Insurance bosses from Axa and Norwich Union disagreed with Willis chief Hugh Warren over the main competitive threats to brokers in the commercial insurance market at Biba's set piece conference debate on Friday.

Warren refuted suggestions from Patrick Snowball, managing director of Norwich Union, that the insurance arms of banks are likely to seize an increasing share of brokers' commercial business.

Snowball told the conference: “I think the threat is most likely to come from the alignment of banks and their small business departments.” He said some commercial business had been significantly underpriced for the past five years and that this had to change.

The combined operating ratio for the motor trade market had been “absolutely dreadful” and Norwich Union had had to impose a 25% premium increase in the past year.

Snowball said raising some commercial rates in this way was not a panic measure because Norwich Union had planned to get this business back into profit and not take the next five years to do it.

Axa chief executive Andy Homer said pressure was beginning to build for insurers to deal with commercial business on a direct basis.

Homer went on to state categorically that the insurer did not cross-subsidise its direct and broker distribution channels. “That is a myth,” he said.

Warren disagreed with Snowball when he said the main threat to commercial brokers was coming from insurance companies rather than the major banks.

He said provincial brokers controlled more than 80% of the commercial market compared to the banks' share of less than 10%.

“The banks are not a major threat – if they were, they would control more market share.”

Warren stressed the number of commercial brokers was likely to diminish from the current figure of 2,500 to a core of around 500-600 brokers over the next five years.

He said this streamlining process would be driven by the insurance market rather than insurance companies.

“The insurance market is going to drive many commercial brokers into the arms of provincial brokers who develop their technology and have a minimum gross written premium of £2m.”

Snowball also warned the audience of brokers that high distribution costs were becoming a concern.

Product distribution was currently adding about 30% to the cost of insurance products – an unacceptable figure in an increasingly competitive market, he said.

Snowball said the product standardisation system Polaris alone had cost £25m to develop over 10 years and that insurers would expect a return for investing an additional £25m in a robust internet portal for distributing insurance products.

“One of the challenges for the broking community over the next 18 months is whether individual firms can afford to sign up for an open access internet portal because if they cannot, they will be left out of the race,” he said.

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