Caroline Jordan asks who wields the power: the broker or insurer
Partnership is a word insurers frequently bandy about when talking about their relationships with brokers.
But, behind the scenes, the true situation is often a lot more adversarial.
So, in the current market, which of the two sides is actually wielding the power?
The bitter row that erupted between insurer Zurich and broker consolidator Folgate, is a clear indication of how strained relations can become.
Recent revelations suggest Folgate - through its parent the Towergate Partnership - is threatening to take legal action against Zurich.
Ill feeling developed when Zurich cancelled Folgate commercial agency agreements. There were claims that inflated commissions were being demanded and Folgate countered that the insurer was attempting to take business away from it and to give it to rival brokers.
Whatever is going on, there is no doubt that Folgate brokers have more clout and earning power than many small provincial firms.
Whether it is worth giving up their independence for this - and whether they could even tempt Folgate to buy them is another matter.
Glyn Rowett, principal broker and general manager of Rowett Insurance Brokers, wants to see a level playing field, arguing that smaller independents have had power and earning potential taken away from them.
"We now have a market which is becoming increasingly dominated by big alliances and brokers within these receive higher commissions for selling the same products."
He states that clients may well prefer to deal with an independent, but that shrinking commissions and the increased costs of running a business are making it tough.
"Big players can be paid 40% commission while we are earning 20%. We are having to investigate whether we would join an alliance, although we want to remain truly independent."
On the insurer side, Colin Calder, broker development manager for AXA, says this argument does not wash. "The general insurance broking market has had to move from being a cottage industry.
"Brokers need to look at the way they work out their fixed and variable costs. It is about managing these efficiently and adding value to clients. Those that do and provide insurers with volume are always going to earn more."
Calder says that a new breed of brokers has emerged, which could be stockmarket listed or backed by venture capital, who want to be seen in a similar standing to other professional advisers such as lawyers.
"We can see them embracing more fee business and of course such firms are going to have influence with insurers." Even so, he denies that brokers who have made it to the premier league are calling all the shots.
"As has been reported, Zurich said no to Towergate's demands. It is a commercial world and there is value in size, but that does not mean we are going to give in if a broker is banging on the table. What they are offering in return matters and the challenge is to make sure there is the right deal on both sides."
As far as personal lines is concerned, some believe that insurers are very much looking to have the upper hand. Alan Russell, marketing and development director for broker Bruce Stevenson, comments: "There is definitely a struggle going on for control of the personal lines market.
"A few insurers are trying to block brokers out through their direct arms, meanwhile some rokers are trying to fight back through using cost effective technology solutions."
At the same time, he argues that he does not support the level playing field argument. "In all other spheres of business larger and more effective businesses receive more favourable terms from their suppliers as a reward for their support."
And, Russell feels it is not just volume business which merits increased commissions. "It must be remembered as well that the brokers are incurring increased costs as well in terms of staffing, marketing, purchase of other brokers and improved IT platforms. Why should these brokers not benefit in return for their efforts?"
He adds that brokers are also entitled to benefit from other forms of support from insurers and says his firm has taken advantage from technical training, marketing and purchasing support and strategic planning in the past year.
"There is every sign that insurers will continue to provide increased support to their key brokers because if they don't then someone else will. Complacency is not an option at the present time and the successful broker must continue to harness change in a positive manner and take what assistance is on offer."
As a large and successful business with several branches, it is unsurprising that insurers are willing to provide this to Bruce Stevenson.
But, talk to many smaller brokers and they will complain that times are hard. Agency culling has resurfaced, commissions are being squeezed and added to this is the burden of high costs needed to meet compliance and training requirements under the new regulatory regime.
But, in business, there is no room for sentimentality. Instead, there are a number of options. Joining a network or alliance is one way of rebalancing power.
This can be a difficult choice as networks are likely to demand higher fees, whereas alliances may offer more freedom and lower costs.
Insurers, however, may well need some convincing that a loose alliance is necessarily going to bring them any benefit and so may not be prepared to offer more in the way of commission.
Despite this, there can be other advantages in joining an alliance other than just higher earnings. For some they can also be a means to survival as they would receive compliance help and continue to have access to insurers' agencies.
