New chief executive wants cost of distribution at ‘a better level’

Norwich Union (NU) will look to cut the commissions paid to some brokers in a bid to reduce its distribution costs, the new chief executive of its general insurance business said this week.

The comment by Igal Mayer, who was appointed to the role last month, came as the insurance giant saw its interim profits more than halve on the back of the extreme flooding.

Mayer told Insurance Times: “The share [of premiums] going to brokers is at its peak.”

NU saw broker commissions written in the first half of the year soar to £666m  — an increase of £21.2m on 2006. This was partly attributed to the large commissions negotiated by consolidating brokers.

The commission ratio increased to 24.3% from 21.9% in 2006. 

Asked if NU’s commission levels were too high, Mayer said: “I want to see the total cost of distribution at a better level than it is today. We need to have that discussion with brokers.”

He said the level of commission should depend on the amount of work, such as claims administration, that a broker does for an insurer.

Mayer said: “If a broker takes on more, he should get paid for it.”

Mayer’s comments appear to indicate a more bullish stance on commission levels than had previously been disclosed by the insurer.

In March, Mayer’s predecessor Simon Machell said that overall commission levels were too high. He went as far as to say that “there may need to be a correction”.

NU reported operating profits of £269m for the first half of the year, down 52% on the same period last year.

It made an underwriting loss of £47m, compared to an underwriting profit of £233m in 2006.

The latest figures include a £235m loss from the January storms and the June floods. NU released £245m of reserves to counteract the loss.

The insurer’s household book made an underwriting loss of £177m.

Motor losses cut

Norwich Union’s (NU) private and commercial motor books saw their profitability improve in the first six months of 2007. 

The company’s loss making private motor book moved closer towards the black, reporting an underwriting loss of £12m compared to a £33m loss in 2006.

The commercial motor book more than doubled its profitability, producing an underwriting profit of £43m, up from £19m in 2006.

Igal Mayer, chief executive of general insurance, said NU had achieved “market leading” rate increases of 8% in private motor. “It is still not profitable but it is moving in the right direction.”