Partnerships with insurers will fold unless networks prove they can offer good value
The pressure on broker networks is mounting as more insurers run the slide rule over the value they bring. AXA is currently reviewing its network partnerships, while insurers such as RSA and Norwich Union are also thought to be doing so. They won’t be the only ones.
When one senior insurance executive described networks as “having their noses in the trough” in terms of the additional remuneration they charge insurers, it was clear that some would face tough action if they did not live up to insurers’ expectations.
Already Zurich has pulled the plug on its partnership with Westinsure, which is unlikely to be the only network to face action from an insurer partner. The message is loud and clear: networks must provide good value to insurers or face the threat of commission reductions or the termination of partnership agreements,
A network’s value to an insurer is the high volume of business it can provide at lower than average transaction costs. This has enabled networks to negotiate additional commission, typically between 1 and 3%.
To be successful, networks need to provide large volumes of the right type of business to their insurer partners. They must have a clear vision of what they can offer them and a clear understanding of what they need. They must also have a clear strategy of how this can be delivered.
The make-up of their membership base is crucial. Insurers want large volumes of homogenous business and the networks need to ensure they can provide this. Existing networks will need to fine-tune their membership; the new networks that have sprung up in recent months must choose their members carefully.
The volume of business is also critical, which makes maintaining a high membership crucial. The new networks are pushing hard to win members – some undoubtedly will be poached from rivals. Additionally, the impact from the consolidators which may acquire members (and potential members) cannot be ignored.
But there is no point having a lot of members if they do not use your facilities. Therefore each network must ensure that it successfully encourages members to place business with its partners. Networks have been criticised for failing to live up to their promises of moving books of members’ business to insurer partners.
Making sure that the transaction with insurer partners is as efficient as possible is also key. Insurers are looking for a low-cost, streamlined process. Networks must take a close look at their current systems and processes to see if they can be improved – the effective use of technology is vital.
Networks have an important role to play in the distribution chain, but only if they can meet the needs of their insurer partners. Networks that fail to do this will find their future becoming increasingly bleak.
- Networks’ value to insurers is the volume of business they can provide at a low transaction cost.
- Insurers are taking a close look at the value each network provides
- Networks must assess what they offer their insurer partners to ensure it meets their requirements.
- The membership base, type and volume of business provided and transaction efficiency must be examined and changed where necessary.