The challenge for brokers of legacy client relations

24th July 2018

Dealing with legacy business is not just a matter for underwriters; legacy clients present issues for brokers that need careful consideration

The recent increase in merger and acquisition activity in the re/insurance sector has seen a renewed focus on how to effectively manage legacy business. What to do with the legacy is now a pertinent question for both seller and acquirer.

The approach to legacy has always been one which has seen management look at the issue as having few if any upsides.

Legacy, if not properly managed can become a continual drain on management and resources, will almost certainly take longer to finalise than anticipated and will cost more to address.

For brokers legacy business is viewed as those clients who have liabilities, but which have had no interaction with the broker for several years or provided any new brokerage income but still needs to be managed.

The issue for brokers is that while legacy clients may not be currently engaged with the business some remain potential clients of the future and therefore need to be managed correctly.

Reputation is vital for the broking community and one of the biggest obstacles for a broker to engage a service company to handle the run off of their legacy business is the fear that the service standards will not be maintained once the broker relinquishes control.

But what should the intermediary be aiming for when they look at how to best handle their legacy business and place it in the hands of a third party?

Primarily the aim has to be to free up significant management time and resource to concentrate on “live business”.  They also need to be able to release staff into the live environment or remove them from the ongoing cost base, whilst removing the need to retain office space and system capability.

It also needs to enable them to cease the production of all management and regulatory reporting alongside the handling or processing of any open or future claims and the credit control function associated with it

There is also a need to remove all outstanding items from existing ledgers and cancel any outstanding file reviews or cash investigations.

Legacy by its nature creates uncertainty both for the management and staff but the options for the market are in many ways limited to the ability to transfer the legacy business to a third party via sale or to engage in an arrangement which will allow the services company to manage the run off.

In the quest for certainty intermediaries need to ensure they have a clear understanding of the costs of any option.

As such they need to work with their service partner to identify and agree the exact scope of the legacy operation which includes the number of policies, open claims, and accounting issues. It requires the services company to gain an understanding of the business in question in order to create an effective management strategy.
It involves the ability to understand the duration of any management scheme and to provide a clear indicative cost benefit to the intermediary.

If handled correctly the management of the legacy business can become part of the intermediaries’ reputational management and if agreed services levels are implemented can provide the legacy clients with a positive experience that can add to the brokers’ ability to win future business.

In terms of those who offer legacy services the market has changed in recent years. When legacy and run off began as a sector it was seen as a negative step. Now it’s is viewed as a challenging and rewarding career. We saw an influx of companies enter the sector in the 1990s when M&A and insolvencies saw a realignment in many areas of the re/insurance industry but in recent years the service company sector has become more sophisticated and those which remain within it are delivering a greater degree of professionalism.

With regulatory pressures such as Solvency II and Brexit firms will be looking at how they manage legacy business going forwards.

Service firms are developing new products specifically for the broker and intermediary legacy sector to address the concerns of the intermediary C suite and deliver efficiencies alongside enhanced client management.

The current position of the global re/insurance sector points to a continued need for firms both underwriters and intermediaries to address the question of legacy management.

What has become clear is that a considered and systematic approach to legacy management is becoming increasingly important.

Steve Goatee – Davies Insurance Services

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