Imagine a business that specialises in emergency interventions in subsea environments. If a deepsea pipeline cracks and begins leaking oil or gas, these experts are called in to fix the issue.
But who will insure the professionals taking the risks to make the repairs? Who will insure their equipment, and the business itself? Such an industry potentially represents an enormous risk for an underwriter, risk that is difficult to analyse.
But this also means it is an industry ripe with opportunity for the right broker.
David Clarke, Head of Special Risks at Elliott Insurance Brokers, is one such broker. The effort he has gone to in order to develop relationships with such businesses – including subsea, offshore, oil, gas and marine industries – then to seek suitable underwriters for those businesses, has seen him become a rising star in the world of niche facility insurance broking. And it is a route to success that he highly recommends for the broker with the right attitude and skills.
“The reality for all brokers is if they’re doing a good job of servicing their clients, they should be able to do identify a niche that is not currently filled,” Clarke says.
“I have managed some clients that owned liquor stores for instance, and by broking the market, doing my job to secure the best deal, I have identified a couple of insurers that structure policies to be very competitive. It is certainly in the back of my mind, as a commercial prospect, to have a look at setting up a facility within that space, possibly utilising technology to distribute an online product offering.”
A specialisation often begins unintentionally, Clarke says, before it is consciously developed into something greater. After that development period, the specialisation could become quite a valuable part of your business, thanks to the fact that you are the specialist at the centre of the process.
“My career started off supporting fishing boats and has evolved to placing complex engineering and subsea equipment risks. It’s the clients and relationships I developed over time which led me to identify and pursue the latter,” Clarke explains.
“For example, a broker might have five or 10 electrician clients that provide a similarly unique product or service. And you might say, ‘Hey, this has been an interesting area, and nobody is specifically targeting it.’ However, there may not be enough volume to go around all the normal insurers or to even get multiple insurers interested in a local facility or targeted product offering. But a single insurer might be very interested in supporting a competitive niche facility with attractive loss ratio prospects.
“A Lloyd’s syndicate might also be very interested. And when you set up those facilities it should, in theory, be on an exclusive basis. Furthermore, where the broker is effectively managing the facility, the broker takes on board an increased administrative burden and it would follow that the broker should secure, effectively with no additional net cost to the insurer or insured, a higher brokerage rate. So instead of earning 15%, you might be able to negotiate 25% and possibly much higher in some cases.”
Once an insurer has supported your niche product offering it is now up to you to generate the business, on the premise that you have access to a world class insurer and a world class product. “The insurers appreciate that you are working hard to support them and your clients, so it puts you in a position of being able to negotiate volume-based bonuses and profit-share targets,” Clarke says.
“You normally wouldn’t place a single insurance policy, such as a business pack, and then request of your insurer the inclusion of future and shared earnings metrics. Whereas with an exclusive facility there is an expectation of these benefits being mutually agreed. The link, however, must be the enablement of the broker to continually better service their clients, such as passive income from overriders improving cash flow and enabling the employment of more staff.”
Danny Gumm, Branch Manager for Arthur J Gallagher Professional Associations, and NIBA’s 2013 Broker of the Year, has also carved his niche. Gumm famously created products for tattoo parlours when perceived bikie connections and other issues had insurers running for cover.
He says niche facilities are an excellent move for any broker, as it gives you a point of difference that means you no longer have to compete on price.
“If you don’t have any differentiating factor then you end up trying to win business on price alone, or by battling with a large number of brokers that are all trying to win the same accounts,” Gumm says.
“And there are a lot of good professional brokers out there, so it’s really hard to differentiate yourself on experience. So it’s a good idea to look for a niche area you can target.”
Removing the many problems introduced by doing business in a price war is a powerful benefit on its own, Gumm says. But when you are trusted by an entire industry, when your word and your advice are sought out and clients approach you because you are known as a thought leader, the job also becomes a lot more satisfying.
Gumm began finding niches when he looked back into his past experience. For years he had specialised in the field of professional indemnity and medical malpractice. That meant it was easier for him to look for other professional associations in related industries. In doing that research he was also looking for industries that did not already have countless brokers fighting for supremacy.
“If you think of professions, you think of accountants or engineers or real estate agents,” Gumm says. “Because of that, the vast majority of the broker competition is in these areas. I decided to look at that second or third tier of professionals, which were are a little bit more under the radar.”
So Gumm now works with associations in the field of allied health, beauty, tattoo studios, yoga, professional trainers and other related fields.
When you work with associations, Gumm says, you must remember that it is always a two-way relationship, as much about giving as receiving.
“Where many brokers may have erred in the past is in setting up a relationship and introducing a product that is established and competitive, then wanting the association and its members just to give, without the broker giving anything back.”
It is important for a broker in a niche area to make it very clear they are there to help with educational opportunities, such as webinars. You should also be supporting the industry’s major conferences,
Gumm says, whether through sponsorship, or an educational forum, or providing something else that is of benefit to the association and its members.
Of course, your relationship is also with the underwriter, who needs to be carefully managed once on board.
“It really becomes about which underwriter is going to be best suited to provide the right kind of support,” he says. “I personally look into things like their claims experience, whether they’re good at handling claims, what their expertise is in that industry and what additional services they may be able to offer, both inside and outside insurance.”
Elliott’s David Clarke says the reality of niche arrangements boils down to the commercial viability of what is proposed to the insurer. “Starting from scratch, as I have, is very difficult and comes with reputation risks,” he says. “If you have an existing premium pool to leverage and access to insurer support, such risks can be heavily discounted. As such, I would encourage brokers to look at their own big data and see where this aligns with insurers’ growth/retention strategies. You might have a niche right under your nose.”
“Next it is important to prove you have world-class expertise, capability and genuine intentions,” Clarke says. “I’m fortunate to have secured support from some of the biggest insurers in the world on the basis of their recognition of my significant expertise in a very specialised area, and my commitment to build a business in that space.
“Finally, I always seek to represent only the best clients and because of that, my insurer partners have confidence in what it is that they are underwriting, which enables me to secure favourable rating based upon sustainable metrics.”