NU chief echoes rival AXA's view on broker commission rates

Norwich Union (NU) could follow its rival AXA in reviewing the amount of commission it pays brokers.

Its chief executive Simon Machell said he agreed with a statement by his opposite at AXA Insurance, Peter Hubbard, that rates were becoming "unsustainable" in certain classes of business.

"I agree with what Peter is saying over some of the rates of commission in the market. The commercial market has been profitable for some time and brokers have charged accordingly.

"But as the market turns, there may need to be a correction," he said.

Asked whether he felt commission rates of 30%-40% in certain commercial lines were too high, Machell said defining the right rate for broker business was the "$64,000 question".

"It varies on what work the broker does for the commission. If he works harder then he should be paid for it," he added.

Machell stated NU was looking for acquisitions but would not enter the insurer spending spree, evident since Christmas. He said: "Axa's strategy is not our strategy."

His comments come after Norwich Union saw profits rise for the year ended 31 December 2006, despite making an ongoing loss on its personal motor book.

It reported an operating profit increase of £1.1bn up from £970m in 2005.

The underwriting result improved to £380m from £303m, but net written premiums declined from £6.1bn to £5.9bn.

In personal lines the insurer saw a 1% improvement in its motor combined operating ratio to 104%.

The insurer took the bold move of pushing up rates in the sector in 2006 and said private motor rates in-creased by 5% throughout the year.

"We have lost motor business due to the rate increases last August but it was a deliberate move. We have held the business we wanted," said Machell.

He added motor rates would move "in line with claims inflation, which stands at roughly 6%-8%".

In commercial, NU has seen rates soften by 3% in property and liability, he said, though the company did see a "mini-surge in subsidence claims" in the third quarter against a relatively benign weather-related claims year.