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International PMI - Could overseas brokers help you grow your business?

Madeleine Davies investigates whether forming partnerships with brokers based abroad is the way forward for international PMI specialists looking to grow their businesses

July 2010 Features

Anyone who has participated in an international conference call will be aware of some of the teething problems that can occur in attempting to communicate across borders. If you’re British you’ll probably have made a slightly awkward comment about the weather. At least during the World Cup season there was an obvious opening conversational gambit. Nevertheless, brokers operating in the international private medical insurance (iPMI) field may have to engage in more of these chats in future if they are to take advantage of the opportunities to grow their business globally, accessing local expertise while mitigating the threat posed by increasingly protectionist regulation.

“Decision-making is being moved away from head office locations to key locations for employees,” says Jonathan Earnshaw, regional director at iPMI provider DKV Globality. “Their decision will be based on what the best solution is in that location. UK brokers are in danger of losing these clients because they are not going to be able to get them appropriate advice. A lot do not travel to specific locations to do research about what conditions are like.”

Certainly, very few specialist healthcare brokers in the UK can hope to emulate the model operated by the large employee benefit firms with offices all over the world. Mercer, for example, has 38 offices worldwide. This not only gives them face to face contact with the decision-makers of multi-national companies and access to local market knowledge but a clear advantage in meeting the requirements of regulators. The key for smaller operators, according to insurers at least, is to build partnerships with brokers based abroad. Earnshaw believes this is definitely the way ahead for big UK specialists such as Jelf who do not have worldwide footprint of Mercer and co but who are competing head to head with them. This, he argues, presents both sides with a commercial advantage. “From the perspective of these brokers based abroad they have the advantage of winning prestigious clients looking for local advice with the introduction of a UK-based broker,” he explains. “They might not earn as much commission but it’s a warm lead.”

REGULATION

In certain parts of the world UK-based brokers may have little choice but to pursue these relationships, given the increasingly protectionist attitudes of regulators. Already in Abu Dhabi brokers placing business must be authorised by the Health Authority of Abu Dhabi (HAAD), a particularly strict regulator.

Earnshaw believes the risks to brokers are very real and already hitting their bottom line. He recently received a query from a UK-based broker seeking to consolidate a group of people currently covered by different providers, including a number based in Abu Dhabi.

“At the moment they cannot give those based in Abu Dhabi advice,” he points out. “They would lose that group to a local broker and that bit of commission. If they had a partner based in Abu Dhabi they could still provide a service to their client.”

He points to the rise of regulation in China where Bupa and Allianz Worldwide Care are currently seeking to secure a local license to operate.

Carl Carter, managing director at iPMI provider IMG Europe, agrees that brokers may face tough choices as regulations across the globe become more stringent.

“In many cases a broker is faced with either losing a client, investing in becoming compliant or sharing a client with a compliant overseas broker,” he says. “Finding a local partner overseas you can work with and trust overseas can be a very cost effective solution.”

Teresa Rogers, international sales and marketing manager at Aviva Health UK, believes that even the UK may see increased regulation.

“Levels of immigration are such that pressures on state healthcare systems are so immense now that they cannot cope with influx,” she says. “Countries need to know that migrants have adequate cover in place.”

“EXPLORING OPTIONS”

Sarah Dennis, international healthcare director at Jelf, says that the firm is “definitely looking into” forming partnerships with brokers based abroad. “A lot of work is needed to look at whether we do a partnership or seek licensing ourselves,” she reports, confirming that driving this strategy is the fact that rules and regulations are changing “dramatically” in certain regions.

“You can’t rely on UK-based PMI insurers because they all have a different stance on it,” she says. “It is key for us to look at advancing further afield and building relationships that will lead to access to worldwide markets.”

Mike Blake, compliance director at national specialist intermediary PMI Health Group, says the firm is “alive” to the danger of losing business to local brokers based abroad but reports that it has also succeeded in winning business from them.

