Are networks looking forward to 2013?

Towergate’s nine-month 2012 results released today revealed mixed fortunes. Earnings before interest, tax, depreciation, amortisation and exceptional items (EBITDAE) increased 5% to £119.5m, from £113m in the same period last year, although the company’s statutory loss before tax worsened by 2% to £42.4m from £41.6m.

Still causing problems is the networks division, which comprises Broker Network and Countrywide. Revenues in this division fell 14% to £13.2m in the first nine months of 2012, from £15.4m in the same period last year. EBITDAE dropped 18% to £8m, from £9.8m.

In its report to bondholders, Towergate said the network revenue decline is mainly down to insurers spending less on network distribution.

This elaborates on what Towergate said at the half-year stage. Three months ago, it told bondholders that its fall in network revenue was caused by “a change in insurer strategy”.

The well-publicised falling out with Aviva, which pulled out of Broker Network’s partner insurer programme in June, has played some part in Towergate’s network slump.

This latest admission seems to confirm what many have believed to be the case, namely that insurers are heavily scrutinising their network relationships.

By pulling back on deals with networks, insurers are choosing to deal directly with brokers. Is this the clearest sign yet that insurers have lost faith in the value offered by network propositions in the distribution channel?

Towergate chief executive Mark Hodges says each insurer has its own distribution model and while some insurers are cutting back, others are growing their network books.

But networks are certainly still under heavy scrutiny and many will be hoping 2013 comes sooner rather than later.