NU chief warns that commission levels are at breaking point

Norwich Union (NU) chief executive Igal Mayer has warned that commission levels are at breaking point and could force insurers to look at new distribution models.

Speaking as the insurer reported that its operating profits in 2007 had been slashed by 65% to £380m as a result of the floods, Mayer said that commission levels had risen across the industry in 2007.

“It is troubling for all players as we see the portion of the combined operating ratio driven by expenses going up.

“It is not just consolidators, but aggregators too [that are forcing expenses up]. Aggregators spend huge amounts on marketing which insurers end up paying for.”

Mayer would not be drawn on what form alternative distribution models might take. But he insisted that, for NU, brokers were the best way to distribute commercial lines products. He said NU would be discussing commission levels with brokers.

Meanwhile, NU reported this week that net written premiums fell 3% in 2007 to £5.4bn, with operating profits plummeting to £380m from the record high of £1.08bn in 2006, due mainly to the summer’s floods.

The flooding and January storms cut profits by £475m. Reserve releases of £430m in 2007 boosted operating profits. In 2006, the insurer released £385m in prior year reserves.

The combined ratio deteriorated to 106%, compared to 95% in 2006.