New 3.5% rate, due to start on 31 March, applies only to fee-based business, says broking giant

Aon UK has put the squeeze on insurers by demanding a 1% increase in broking charges on fee-based business.

The broking giant said it was increasing its insurer services brokerage (ISB) charges to 3.5%, beginning on 31 March.

It defended the increase – which will only apply to open-market business placed in the UK – saying costs had risen since it introduced ISB in the UK seven years ago.

At present it is unclear how underwriters will react, but one senior executive said: “I think the big brokers do undersell themselves, but I wish they would direct their fire at the clients rather than us. Discussions with insurers take up lots of time, often get nowhere and can be emotional.”

An Aon spokesman said: “We review all aspects of our remuneration as market conditions change, and our costs have risen significantly since the ISB was first introduced. We therefore have written to our markets advising them that we are seeking to increase the ISB by 1%.

He said ISB charges did not apply to panels, facilities or other specialist product arrangements. It also did not apply to commission-based business. There was a cap on the maximum payment.

“The revised terms will be fully disclosed to our clients,” he said.

Aon replaced contingent commissions – incentives for placing volumes of business – with ISB in 1999. With ISB, the broker receives a fee from the client and then a percentage of the net premium, although this is capped on larger-ticket business.

It is believed Marsh is following a similar path, having negotiated an extra 1% commission with AIG on domestic US business.

The increase in ISB comes during a difficult year for the Aon group, which on Thursday posted a 35% drop in net income for the fourth quarter of 2008 (see page 13). Net income was $123m (£82.5m).

In January the FSA fined Aon UK more than £5m for breaching anti-bribery controls.