After a year of round tables, Insurance Times and Norwich Union held a final discussion about the issues affecting the market
The regional round tables organised by Insurance Times, with its partner Norwich Union, have visited every corner of the UK. To end the series, a discussion hosted by Krishnan Guru-Murthy, the Channel 4 news presenter, was held in Birmingham last month. A panel of experts covered topics such as broker consolidation, regulation resulting from the financial crisis and outsourcing, before answering questions from an audience of insurers and brokers.
After a brief introduction, Guru-Murthy asked the panel and audience whether the independent broker would survive in the current climate of consolidation and economic difficulties.
Janice Deakin, corporate sales director at NU, pointed to the uncertainty over whether we are coming to the end of this difficult phase or not. On the wider economy, she said: “I have heard it described as a boxing match and we’re not quite sure what round we are in.
“From a broker perspective, I don’t think there has ever been a greater time for commercial clients to see the value of what a broker brings.
“This is not a time to be under-insured, this is not a time to have poor advice – this is a time when you need to protect the value in your business. Therefore, from a broker perspective, you are more important to your clients than ever.”
Gary Stevens, managing director of Antur Group, said: “We are positive about the future and are confident that the better brokers and better managed brokers will survive. We get on very well with our key insurer partners; it is important those relationships last.”
Stevens added that the current economic climate and tighter lending could create difficulties for consolidators looking to make large acquisitions.
George Berrie, NU’s director of trading, said brokers who proved they could “add value” for their clients and insurers would prosper.
“The underwriter needs to know the broker well as it can lead to a better set of terms and conditions with the client. They know the risk well. That is adding value to the client,” he said.
Guru-Murthy asked the panel and the audience their views on the power struggle between brokers and insurers.
Phil Bayles, NU’s director of trading, said brokers – especially the larger ones – had been aggressive in driving up commissions.
Norwich Union was paying out 26% in commission in 2008, up four percentage points from 2006. “We are being selective about how we address that. I suspect the majority of our brokers will not see any material differences in their commission levels but some brokers will see very material differences and it will be done on case-by-case views of profitability,” said Bayles.
However, the era of brokers having a stranglehold on commissions was over, he said. Insurers were fighting back. “There has been very, very, significant commission creep going on within the marketplace and, quite frankly, we can’t afford it.”
Stevens said pressure from insurers would place consolidators and their business models under threat.
Brokers that offered quality personalised service would provide strong competition. “You can stop the consolidators by being good at what a good independent broker does and fight them on their battlefield,” he said.
The discussion then moved on to the financial crisis and the role of regulation.
Guru-Murthy said the crisis had shaken up the world of banking, with regulators across the world now more ready than ever to toughen up the rules. He asked delegates what the next challenge would be for regulators and whether they would focus on insurance companies.
Bayles said the financial crisis had led regulators to seek out people who “really understood” the complex balance sheets of banks. He agreed that insurers would face much more scrutiny of how they invested their money.
There were a lot of problems at a macro level, with companies such as AIG and Fortis but, at a micro level, insurers had not been reckless in their investments, he said.
Deakin said NU’s investments were sound and the company would be more than happy to have regulators examine their investment portfolios.
“I do not think we have anything to worry about from a shift in focus in that respect.”
What was alarming, although beyond the control of NU, she said, was the cut in interest rates that places pressure on returns from investments.
Berrie agreed with his colleagues that insurers generally had nothing to fear from the regulators. “Insurance companies will get the heat. If that comes, fine bring it on, because we are in good shape,” he said. ‘
‘ Guru-Murthy asked the audience about the quality of outsourced claims, sparking a series of complaints from brokers about the poor quality service they had received.
Berrie agreed that outsourcing was a risk. “An insurance company’s core job is to underwrite. You can outsource part of that – some MGAs [managing general agencies] work, some don’t.
“But claims are the other side of the equation. Outsourcing is risky and if you get it wrong, you will pay for it.
“As an organisation, NU really wants to stick to the knitting, it wants to get underwriting right. It doesn’t want to outsource that. MGAs are do-able but it’s not really within our strategy.”
And claims outsourcing? “We want to get claims right,” he said. “And that means getting more than a C-plus. So we have a way to go as an industry and we have a way to go as a company.”
Valerie Hockley, managing director of Blyth Valley, said: “Outsourcing is not the way to go.
It costs time and money. A call centre that does not know your needs and your customers’ needs can take up X amount of time – before dealing with the actual claim.
“I think brokers have to understand this. They must get involved in providing that claims service to their customer. That is where they can make a difference.”
The discussion moved on to the price of premiums and whether the cheapest deal was always the best.
Berrie said: “If you go for cheap all the time, there are consequences. It might be an inferior product or service when you get to the claims.”
Deakin said value was low down the list of priorities in motor where aggregators were all about price. “I think the aggregators in personal lines are in an interesting position. But they are still spending a lot of money on marketing. I saw them on TV last night and their message is still ‘I can compare and get you the cheapest’,” she said.
Hayley Parsons, managing director of Gocompare.com and a member of the audience, said Gocompare had never called itself a “price comparison website”. She said the aggregator was focused on offering value and the right product. “Please do not think all comparison sites are all the same.”
Bayles said NU still had some work to do on its own internet prices. He said prices between the internet and the company’s broker-led business would get closer this year.
“Around the early second quarter we will introduce a new way of pricing our personal lines which is closely aligned to Norwich Union Direct.
“There will be a small premium in the broker space, maybe 10% to 15% price premium between where NU Direct price and where we price, but we will at long last eradicate what we find embarrassing differences in our personal lines pricing.”
After the discussion, panel members and the audience talked about how they felt it had progressed.
Bayles said: “I thought it was a really good session. It showed the breadth of opinion that you get from different types of brokers of all shapes and sizes.
“Networks, consolidators – the issues were wide ranging. I do not think anyone held any punches; they told us what they thought. I thought it was pretty constructive and a really interesting panel mix.”
Phil Bayles director of trading, Norwich Union
George Berrie director of trading, Norwich Union
Janice Deakin corporate sales director, Norwich Union
Valerie Hockley managing director, Blyth Valley
Gary Stevens managing director, Antur Group
Simon Thomas managing director, Creative Risk Solutions
Members of the Insurance Times editorial team, including myself, spent much of last year touring the country meeting a broad mix of brokers from businesses large and small. It was a fascinating insight into the issues that our readers face every day in their working lives and, while there were very obvious differences between the regional markets, the similarities stood out.
Concern at the regulatory burden was a constant theme, with brokers worried that they spent time and money jumping through hoops rather than serving their customers and running their businesses. There was also a lot of discussion on the relationship between brokers and insurers, with concerns from some quarters that insurer-owned brokers compromised their independence. There was predictable controversy over commissions too.
But aside from these day-to-day issues, many contributors felt broking was not recognised as a profession, and did not receive the public understanding and support it deserved.
I would like to thank everybody who participated in the events and look forward to enriching the content of Insurance Times with all the varied views from the regions.
Tom Broughton is editor of Insurance Times