Former Smart & Cook chief executive Paul Meehan says the war between insurers and brokers will be fought on the grounds of commission.
See also: Norwich Union trading director interview
Despite relinquishing his position as co chief of Venture Preference in January, Paul Meehan remains one of the industry’s key commentators – as evidenced by his timely remarks on insurer’s back office inefficiencies (3:48).
Meehan explains that while broker IT platforms have come on in leaps on bounds in recent years, insurers remain some way off the pace.
“Insurers always wanted to get end-to-end single-keying systems," he says, "but have failed very badly in getting their back offices to face the very sophisticated systems in the broker area."
“There is now a move to get broker systems to be transplanted into back office of insurers. It’s cheaper and its quicker. When that exercise is completed, it will drive out a ton of costs for both sides.”
For Zurich – as of Thursday – that figure is 10 per cent. For NU, it means up to 1800 job losses.
Commissioning a war
But despite the positive impact back office restructuring will have on their margins, Meehan argues it may not be enough. The result of this will be a battle, fought on the grounds of commission.
“We are going to see two or three years of very poor results in the insurer market. The only way is to get back some of the commissions they have yielded to the consolidators.
But is it a fight insurers can win?
“I don’t think it’s feasible,” he says dismissively. “There are two strong groups forming: large consolidators and insurers, who are starting to see there numbers go off.
“We’re going to see two or three years of very poor results in the insurer market. They can’t change their loss ratios. The only way is to get back some of the commissions they have yielded to the consolidators.
"It will be a battle. And it will be an interesting battle."
Meehan also argues that pressure on both the insurers’ and consolidators’ bottom line will inevitably impact on their appetite for acquisitions. This will be offset, however, by the narrowing of good candidates for sale, which will continue to create pressure to buy.
As for commission disclosure, Meehan's message is as clear as the FSA's is opaque: “It doesn’t seem to be reaching any kind of conclusion. I don’t see that happening any time soon.
“The FSA have a lot of things on their plate out the insurance space, which is deflecting their attention. There is a big appetite for disclosure in other countries.”