Insurers' strong financial performance will bring mixed fortunes for brokers, says Katy Dowell

A year of benign weather conditions has blessed insurer results for 2006. Insurer profitability will no doubt have a knock on effect on brokers. Some believe that this could be positive as insurers invest in improving systems and ramp up new product lines.

Others, however, are concerned that the market is about to enter a period of polarisation, with unprofitable brokers being pushed out of the market.

Norwich Union reported an underwriting result of £1.1bn, despite making a continuing loss on its motor book. RBS Insurance also saw growth in premium income by 2% to £5.5bn. Across the board insurers reported improvements in their combined operating ratios (COR).

Budget chief executive, Peter Winslow, believes that the year of bumper results will bring benefits to brokers who are able to deliver profitable volumes. This year, Budget will deliver 800,000 policies to its insurer partners.

Many of these will be motor policies, which Winslow promises will be profitable. He says: "Our relationship with insurers is such a big focus of our business." Whether those insurers are also competitors matters not, he adds.

Another leading broker says rising results will be good for smaller brokers, despite having some drawbacks.

"Some small brokers may be concerned that they will have to compete with brokers who are backed by major insurance companies," the broker says.

"It is true to say that insurers will have more money to spend this year. But that doesn't mean it will be used only for acquisitions. It will also mean investment in technology, which can only be good for all brokers. They may even start to improve service levels."

Demands on brokers
But there will also be greater demands on brokers to deliver more profitable business. R&SA this week announced its withdrawal from a three year binding authority deal with PBS Holdings subsidiaries, Primary General and Rural.

It is believed that Royal & SunAlliance (R&SA) was unhappy with the amount of unprofitable business being put through the binding authority and has been putting pressure on Primary for some time. In a statement R&SA said it was a "mutual and amicable decision".

With many industry leaders predicting that 2006 was a one-off in terms of profitability, insurers will be looking for ways to sustain growth. For brokers this will bring a mix of fortunes, with those delivering unprofitable business being squeezed out of the market.

As one industry leader put it: "It is make or break for many brokers this year. Those who cannot deliver will be forced to sell up and move on. On the other hand, brokers who have managed to deliver a wealth of good business should expect a bumper year." IT