The cost of distribution is just part of the expense equation.
Cake or pie?
It’s your choice as to how you imagine the insurance market.
I’ll go for pie, as it suits my more Presbyterian upbringing. The way I see it, we’re heading towards some fairly important changes in the market - sorry, the pie. The growth in MGAs, the continuing soft market, insurers dipping into reserves, access to capital, claims levels, consolidation and pressure on commission levels are all pointing towards a challenging time particularly on costs.
At the moment it’s a debate between insurers and brokers looking at how the pie is divided; that is, the cost of providing insurance. The battle is over who gets what part of the pie and increasingly who gets the bigger piece. Added to that is the Financial Services Authority’s apparent belief that more transparency in the intermediary sector will bring greater competition and therefore result in cheaper prices for the client (something which I believe is misconceived).
Pressure is coming to a head or as one speaker at a recent industry forum put it: “We’re reaching the end of the runway.”
“The debate as to whether MGAs are the future, and capital as a commodity is forcing the industry to look more widely and externally at how all the costs and expenses - not just of distribution - can be reduced.
The debate as to whether MGAs are the future and capital as a commodity is forcing the industry to look more widely and externally at how all the costs and expenses, not just of distribution, can be reduced.
We should all be focused on a strong but competitive market and the right regulation, but we should not forget the client in all of this. This internal market debate does seem to be too focused on the cost of distribution, on how we process, package and deliver that pie to the client if you will.
We’ve got to provide service and maintain focus on value all the while improving its taste to the client – no-one wants all crust and no filling after all.
Perhaps it will all become academic when the market hardens and many of these issues are promptly shelved. Whichever way it goes, it will as usual be up to the broker community to ensure that client service in all areas is maintained – and that as we all know is not as easy as pie.
