Insurance brokers are making it increasingly difficult for staff to make a move to a competitor by enforcing restrictive covenants that stop the poaching of clients and former colleagues.
This week broker Eastwood & Partners was forced to pay Romero Insurance Brokers £110k in damages after losing a High Court dispute. Romero sued the firm and former broker Andrew Templeton for breaching covenants that prohibited him from soliciting business from his former clients for 12 months after leaving his job.
So far this year, the expected post-bonus moves of brokers in the insurance sector has been muted, suggest recruiters, and it’s these restrictive covenants are forcing many to stay put.
“New employers are no longer willing to take a gamble on recruiting a broker on the promise of bringing in business,” said Rob Charles, director of insurance focused recruiters Thomas Kennard. “Covenants are being enforced more and more, so it’s not economical to hire someone with the assumption that business will start to come in six to 12 months down the line.”
Big brokers have been holding bonus payments back until April, so this point in the year is usually when the game of musical chairs in the insurance broking sector begins. Brokers still fall under the ‘tier four’ category of institutions under the FSA’s remuneration code so cash bonuses and the promise of guarantees can still be used to lure talent from competitors.
Restrictive covenants have been the first line of defence to stop revenue producers switching to competitors with for larger rewards. They can, however, be difficult to enforce, since clients are free to gravitate across to a broker’s new firm of their own accord and it can be difficult to prove that ‘solicitation’ was involved on the part of an individual.
Instead, broking firms are now focusing their restrictions on stopping departing employees from poaching former colleagues, said Andy Edwards, head of technical insurance at the High Finance Group.
“In large corporate brokers the value of an individual producer is questionable, they’ll always have junior and support teams who are integral to their success and the best way to stop a book of business moving is to is to restrict the poaching of former colleagues,” he said.