Ask anyone what's the biggest challenge facing insurance these days and the answer, invariably, will be service levels. Press further, and they'll tell you that means both service levels to consumers, as well as service levels between insurer and broker/intermediary.

A new report out this week from the merchant bank Salomon Smith Barney backs up these views. Writes one of its authors, Andrew Pitt: "At the centre of the challenge for insurers are the vastly altered requirements of the consumer. Service is becoming far more important to the insurance proposition. No longer does an insured party want mere financial compensation against an adverse event, he requires rectification and reinstatement: an insurer able to replace a television quickly will have a superior customer proposition to the company that sends a cheque through the post a month later."

Insurers will agree this assessment. Many will claim they are well on the way to achieving it. And to some extent, they are right. Speedy television replacement has become the norm among the best insurers. Similarly with courtesy cars and the vehicle repair scene. But most will also agree that there is still a long way to go before they have their house fully in order.

Accomplishing that task will be made harder by the deflationary pressures of the e-commerce era. As Pitt remarks: "The ability (the internet provides) to shop around and compare quotations, either directly or through e-brokers, will enable customers to achieve lower prices by benchmarking.... It will drastically reduce the scope for insurers to make profits by "overcharging" some passive customers. Pricing and underwriting will become even more crucial."

Against this, the report suggests, insurers are likely to benefit from the internet by building relationships directly and establishing superior databases. Some of this extra data will come from non-traditional general insurance customers, generally a more upmarket clientele, but some will come from customers normally served by the broker/intermediary.

This has major implications for any attempt to improve relations between insurer and broker, which is a relationship in dire need of improvement. For the point is that insurers will be using the internet to step up their direct writing activities, while at the same time genuinely professing their desire to serve the broker better.

However, stomaching this good guy-bad guy approach has been part of a brokers' life for years. They have learnt to live with it, and will continue to do so. The difference this time is that the internet gives them the ability to increase vastly their cross-selling potential, as well as service their customers better, particularly the commercial sector.