You cannot compare cheap chocolate biscuits with complex insurance policies, and it is dangerous to even try
A major supermarket chain is running a ‘buy one, get two free’ promotion. It’s great – my kids won’t run out of crisps or chocolate biscuits for weeks. Such promotions are common in retail but strangely enough I am not aware of similar seasonal promotions run by leading accounting or law firms, or for that matter any firms providing professional advice and services. Except, perhaps disappointingly, insurance firms.
It is that time of year again. We don’t even need to check our calendars to know we’re in the fourth quarter. We know we are because insurers have top-line targets to meet, and the ‘end of season sales’ appear to be starting. Why else would insurers be offering brokers an enhancement to their commission for the last three months of the year? It’s hardly a unique scenario, as we have seen similar tactics from insurers in previous years.
I can’t help asking myself whether it is the right thing for the customer or indeed for the broker. Brokers, like every business sector, are feeling the squeeze. There is no arguing with the fact that they need to receive fair remuneration, whether that be through commission or fees. But several brokers have told me that short-term commission promotions can be unhelpful.
They are concerned at the inference that, as an independent broker, they would make a placement decision based on a point-in-time earnings opportunity, rather than on the needs of a client. The reality is that more brokers are moving towards a less opaque approach to earnings, and they will take the opportunity to pass the enhanced commission on to the client.
Surprisingly, at a time when most industry leaders agree that rate strength is needed, insurers seem to be falling over themselves to do whatever they can to get new business. Using commission is just one of the tactics.
That, however is only the half of it. Some of the underwriting we are finding in the market, particularly at the higher end, simply doesn’t make sense. We are regularly seeing examples of large clients where there is a market range of prices and one outlier.
Often the outlier is quoting miles below costs, in some cases to such an extreme that the broker and client have dismissed the quote as lacking credibility. For other clients, it presents a dilemma – do they take the ‘one-year special offer’? Do they appreciate that it is difficult to justify and is unsustainable? Or that next year they may need to move again? This is fine if you are buying a commodity, but not for a complex product like commercial insurance.
This is a microcosm of the soft market. Too many in the industry appear to ignore the actuarial evidence, under- or over-pricing depending on the stage of the cycle. As a result, clients come to see us as opportunists. It is no wonder that many customers treat insurance as a commodity purchase and move for the smallest of premium savings, or that many businesses choose to self-insure, only coming into the market when prices drop, and leaving when they rise.
I expect that we will see more promotions in the coming weeks. Let’s just hope we don’t see any ‘buy one, get two free’ promotions. These could not only damage credibility with customers but also cause real harm to the industry’s attempts to negotiate its way through the soft market in a sensible way. IT
Simon Cooter is director, UK market management and regional operations, at Brit Insurance