Top Ten things to consider when reviewing your FCA Principal relationship

The Appointed Representative model continues to grow in popularity with more than 500 Commercial and HNW AR’s in the UK and a growing number of Principal Firms.

Making the decision to move Principal can be as tough as the one you made when you took the plunge to start your own business. The knowledge you have gained puts you in a strong position to understand the critical requirements that you and your business need, both now and for the future. Whatever your plans may be – growth, acquisition, succession or sale, you need to ensure your Principal is on board and has the resource to make it happen.

Having worked with in excess of 200 AR’s over the last 10 years, Momentum understand the key considerations for those contemplating a change:

Insurance broking is a people business and without your client relationships there wouldn’t be a business. As such client ownership should always be 100% yours. Contractually this should be clear and concise without any ifs, buts or maybes.

It is also important to ensure that contractually there will be no barriers to transfer your clients if you decide to terminate your agreement with your Principal. These may seem like simple things to sort, but it is a regular area of frustration for those looking to exit. While the exit process isn’t at the forefront of your mind when signing up, care should be taken to ensure that ‘termination agreements’ and/or processes are shared and understood.

Cost v quality is never more important than when selecting a FCA Principal for your business. Understanding the services and support you require and matching this against the propositions provided is a good starting point.

A proposition may look strong on paper, but does it deliver on quality? Make sure you do plenty of research, chat to their AR partners and compare your options.

This can be the most daunting aspect of a move, but with the right level of support it doesn’t have to be and can be successfully managed without impacting your clients.

There are many factors which influence the transfer, so it’s important that this is fully understood and appropriately planned.

You need to pay specific attention to:

  •  Contractual constraints/limitations within existing Principal agreement
  •  Expertise and knowledge of your new Principal’s IT team
  •  Client and risk information extraction and migration
  •  Transfer process with insurers
  •  Potential gaps in insurer TOBAs and how this will be managed
  •  Management of EDI policies
  •  Roles and responsibilities of both the existing and new Principal

Regardless of whether you want to do your own broking, the Principal’s reputation with insurers is critical to ensure you can get the best for your clients. Simply having a TOBA in place doesn’t translate to support, hence it is important you dig a little deeper.

Consider the following:

  • Strength of insurer relationships at a senior level
  • Sometimes it’s not what TOBAs the Principal has, it’s what TOBAs they don’t have
  • Local reputation/perception from insurers
  • Do they trade with Regional Trading Offices or ‘Centres of Excellence’?
  • What on site underwriting support do insurers provide?

Insurance, as you know, is a people business and its critical that your Principal not only has the experience and knowledge, but also has a strong management team to support you. The salesperson can give you a level of comfort, but who will you be dealing with day to day?

  • Do due diligence using LinkedIn and Google for an insight into the team’s background and experience
  • Stability and longevity of service by company directors
  • Find out what support they provide for complex claims and cover issues
  • Meet the key personnel you will be dealing with day-to-day and get comfort you’re a good fit
  • Ask for an organisational chart so you can visualise the support available
  • Investigate staff turnover and length of service for key personnel

Traditionally, the Principal has provided professional indemnity cover for their AR’s, however, the hardening market has resulted in some isolated cases where the AR’s have been left carrying their own PI while others have been left exposed to substantial excesses.

Understanding the financial security of your Principal is important and should be reviewed annually to make sure that your business and your clients are given the appropriate protection. There are some useful tools available to you to help build a wider understanding:

  • Companies House provides insight into the profitability and growth of a business, but due to delay in reporting information can be a little dated. Speak to an accountant and ask for their view on the filings in Companies House.
  • FCA register is real-time and shows existing and previous AR-Principal relationships. Are they growing or shrinking in respect of AR’s?
  • Ask the senior team about their 3-5 year plan, and cross reference this with information available in the public domain.

Most but not all AR Principals in the UK had their own direct business before venturing into the world of Appointed Representatives. While this has created a good opportunity for growth for the Principal, it can present challenges for their AR’s. There can be conflicts of interest particularly when managing the requirements of their own clients alongside supporting yours.

Consider the following:

  • Is there dedicated broking resource for the AR members and how are AR’s needs prioritised?
  • How many AR’s do they have and what experience have they had in managing AR’s?
  • Are the client document’s professional, fit for purpose and available in your branding?
  • Is there data segregation that protects you and your clients?
    • What access does the direct business staff have?
    • Is this data segregation replicated with insurer extranet sites?

Your personal network, referrals and word of mouth most likely delivered a level of growth that was satisfactory in the first few years of your business. For AR’s looking to achieve the next level of growth and to remain competitive in an increasingly digital post-covid world, marketing will become increasingly important. The right marketing strategy should harness the power of technology and deliver an experience that secures long-term client relationships.

In the face of digital disruption, you should consider the following when looking at a Principal’s marketing support:

  • Is there dedicated in-house resource?
  • Does your Principal invest on your behalf, in digital marketing technology?
  • What is their level of expertise across all areas of marketing, particularly digital channels?
  • What support can they provide for social media account set up, content and client reviews?

There are plenty of opportunities to look for insight into the reputation of AR Principals and the potential fit for you and your business.

  • Speak to their AR’s and see what they have to say. Focus on those who have a similar business to yours and/or used to be with your existing Principal.
  • Use LinkedIn to research the Principal, it’s staff and it’s AR’s.

Your Principal has a role to play in enhancing your reputation and ability to compete and not to compromise your plans.

Businesses evolve and as a result their needs change over time, while your existing Principal may have been the perfect option for you when you started, securing your future may require a change in direction.

To find out why in excess of 30 Appointed Representatives have made the switch to Momentum in the last 5 years, click on the testimonials button below.

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Momentum gives your business stability, longevity and a secure platform for growth. Our unique model is designed so that you can focus on your clients while we provide you with a broking team, back office and the tools to grow your business.

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