Big banks and reduced commission are leaving some brokers feeling vulnerable. Caroline Jordan looks at the big issues over the past 12 months

Big brands, low cost and at the touch of a button. With a few exceptions, this is where many pundits see the personal lines market heading in the coming years.The success of Tesco, underwritten by Royal Bank of Scotland subsidiary UKI Partnerships, as a motor, home and travel provider is indicative of a market that is becoming increasingly commodity driven. This year has also seen the arrival of Virgin Money into the market. Also teaming up with UKI, Virgin is using lower prices as its main sales message. It claims customers will be able to save up to 48% on motor and 40% on home cover. It has also promised that those paying for cover by monthly instalments will not be charged interest. As yet, there has been little interest in following this move from other providers, but as the word spreads, it may well become more widespread. While this is grim for premium finance providers, it is great news for consumers.

Insurer panelAnother big name is also pushing hard in personal lines. The Post Office, already well-established in the travel sector, is to launch further general insurance products in a third party deal with Budget subsidiary Junction. Brokers may be able to take solace from the fact that the Post Office has chosen to work with a panel of insurers through a broker - Junction uses about 22 insurers - rather than set up a solus underwriting deal.Even so, the year saw the broker sector dealt a harsh blow with the decision by Norwich Union (NU) to close its Hill House Hammond chain. It had long been felt there was a place for an intermediary on the high street catering for clients who were not totally price driven and who cared about service. NU's decision brought this into question.Big broker chain Swinton is looking to capitalise on the move, but there is no doubt that many smaller high street brokers are looking to build up their commercial accounts or focus on niche sectors such as high net worth.Although most insurers are loathe to admit it, there are signs of softening in personal lines. Profits, however, are expected to hold up, since there have been no major incidents of flooding. But the spectre of subsidence claims looms large, although some adjusters are denying there has been an 'event' year, in spite of the signicant rise in claims. Crawford & Co national building services manager Robert Sharpe says: "The term most commonly being used is 'surge', less strong than 'event', but still indicative of a substantial increase in work."This year has also seen the arrival of new fraud-busting techniques, most notably lie detection systems, which have been piloted by a number of insurers. But, so much for the present, where is the personal lines market headed? NU director of distribution development Tim Rolfe says brokers are going to retain a healthy share of the personal lines market, particularly for more complex cases, but in the case of standard products, brands will dominate.

Secure futureHe makes it clear that NU does not want disintermediation: "Brokers are our biggest channel and also the most profitable one, which is why we continue to invest in them and in technology initiatives." Rolfe says that after the closure of Hill House Hammond, business which did not fit the Norwich Union Direct model was passed back into the broker market. "Brokers who can operate on reduced costs and produce volume business have a secure future.Those who look to be in a strong position are Budget and BDML." He adds that there is also still a place for the true community broker, who he believes are in a stronger position than those that trade on the more impersonal high street. No one knows if NU will regret its decision to ditch the Hill House Hammond chain, but many brokers, such as Swinton, are seeing it as a massive opportunity. Swinton is the largest UK high street broker, with over 329 branches and 1.3 million policyholders. Marketing director Andrew Jackson says: "With a substantial increase in policyholders and record pre-tax profits of £15.1m, up by 200% from 2002, we have shown that branch-based customer service and the newer distribution channels have an important role to play. "The principles of reliable service, local knowledge and value for money will remain important for many consumers."What of rates? Since it is only a few years since many insurers made heavy losses, no one wants to go on record to say rates are set to fall. Rolfe says insurers have learnt the lessons of the past and while the cycle will still exist, "the days of boom and bust are over".But the message from brokers is rather different. A recent survey by accountant Mazars found that 53% of brokers say the market is softening. Oval chief executive Phillip Hodson says that the property market is softening "quite dramatically". In the motor market, brokers also report fierce competition. They describe a "battle of the egos" between NU's Patrick Snowball and Fred Goodwin, of Royal Bank of Scotland Insurance, with both desperate to win business off the other.Despite insurers contentions that they will hold their nerve and learn the lessons of the past, the feeling on the ground is somewhat different.

  • For an in-depth look at the personal lines market see the Times Two supplement free with this issue