

You tend to find that rating increases are generic across the board, and you tend to find that the trades and the occupations and the activities that are on the periphery of acceptability, that that periphery starts to withdraw.

David Perry: So, the cases that maybe might have been in the gray area for a large composite become a decline area, or become an issue with terms and conditions. So it's harder for a lot of SMEs to get cover.

And we did a little survey. We had around 500 respondents, which is a decent size sample. We think 75% of them said that they had seen a large increase in premium renewal over the last year.

A third of them said that they'd seen cover restrictions and a quarter had said that they'd had extra terms imposed. So, the general indication is that SMEs are finding it harder to get the right insurance at the right price at the moment.

Sarah Myerscough: And within the SME base, are you noticing any particular trends with specific industries? 'Cause SME is so broad.

David Perry: It is, yeah. I mean, the main problem that lots of well-established SMEs have is that they diversify to survive. And this is one of the problems with getting them the right advice. So an example was we had a client that looked like a nice, easy, straightforward retail shop. And it was a business that basically was selling garden ornaments and all that sort of thing.

And it turned out that the proprietor's partner had actually started manufacturing the ornaments in the back of the retail premises. And another member of the family had started installing the ornaments and while they were installing the ornaments, had decided that they could do a bit of landscaping. So what started as a simple shop, which if you were sort of looking at an online platform, maybe you tap in your retail details and there isn't necessarily scope for that additional conversation, turned into a retail manufacturer delivery, groundwork, landscaping business.

So, quite often long established SMEs, they are small but complex. And so that's what really makes it difficult in terms of the advice that needs to be provided.

Sarah Myerscough: So what, given that, the complexity of what's going on in the market and the world really, I suppose, and the fact that I think there's a huge increase in startups happening and going to happen over the next five years, what do you think is going to happen with the market? With the hardening premiums, with the reducing capacity, et cetera, et cetera?

David Perry: Well, Sarah, there's a question.

Sarah Myerscough: The million dollar question.

David Perry: Yeah, it is, isn't it. Because, if you'd have asked me that question 15 years ago, before the current soft market that's lasted 15 years started, or however long it's been, probably more than that. I would've given you the stock answer of "well, every three or four years, the rates change". Capacity reduces, rates go up, commissions go down.

Then suddenly everything changes, insurers start making a profit, more players dive in and the rates come back down again, but it's difficult to call isn't it now, because for all we know we could be on for another 15 years of hard market. So I don't know, it's too early to say I'm afraid.

Sarah Myerscough: No, so I think that's really interesting. And I think, so I have this conversation with quite a few people trying to glean what the, sort of the general perception of the next five years is. And it's as you say, it's anybody's guess isn't it. It's interesting, but it does make the place for advice even more necessary.

David Perry: Oh, very much so. Very much so. One of the big questions that we are asked on webinars now is with regard to returning to work and the COVID situation, what are my issues around my liability cover? Am I covered? Aren't I covered? What do I need to do? And the only advice you can really give is the same that we've always given, which is provided you follow all of the reasonable steps that you would be expected to, provided you document your processes, provided you tell all your staff what those processes are and where to find them, if anything goes wrong, you can prove that you've taken all of the steps that you need to take.

But there's no cast iron guarantee that there's ever going to necessarily be cover in place, depending on the circumstances.

David Perry: So there's uncertainty. But I think the other thing that we're seeing a lot of is people changing their business model. So, giving people advice on, perhaps they're now delivering, they're now going into people's premises, they never were before.

Perhaps they've start to sell on the internet. So their wares, rather than being sold, possibly to a very local community from a retail outlet are being sold worldwide. And then you're having to explain to small firms who previously have been operating from a shop, the difference between geographical limits and jurisdiction.

That's real nose bleed territory, isn't it. And so, people's risks are changing. And the advice that we are giving most small firms is your insurer will base their cover on what they thought you were doing last time you told them. If what you are doing is different, you need to tell them.

So that's sort of the best one-line piece of advice we can give most small firms who have adapted and changed through the pandemic.

Sarah Myerscough: Absolutely. Another trend that I see, and we use it ourselves, because Boston Tullis are a small, an SME, is this idea of the Shamrock Business Model where you've got the core sort of board I suppose, or employee base, but actually is a lot of external contractors being used to facilitate sort of core client work, I suppose.

And that has implications as well, doesn't it? Whereas you might not think somebody who's working full time for you as a contractor versus an employee has very different implications.

David Perry: Yeah, absolutely. I mean that's one that comes up regularly. One of the things that we do on our website for FSB members is provide them with lot of blog material about all sorts of technical stuff like that. And you're absolutely right.

More and more of them are using contractors. Even understanding the difference between a bonafide and a labor-only subcontractor, what your insurance requirements are and so on, it's just not something that's on their radar. Why would it be? I need to do a job, that person over there can help me, I'll pay them some money and they'll do it.

The second thing on their mind isn't oh, I wonder if I'm insured. It's, that's good, I can get the job done. So, yeah, an important topic amongst many.

David Perry: Interestingly, there are so many items on our website that surprises me that they get hit so often. Things like electrical wiring certification, what the EL Tracing Office is. And you think, I can't believe that people are actually interested in this, but they need to know and they go there for information. So there you go. It's just goes to show that the boring stuff's useful too.

Sarah Myerscough: Having just, we are in the process of selling a property and it's currently tenanted, and we didn't have an Electrical Safety Certificate. We didn't know we needed one. So having just literally been through that pain with thousands of pounds of output, I would've read that article.

David Perry: Sarah, it really sounds to me like you need to join the FSB if you haven't already, let me just tell you that.

