Elliot Lane asks three leading insurers for their views on the real issues and threats facing brokers over the coming months
Bronek Masojada, Hiscox chief executive
Masojada and fellow executives recently visited regional brokers on their doorsteps for Hiscox's face-to-face events.
"What struck me was the further away from London we got, the happier brokers became about the issue of disclosure. In London I was heckled, but in Scotland the response to transparent fees was relatively sanguine."
He says certain regional brokers that Hiscox dealt with do not use contingent commissions but "have an agreed fixed 3% fee paid up front which we regard as brokerage".
"I think the regional brokers have a great opportunity to change now," he adds.
He likens the FSA's Treating Customers Fairly principles to the "Ten Commandments". "Like the Commandments they are fair rules but will they be rigidly enforced? I can see some call centres with extremely long scripts and others very short depending on how literally the principles are taken by each insurer. It can be detrimental to the customer in the end."
According to Hiscox's research, most customers think brokers charge an average commission of 10% to15%. "Transparency is needed and brokers must change their business model to reflect this - a paper trail is needed.
"Against the threat of the banks and supermarkets, which I see doubling in size in the next five to 10 years, brokers must offer efficient and effective advice. Insurers need to worry about underwriting claims and administration. I can see both major and regional brokers using their online capabilities more constructively. It is the only way forward."
Ken Wallace, Norwich Union intermediary business director
Wallace is retiring from Norwich Union's board this September after nearly 40 years in the business. He thinks the fall-out from the Spitzer inquiry and inducements has yet to be fully recognised by the broker market.
"Brokers are trying to make up the income loss from over-rider profit share. This could lead to much more consolidation in the near future," he says.
Wallace believes the biggest concern for brokers and insurers is the use of risk-based capital and client money. "No one understands the rules. We have established an advice unit for brokers wishing to set up statutory and non-statutory trusts to protect client monies. We are also offering help to Biba members."
In October insurers will face fines if they do not update the Motor Insurers' Database in time. This will have a major impact for the broker community, according to Wallace, because it will force insurers to rely heavily on EDI. "We have spent so much time thinking about the FSA requirements this legislation has been neglected and under the radar.
"I can envisage only electronically produced motor policies being traded once the database goes real time. This will have a major effect on the schemes business which will hurt brokers and insurers alike," he added.
As for consolidation it is a buyers market for brokers, he said. After two good years of the hard market, with 30% rate rises, Wallace believes brokers will say: "Why leave?"
"For the smaller broker the amount of compliance levied by the FSA is often onerous because it puts such pressure on its infrastructure. This might force some of them to sell or move into a network".
David Smith, Zurich sales and marketing director for UK commercial
Zurich has re-modelled its SME business enterprise portfolio proposition to brokers into six distinct areas: shops and offices, manufacturing, food beverages, sports and leisure, construction and property investors.
"We know brokers are interested in specialist propositions. They want quick quotes, quick and accurate documentation and quick administration for this type of business because the commission is so low. If small hairdressers pay £1,000 for the policy the broker earns £100, so it must be quick and easy."
He said unlike some insurers which add "fluffy wraparounds" to their SME packages Zurich offers "more substance".
"It is not about hoovering up poorly rated business. It is about growing profitably on a sustainable proposition. There are pockets of irresponsible underwriting in the market. But I think we are standing firm."
Brokers that sign to imarket will benefit from better service and efficiency and a large proportion of Zurich's policy count will go through it. "Our shop and office product is already available. The architecture that has been built this time has the broker in mind." IT