NU boss faces criticism over commission rate.

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Norwich Union chief executive Igal Mayer has named 30% as the ideal commission rate for brokers.

As reported by Insurance Times, Mayer has been locked in tough negotiations with consolidators, which have demanded commissions of 40% and above. He is determined to drive down commissions, but this was the first time he had set a target rate.

Speaking after Norwich Union’s parent company Aviva released its half-year results, Mayer said: “A sustainable model in commercial is a number of around 30%, I think that’s good value, and that is certainly what we are targeting.”

He added that the insurer was happy with the levels of commission it currently paid independent brokers, and it was only targeting a reduction in remuneration for consolidators.

Mayer’s target rate of 30% was criticised by the chief executive of one major broker, who said a number of brokers had taken on extra duties such as claims handling on behalf on insurers, and thus deserved higher levels of remuneration.

The source said: “As an average it may be fair but seems a silly benchmark to set. Surely it would be better to state that they want profitable business and a percentage of the profit than to set a benchmark. Employers’ liability has historically been a low commission commercial lines product – does this mean that they wish to raise this commission from the industry average of 7.5% to 30%? I think not.”

The source added that many smaller and medium sized brokers that currently receive less than 30% commission could be alienated by Mayer’s comments.

However Mayer insisted that it was these brokers NU was determined to work closely with. He said: “We have 3,000 brokers and I want them not just to survive here in the UK, I want them to thrive in the UK because their strength has been our strength.”

His comments came as analyst Citigroup voiced concern over the impact of rising commissions on NU’s balance sheet. In a report, the analyst said: “We fear that the cost savings in the UK business will be counteracted by a shrinking premium base and by a rise in commission costs to an intermediary insurance industry that is concentrating and forcing up the price of its services.”

As Insurance Times exclusively reported last week, NU is in talks with well known broker Bob Beckett of consultancy firm UKGI about how it can use its services to help support small brokers in areas such as compliance.

Norwich Union announced a 15% rise in profits to £326m this week.