Lloyds Brokers!

Operating as head-hunters in the UK insurance market we get involved in moving teams of brokers from one company to another – with their “books of business” (clients to the rest of us!). To some extent, this strikes me as verging towards unethical, but it is standard practice in the insurance industry – and we make sure that it is ‘above board’ – and in most cases we the book of business is moved on an agreed (usually commission sharing) basis for the first 12 months.

An interesting contrast appeared recently. We moved a 2 person team of Lloyd’s brokers from one Lloyd’s broker to another – with a book of business amounting to c.£550,000. We also moved a small team just outside London from one non-Lloyd’s broker to another non-Lloyd’s broker with a book of business amounting to c.£1m. Combined salary for the Lloyd’s team (excluding t&e, NI, tax, pension) was in excess of £160,000. Combined salary for the ‘provincial’ move (excluding t&e, NI, tax, pension) was less than £100,000 – yet almost twice as much business transferred!

Since our fees relate to salary, the Lloyd’s opportunity made more money for us! My concern, however is with the differential between the two with regard to revenue and remuneration – and my question is, “Is the Lloyd’s broker market sustainable long-term with such high salaries and such slim margins when compared with the ‘provincial market?” If I had a choice, I know which part of the insurance industry I would invest in! Look at the return Peter Cullum has made in 10 years for example!

However, I am sure that I must be missing something. These figures are not made up and they are not unusual. Is the explanation that business broked into Lloyd’s is so much more profitable than business broked into the company market? Are the bespoke Lloyd’s deals so much more lucrative? Do Lloyd’s brokers command such high salaries because of their genuine expertise, ability and market knowledge? Could 'provincial' brokers with books of business move to Lloyd's brokers and command significantly higher salaries?

I would value comments and answers – if there are any!