He explains: “If a client wants a global broker because they are dotted all over the world it is hard to compete but where it’s down to relationship and customer service with a client we know well then that is where we see ourselves as strong. Very often the directive that a global broker must be chosen comes from outside of this country. It will be someone in America saying ‘we want to use Mercer for all benefits worldwide and you guys in the UK are going to tow the line’.”

He reports that the firm has looked into forming partnerships abroad but hasn’t done so yet.

“It depends on what business you are doing,” he says. “If it’s expatriate business then you can do it from here. Where the waters get muddied is local hires who need to be on a locally sold scheme. You have to find a partnership that works and that you trust. First, they must provide a similar level of customer service and that is a difficult judgement you have to make. You don’t want to upset a client”

PRACTICALITIES

Brokers and insurers agree that these partnerships are not to be entered into lightly. “It’s not as easy as going to the internet or to Yellow Pages,” says Andrew Apps, director at iPMI provider ALC Health. “Anyone looking to enter a partnership has to do some research. One of the best things they can do is to get a recommendation or a reference. Get the names of the broker’s clients and have a chat with them and then work out a deal. Will it be a straight commission split? Who will handle documentation? It may sound daunting but it really isn’t. I have seen it work very, very effectively and seen partnerships grow and grow because they both get a lot out of it.”

Earnshaw believes that it would be “ideal” for providers to facilitate these broker partnerships by giving a mutual introduction.

“If a broker approached us we could certainly help them with understanding who the potential brokers could be in a certain marketplace,” says Kevin Melton, deputy director, market development at iPMI provider Vanbreda International. “The difficult thing is to find a potential partner. You are also asking them, unless they know that broker particularly well, to take a leap of faith with a broker they have never heard of before.”

Steve Nelson, international sales adviser at April Medibroker, believes that partnerships are “in principle, a great idea” but that providers will need to assist firms such as his own.

“For all the best will in the world, unless you are travelling extensively we would not know who are reputable brokers,” he explains.

“You have to get out into that market,” agrees Jelf’s Dennis. “You can’t do it from a UK stance, trawling the internet. You need good relationships with all the insurers and then you tend to hear the same names come up again and again and will feel more confident to work with brokers that are currently recognised by providers.”

IMG has over 25,000 independent brokers in 150 countries and managing director Carter confirms that the insurer works closely with them to make introductions.

“Often we get asked ‘do we know someone who…‘ and in some cases we are able to pass back a couple of suggestions to assist and help get talks started, but we always say ‘don’t take our word for it’,” he says. “You must satisfy yourself you are happy to work together, can jointly provide a good offering to the client and both parties need to do proper due diligence.”

He believes that there are a range of opportunities for brokers considering expanding their reach, embracing both formal and informal arrangements.

“It can be as simple as passing a lead and receiving an introductory commission right up to joint venture partnerships,” he suggests. He adds, however, a note of caution.

“Both brokers should be clear on differing working practices, what is expected of them and any competitive issues identified and resolved, otherwise it is possible that clients could be lost rather than gained. Doing business informally through an agreed commission share may commonly work on the odd case here and there, but if any volume is anticipated to be transacted then due diligence, time and investment needs to be made in ensuring proper agreements are drawn up, responsibilities are clearly identified, service standards outlined and client ownership agreed upon.”

Paul Weigall, head of sales at InterGlobal, agrees that partnerships make sense but cautions that, particularly in light of recent guidance from the Financial Services Authority (FSA) regarding bribery and corruption, “it is very important that brokers are very open in terms of where they would be paying their sub-broker commission to.”

Whether insurers are as good as their word when it comes to facilitating partnerships is subject to debate. Dennis reports that while two insurers have offered their service in providing Jelf with information about recommended brokers, they have never followed it through.

“They are not forthcoming because it is a two way street of why would they want to form a relationship with a UK intermediary when they already have a relationship there?” she surmises.

KEY REGIONS

“There clearly is an opportunity for UK brokers to increase their ability to sell internationally globally by building relationship around the world,” says Tim Slee, Bupa International’s sales director. He believes that brokers in Asia are particularly open to the concept.