Certainly those running most alliances say interest from brokers is at record levels. Denis Morgan, head of operations for Westinsure, says his alliance formed in December 2004 with nine members and now has 39 operating from 54 offices - and there are at least 10 applications currently being examined.
"We're expecting to triple in size over the coming months," he says.
Morgan adds members benefit from not -for-profit-services such as lead generation, business consultancy, claims management and enhanced premium finance arrangements.
"It is not just about insurance products. One of the most valued services we are offered is a gap analysis visit, which helps members prepare for the FSA's arrow visits - and we offer such support on a not-for- profit-basis."
The network and alliance sector is becoming increasingly competitive, but Morgan believes Westinsure is winning out because it is putting brokers' interest first.
"We are run and owned by brokers and we have the relationships with insurers to obtain the best deals for our members. We are also allowing our members to buy shares in Westinsure-Anada, the holding company, so they have a real stake.
"Some may have joined as because they see it as a defensive strategy, but we are equally relevant to a start up in terms of what we can offer."
The largest player in the network pack is Broker Network and its recent bullish results show it too is not short of members, although in recent months it has made numerous acquisitions.
Chief executive Grant Ellis says these have been of member firms and he stresses this trend will continue. "Firms we buy remain as members, paying our fees as usual, it shows we put our money where our mouth is."
He argues that some of the smaller alliances have had their day since they are unable to secure favourable deals with insurers or even offer their members sufficiently good benefits.
"If you have an alliance with a full time compliance officer this may look good on paper, but what happens when they go on holiday or are off sick? We employ 17."
Richard Guthrie sold his business, Mid Pennine Insurance Services, to the Broker Network last year. "We'd joined the network as members in 1999 as I'd been looking for an exit - I'm due to retire shortly. My main priority was ensuring my staff would be safe."
He said running a small firm was challenging and while Mid Pennine was strong in its local community, says other brokers were complaining about reductions in commission and agency culling.
"Joining the network was not a cheap option, but it provided value if you used the training, both in technical and soft skills, which was available, plus having access to the marketing help and the HR department. This advises on areas such as doing appraisals and interviewing skills."
He says he has had no regrets since taking the decision to sell and believes network membership also helps brokers compete effectively. "Before, I was getting bad services from call centres, which could be based anywhere.
The Broker Network has its own underwriting desks and if we're dealing with Royal & SunAlliance's Enterprise operation for example, we have the phone answered by a team dedicated to the network."
But, not all brokers will want to give up being totally in charge of their firms. Ian Mantel, principal of Manor Insurance Brokers, says he is able to access better deals on products through using SSP subsidiary Key Choice.
"You don't have to be part of a network or alliance for this, but this is only part of the solution. I would say to any switched on broker to go direct to an insurer, sit down at the table and ask for what they want. I have and it works."
He says as a result of poor service from AXA he has reduced the size of his agency with the insurer while at the same time, received more favourable terms from insurer Groupama.
While they are a resilient breed, there is no doubt that some smaller brokers are going to fall by the wayside. If they are struggling, it is possible they may find a buyer or they can look at network or alliance membership.
The problem here is that many better businesses have already been snapped up and reputable network and alliances conduct thorough investigations into a broker's suitability.
Any problems involving solvency and client money is likely to mean membership will be refused.
In the future, the market is set to be increasingly dominated by super provincials, who are going to give the nationals a run for their money, and will undoubtedly be putting pressure on insurers.
Folgate has already showed it is prepared to flex its muscles and there are others waiting in the wings. According to Phil Hitchcox, director of regional business for Norwich Union: "Some brokers have gone through the process of applying for regulation as it's a bit like an MOT. They see it as making them more saleable, although they may still not get through due diligence if they find a potential buyer.
"But, I also see that already large firms are set to merge. We will see the broking equivalents of NU and CU merging and these could well be highly successful businesses. For insurers like ourselves, it will be a case of taking each deal as it comes. We have some great relationships with very large brokers, but it will be dependent on what they can offer."
Ian Richens, chairman of brokers FM Green, is about to see his business become part of a larger firm - Cobra, Oval and Vega are in the frame.
"My job will be insurer relations manager providing we get FSA approval to do the deal. I'm excited about this as it means when it comes to talking to insurance companies, I'll have a bigger toy box to play with."