Brokers have raised concerns about a wholesale intermediary that is asking its broker clients to pay £60,000 for a franchise agreement in order to continue to place their taxi business.

The franchise facility is being offered by Northampton-based Servico, which trades public and private hire insurance under the Motorcade and Roadsurfer names.

Broker Clement Gallagher, in north-west England, said the first it knew of the franchise scheme proposal was on September 15, after it had sent £2,000 worth of business to Servico.

The following Wednesday, Servico said it was no longer taking business because it was revising its Motorcade private and public hire insurance scheme. Other companies have pulled out of the market.

Clement Gallagher development manager, Peter McCall, said: "Servico told us they were experiencing difficulties with licensing authorities and had therefore stopped offering cover in the short-term."

A week later McCall said Servico began accepting taxi business again, but also wanted his firm to enter into a franchise agreement.

The franchise costs £60,000 to set up and £25,000 per year thereafter, with a 20% deposit required.

A commission rate of 10% on premium income is payable, but is reduced to 5% in the event of a client claim.

McCall said Servico told him these terms were "non-negotiable" but he decided they were unacceptable.

He explained: "When you take into account that commission will be reduced to 5% in the event of a claim, it means a broker will have to generate a premium income of more than £1m to return a profit."

McCall said it was relatively rare for brokers in the taxi market to be asked to enter into a franchise.

His firm, which derives 30% of its business from the taxi market, is now seeking to place its business elsewhere.

Another taxi broker, Coyle Hamilton of Ilford, also had misgivings about Servico's franchise approach. A spokesman said: "Personally, I would not enter into a franchise agreement for taxi business because the market is very volatile, and there is little loyalty to brokers as taxi drivers will chase the lowest premium available."

Servico director Steven Arnold, said it had had to suspend its Motorcade taxi insurance scheme because of issues over its documentation raised by licensing authorities.

Arnold added that at the same time, its underwriter CNA wanted Servico to review its operations because it was concerned about the type of taxi risks being accepted.

He said this had led it to consider the franchise scheme: "We have been talking to brokers with high business volumes to see if they are prepared to pay for a facility whereby we provide cover as well as various other back office functions, including a full accounting process and premium funding facilities."