Dual pricing frequently causes embarrassment for brokers and other independent intermediaries with their customers. The British Insurance Brokers' Association (Biba) receives examples from members
of cases where an insurer has some business through a broker, provides renewal terms, and then the customer, approaching the same insurer through its direct arm, gets a significantly cheaper quote.

As I write this article I have a case on my desk, a motor quote, where Royal & Sunalliance (RSA) quoted £542 to renew an existing case through the broker and also quoted £297 direct. Another case, not a renewal, shows a quote of £1,995 from Norwich Union (NU) to a broker and £1,174 from NU direct to the client. And another motor quote where the broker through NU could offer £610, but NU direct offered the quote for £362 showing a massive reduction.

Biba has agreements with certain insurers whereby they agree to match quotations where necessary, but differences in premium of the size illustrated cannot be justified and should make the insurers extremely concerned and embarrassed. They certainly embarrass the brokers! Most cases referred to Biba do, in fact, relate to the motor market.

Although Biba understands that each insurer will determine its own distribution strategy and indeed, respects their right and duty to their shareholders to do so, the kind of behaviour illustrated is unacceptable. A strategy to employ multiple distribution channels is not, in itself, the problem. It is how these channels are managed that is key. It's the way in which the strategy is implemented that gives rise to the problems.

Clearly intermediaries would rather each insurer chose a single distribution channel, preferably the broker/ independent intermediary channel, and indeed some insurers do just that. I hope that our membership will support these markets provided that it is in their clients' best interests.

Those insurers that opt for multiple distribution channels should, in implementing this strategy, give greater consideration to the needs of their primary source of business – the brokers and independent intermediaries. Why? Well, according to the Association of British Insurers' own figures, 88% of commercial business and, despite direct dealing efforts in recent years, still 53% of personal lines business, reaches insurers by this route, and any forward-looking strategy should take into account the importance of existing relationships. In a sense, we are important clients of the insurers and the insurers' behaviour towards us is no way to treat a client.

Addressing the problems

What can be done about this situation? Two actions on the part of insurers would be enormously constructive, and two by both brokers and intermediaries.

Insurers could:

  • ensure that their systems are integrated so that they do not quote against themselves. This would eliminate most of the dual pricing problems that arise and would also be beneficial to the insurers themselves. In my examples, if the correct prices through a broker are £542, and £1,995, and £610 they can only lose money at £297, £1,174, and £362 direct
  • be transparent, and honest, about cost ratios and profitability of distribution channels. In the life and pensions sector information is published showing these figures, and it would be helpful if similar figures could be made available for general business. Greater transparency always helps to achieve a better understanding.

    Perhaps the brokers and independent intermediaries could help as well in order to make the broker channel more attractive to insurers.

    Brokers could:

  • be less inclined to move business around. Insurers complain that broker business, particularly private motor, has a short life span with an insurer and this makes the business expensive to handle. There should be more support for holding insurers to overcome this criticism
  • talk to the insurer offices with which we deal and identify ways to improve efficiency and cut out duplication. I have been dismayed by the quality, or lack of it, of some quotation requests to insurers that have been shown to me.

    I stongly believe that, despite direct dealing and dual pricing, a high-quality broker or independent intermediary that has developed a well-focused strategy for the future can be very successful and very profitable, and there are many examples at all levels that prove this to be so.

    The combination of relationships, knowledge, high-quality independent advice and transactional expertise and efficiency can never be matched by any direct insurer.