Sarah Myerscough: Do you know what, it was in my mind as you started speaking at the beginning.

David Perry: Huge value. I'll get the local representative to come and see you.

Sarah Myerscough: Give me a call. All right. Sale done, check. Okay, so the SME community, lots of challenges, lots of opportunities too. Let's have a little conversation around the opportunities for small brokers at the moment, and how there might be a compliance angle to that.

David Perry: Yeah. I mean, small brokers, there are more setting up, which is a good thing. The reason that biba did their startup section to the guidance was because they were seeing more and more people that needed a bit of a template to work out, what things do I need to do? What do I need to tick off?

I think there's more and more opportunity for smaller firms to specialize in certain areas. Because as I said, we've got these issues on the periphery. That means that there are going to be certain specialist groups that need advice, need guidance. And I think that there are a number of specialists that are doing that.

David Perry: I think there are lots of specialist MGAs that are setting up as well. Where the large composites are dividing their time between the sort of online trading and the larger corporate, there's sort of a gap in the middle where the smaller business that needs underwriting, that composites perhaps haven't got the wherewithal to tackle, that MGAs are benefiting from.

David Perry: But the other thing that we are looking at is regulation and the amount of time nowadays, that is taken in that respect. So I also, through my connection with Biba, now work on the FCAs Small Business Practitioners Panel. And that is giving a voice to the smaller financial services firms before regulation is changed and adapted.

It's been really interesting place to be. One of the first things that I've done is to get involved in a new cross panel with the consumer panel around the availability of PI insurance.

Because as you probably know, and I'm sure other guests have talked about, PI for brokers and across financial services generally is really, really difficult. It's expensive, it's difficult to get all of the cover that you need. And so we've raised that with the FCA and talked about that issue.

David Perry: There are other things that we have a voice on. The new changes to consumer duty. There's a very strong voice, not just from general insurance broking, but across the whole financial services industry saying, well, hold on a minute FCA, why do you need this? We've already got principle six and seven, we're treating customers fairly, we've got the new SMCR regime that has only really just been launched.

So what's wrong with all that? You've only just adapted it, changed it, why do you need this as well? Particularly when insurance broking is really a low risk industry, if you like. So, and I think one of the things facing smaller firms is dealing with smaller brokers that is, dealing with the amount of regulation and making sure that you're actually complying with the raft of initiatives coming out of the FCA at the moment.

Sarah Myerscough: I read recently from somebody that we've done some work with in the previous year on compliance, is that your average small broker is spending at least four hours a week just wading through the different policies and changes in updates, et cetera, to make sure they're compliant, which is a lot of time when you're wearing very many hats as a smaller firm.

David Perry: It is. I think that one of the things that we all have to remember about smaller firms is that quite often the proprietor is the Finance Director, HR Director, Health and Safety Specialist, IT and systems person, and has to deal with all of the conduct and compliance as well. And that when he is not, or she is not doing all of those things, has to actually go and sell whatever it is that they're providing. And-

Sarah Myerscough: You're speaking to that person right now.

David Perry: Absolutely. No, no, I absolutely get it. You are there, Sarah, you understand this, but unfortunately a lot of the people that set the regulation are huge corporate entities that, it's not their fault, they're established to make sure that clients are treated fairly and that there are good customer outcomes.

So quite right that they do that, I think we're all in favor of that. But sometimes, and that's the job of the smaller practitioners panel is to say, well, you do realize that there probably will be customer detriment because the smaller firms are going to spend all of their time trying to wade through this rather than actually applying it. So it's an important panel.

Sarah Myerscough: Well it's that balance, isn't it, between policy and practice. And as you rightly say, a lot of policies are made with larger entities in mind, and a lot of the practice is done with the smaller. So I think it's really important to have committees like the one you're talking about just to raise that balance and say, hang on a minute, let's just check that this is what we want in practice. So...

David Perry: Absolutely. It is a voice directly into the FCA to say, hold on a minute, you might find that it'll be better to do it this way. So, hopefully it'll continue to make a difference.

Sarah Myerscough: So from a smaller brokers perspective, would joining the FSB or having a conversation with you around this kind of thing be something you'd suggest they do? Have you got an arm that can help them with a bit of compliance or have these conversations, listen to their worries, et cetera?

David Perry: I'd say that most people join the FSB because they've got to that point where they possibly need to have one eye on things like their sort of HR situation, tax situation, and the basic cover that FSB members get, not provided by us I should add, it's a core of membership, is around looking after things like HR disputes, health and safety, tax audits, all that sort of thing. So if a business is well enough established that they can't afford a Finance Director or an HR Director or whatever, but they need some backing, then I'd say the FSB will provide you very reasonably that sort of comfort.

I think if you're looking for advice with regard to compliance and so on, there's no better place to be than as a member of Biba, because they really are on the button as far as what the regulatory requirements are and what you should do to comply with them.

David Perry: And I think I should also probably for smaller firms and we are a member of one ourselves, give a shout out to the networks because a lot of the networks are really improving and improving their offering. We are a member of Compass, so I'll give a shout out to them. My old mate, Scott Bennett the Sales Director there, and they do a fabulous job.

And again, I feel I should give a nod to them because they've done a lot of good work for their smaller broker members over the last year or so in particular, during these tough times to provide them with collateral and information to get through it.

Sarah Myerscough: Perhaps you can intro me to Scott so I can do a podcast with him on exactly that topic.

David Perry: Absolutely. Yeah. He'll like that.

Sarah Myerscough: Fabulous. Well, David, I really appreciate your time and your advice and thoughts this morning. It's been really interesting and I'm really grateful to have had you on the show.

David Perry: Fabulous. Thank you for the opportunity to talk to you. 


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