Insurers are scrutinising their arrangements with networks and are not afraid to cut poor performers loose
When Aviva left Broker Network’s panel in June it sparked fears that other insurers might follow and pull out of networks. This would be devastating for networks and the hundreds of brokers that rely on them to get enhanced commission from insurers and to handle their back-office and compliance work.
However, some insurers have complained that broker networks have become greedy and exploited their buying power. A common gripe is that some use their scale to beat too much commission out of insurers. When this is combined with the other common insurer complaint - that some networks are not delivering a sufficient volume of profitable business - then networks have reason to be worried about an insurer exodus.
So is the Aviva/Broker Network fallout a portent of things to come? One thing is certain: insurers are scrutinising their arrangements with networks and are not afraid to cut poor performers loose.
AXA commercial lines and personal intermediary chief executive Amanda Blanc says AXA is supportive of networks, but warns: “Those that attempt to take advantage of market conditions or are looking for remuneration based on scale will fail.”
However, most networks chiefs deny the Aviva case is part of a wider problem. “This is a one-off,” says TEn Insurance Services managing director Malcolm Lee. “Many insurers are reviewing their network relationships but it all comes down to negotiations. In this instance, they failed.”
Bluefin Insurance Services managing director David Hopwood says the benefits of networks will outweigh any negatives in the long term. “It is incumbent on the network to demonstrate the benefits of working with it, and I believe networks will continue to do this for years to come.
“The support a network can bring will always be greater than what an individual insurer can provide. So networks will maintain the collective buying power of their membership.”
Purple Partnership managing director Les Brewin criticises Aviva’s stance. “Aviva hasn’t supported networks in recent years and takes the view that it can succeed without them,” he says.
“It is effectively working against them and that’s short-sighted. On the other hand, why should any insurer work with a network that it doesn’t believe adds value?”
Clubs vs networks
Another threat to the network model is the rise of insurers’ own broker clubs, such as Aviva’s Club 110. Some have suggested that insurers dissatisfied with networks may favour their own clubs. Most insurers operate these, many of which share the same functions as networks, such as offering enhanced commissions or profit-share deals, as well as helping brokers with training and compliance.
But Brewin is scathing about the possibility of broker clubs edging out networks. “Some, like Aviva, probably see their club as the equivalent of a network, but why would any broker want to be a member of a network that only offers one insurer?”
Hopwood agrees. “The problem with an insurer club is that it only takes into account the view of that insurer and will seek to protect its own interests above everyone else’s. A network can take a broader view and come up with a solution for the broker that works for them.”
Most network chiefs agree that a broker must have GWP of £10m or more to survive without a network, meaning there should always be a high proportion of brokers in networks sustaining the model.
“But it comes down to the make-up of their book and their attitude to networks,” Hopwood says. “Brokers willing to engage with insurers and ourselves will gain the most.”
So what’s next? Broker network bosses insist their model is attractive to insurers and, admittedly, no other insurers have left network panels since Aviva. However, rumblings of insurer disquiet towards networks are unlikely to go away.
Market views: Do broker networks give a fair deal to insurers?
Norrie Erwin, managing director, Westinsure Group:
“Westinsure works hard to ensure it has a strategic relationship with all its business partners. This in turn is underpinned by a joint development plan targeted at profitable growth.
“Like any business relationship it is imperative all partners add value. In our case this includes the provision of compliance services, training and development, assistance with business placing, bespoke products and ensuring we maximise the financial performance of members. Our insurer panel values the distribution support we provide across our member base.
“Our business model is low cost but is designed to add value. We are seeing growth, with 19 businesses that control over £40m GWP having joined us this year.”
Amanda Blanc, chief executive, AXA Insurance commercial lines and personal intermediary:
“It’s an interesting question. As a concept, we fully support networks, but only when they operate as part of a true tripartite relationship. Each part - the broker, the network and the insurer - must benefit for the whole to work. If one part does not pull its weight or attempts to take advantage of the other, the system breaks down.
“It’s a delicate balance to strike, but not an impossible one. Those networks that are aware of and actively manage the tensions inherent in the network model are the ones that will succeed and the ones we would seek to support. However, those that attempt to take advantage of market conditions or are looking for remuneration based on scale will fail. Insurers are looking at their network relationships, taking each one on its business merits and acting accordingly.”
Eric Galbraith, chief executive, Biba:
“The point of a network is to offer better value to both parties. It is also a dynamic, as is every area of business. Some insurers will sometimes decide to pull out of networks, as will brokers on occasion.
“It is no different to the way some insurers went into price comparison websites and later pulled out. It’s down to the nature of specific deals and the priorities and strategies of the organisations. Broker networks grew out of changes in the dynamics of the market. With greater regulatory oversight, smaller players were looking at consolidation or seeking more support if they didn’t want to sell up.”
Q&A with Les Brewin, The Purple Partnership
Aviva’s withdrawal from Broker Network is a one-off, according to Les Brewin, managing director of The Purple Partnership, who believes broker networks will remain in rude health as long as both parties see it as a true partnership and benefit from the arrangement
Q: What do networks need to do to keep insurers and members happy, and still make money?
A: Networks, or perhaps I should say some networks, provide insurers with greater access to distribution in a cost-effective way, while bringing a range of benefits to the broker and the end customer. We’ve steadily grown our membership and continued to develop our proposition. In turn, that has led to a marked increase in GWP placed with our partner insurers.
Purple’s model, which is to work with a limited panel of insurers, means they can see genuine value in what we do. That’s why I believe the only sustainable network model is one based on a true partnership.
I would question whether networks that work with virtually any insurer they can get their hands on can satisfy them all. Purple adds value for insurer partners because we’re focused on a limited panel.
Q: Are there enough insurers prepared to sign up to network panels?
A: We enjoy strong support from our partners and have no shortage of others who show an interest in working with us.
Q: What size of broker gets the best deal from networks, and why?
A: There isn’t a simple answer, as networks boast brokers of all shapes and sizes as members. Our members range from start-ups to £12m GWP. The benefits of different networks can be varied. Some networks are expensive and I wonder how they justify their fees.
Q: Is there a conflict of interest if a network is owned by a larger broker?
A: No. Indeed, it can be positive, provided the parent respects that members are independent brokers and doesn’t become too intrusive.
Q: Do some networks use their membership to push insurers’ products without really respecting them?
A: Some might be guilty of that. They seem to see their membership as merely a way of filling their own hoppers. Purple has a proposition that enables members to maintain their independence while improving their competitive position, the products and services they offer their customers, and their revenue and profit.
Talking points …
● Insurers are under pressure and are reviewing all aspects of their distribution. Could this mean some tough negotiations for broker networks in the future?
● Can insurers’ broker clubs ever usurp the place of broker networks, or will the two always co-exist?
● Have some broker networks become too demanding about the commission they want from insurers?