“They are massively keen on business card and opportunity sharing,” he reports. “They are an emerging marketplace and they really enjoy building relationships.”

Rupert Osborn, corporate business development manager at Cosmos Risk Solutions, a London-based international Lloyd’s broker, has first-hand experience of this. He believes that changing regulations present British brokers with an opportunity to work in partnership with local brokers and insurers to provide clients with products that meet regulators’ requirements. Cosmos has worked via its Hong Kong office with a local carrier in China (for whom IMG provides services including underwriting and claims settlement) to provide a solution for brokers based in China and people going from the UK to work there.

“It can be quite high risk,” he admits. “To get a return on effort you need to make sure you have got a sufficiently large portfolio of business you need to put into the local broker to merit the regulatory and relationship building process. You need to do serious homework in terms of who you partner with. You may be quite scared of what you come across. From a professionalism point of view regulatory authorities can be fairly lax or non-existent. Other regions are highly regulated and you would be reasonably ok in dealing with any broker in that part of the world.”

Of course, it is not just brokers having to negotiate ever more stringent regulation abroad. Insurers are also seeking fronting arrangements with local insurers in order to comply with the rules and dealing with local brokers. In some cases this can actually freeze out UK-based brokers. April Medibroker’s Nelson gives China as an example, where InterGlobal has arranged with a local insurer to front their plan.

“We are out in the cold in that respect,” he says. DKV’s Earnshaw confirms that as insurers secure licenses to operate in countries such as China they will be dealing with local brokers, lending further weight to his argument that UK-based intermediaries must start forming partnerships.

“Brokers cannot rely on insurers to hold their hand,” he says. “They have to make a strategic decision to take the initiative themselves or they will lose that business.”

There is good news for brokers ready to take this leap, however. “Due to high levels of professionalism and specialist knowledge, UK broking has a strong brand name internationally,” says Earnshaw. “British broking is seen as high quality, well-regulated and trustworthy.”

He believes that access to some key markets is easier than brokers may think.

Vanbreda’s Melton agrees and believes that the Middle East is an obvious opportunity.

“The broker market there is not dissimilar to the UK health insurance market,” he reports. “There is a mixture of brokers like Mercer and Marsh and small brokers who I would liken to an AMII-style broker.”

He has also seen brokers establishing branch offices in key growth regions such as Kenya and employing local staff.

Meanwhile, IMG Europe’s Carter reports that he has seen effective partnerships formed between brokers based in the UK and the US, particularly among UK brokers looking to secure US domestic healthcare.

Technically, Europe should pose less problems for brokers. The insurance mediation directive allows brokers to sell anywhere in Europe. However, Melton warns that language can still prove a barrier while marketplaces can have very different characteristics. Some brokers are employing local sales representatives in countries such as Spain to address this.

ALC Health’s Apps believes that there are also opportunities for brokers to develop relationships with IFA networks whereby they become the iPMI broker for the entire network and split commission. He shares his competitors’ belief that brokers could reap huge rewards from adapting to the changing global marketplace.

“It’s the old story of brokers having to make that leap of faith,” he says. “There is a huge world outside the UK and at a time when PMI in the UK is going backwards or standing still there is all this international business out there growing at a phenomenal rate. Most insurers are reporting 20-30% growth despite the recession.”

Perhaps it is time for brokers to take insurers’ advice and seize the day. Bupa’s Slee is confident that the market is ready for them.

“The international healthcare market is a huge opportunity for any organisation with good quality people giving good quality advice,” he concludes. “From the small partnering IFA right up to Aon and Marsh there is room for all of them if it is good quality advice because this is a complicated market that needs good quality intermediaries.”

TIPS FOR BUILDING A PARTNERSHIP

• Consider asking an insurer for an introduction

• Seek references

• Discuss working practices and mutual expectations

• Identify any competitive issues and resolve them

• Draw up proper agreements with responsibilities, service standards and client ownership clearly set out Source: IMG Europe