Some personal lines insurers find brokers are key to good COR

Remember that old chestnut about personal lines brokers dying a death as aggregators take over the market? Well nothing could be further from the truth judging by this week’s results from insurers. Today, L&G, which distributes 70% of its premium through brokers, reported stellar results.

L&G is a home insurer, and has had the benefit of a mild winter. Yet just as importantly it has assiduously cultivated relationships with brokers and they, in return, are delivering great loss ratios. An 80% combined operating ratio is very healthy. But it’s not just L&G. Take Aviva, the largest general insurer in the UK, which had great success in personal lines in 2011.

That was in no small part to the fact it won over brokers with Personal Best. Personal Best was a plan to give brokers access to offers and products that customers would normally find direct.

Brokers helped Aviva deliver a personal lines combined operating ratio of 91%, nearly five points better than that of RSA.

The bottom lines is that personal lines brokers offer insurers better retention than direct, because they cultivate their customers at a more intimate level, and also offer better loss ratios and, finally, potentially more control in the claims process depending on the stipulations in the terms of business arrangements.

The flipside is that insurers demand a cut in commissions, a cost that direct players don’t have to worry about. Aviva obviously weighed up those pros and cons, and went for it.

Personal Best was well-suited to Aviva because it had the broker infrastructure to carry out the scheme at a cost-effective rate. It would be hard, but not impossible, for other insurers to launch similar schemes.

Aviva has shown what can be achieved with personal lines brokers when they are offered a bit of TLC. It’s all a far cry from a couple of years ago, when insurers aggressively ramped up rates on motor and brokers watched customers flee to the direct market.

What brokers want more than anything else is consistency, and that’s something a few insurers are delivering on at last.

FSA add-on warning

Talking of personal lines brokers, the FSA warned this week of the dangers of add-ons. It’s certainly on the FSA’s radar and brokers could face regulatory intervention. Another risk, especially for the large personal lines brokers, is that they risk losing customers with the hard sell on ancillary products.

Only this week somebody in our office vowed never to go back to a personal lines motorbike broker because he feels he’s been duped on an ancillary product, one that he never really wanted, and one that he’s pretty sure he never even asked for in the first place.

It’s only one customer, but judging by the Financial Ombudsmen Services complaints data, he’s certainly not alone.