In his article "How independent are insurance brokersNULL" on September 16 last, Chris Wheal reports AIRMIC as being against brokers receiving "volume overriders" from insurers without them being declared to their clients.
He quotes both Mike Williams and Anthony Howland Jackson, respectively chief executive and chairman of BIBA, as saying such discounts are valid in other businesses so why not in insuranceNULL Their stance is based on a completely false premise, namely, that an insurance broker trades on exactly the same basis as a major retailer like M&S.
When M&S buys 500,000 woollen garments from a knitwear manufacturer it is buying them for itself with its own money and takes title to the goods as they pass out of the factory gate. M&S then fixes the selling price and hopes sufficient members of the public will find the size, design, colour and price attractive enough to buy all 500,000 garments, thus doing away with the need to sell any at a reduced price in the January sales. M&S rightly use their bulk purchasing power to secure a discount off the manufacturer's usual selling price. This is partly offset for the manufacturer as it is cheaper for him to have long production runs as they mean less time lost altering the set up of his machines and changing the yarn to be used.
A broker, on the other hand, is not trading on his own account when he arranges a contract of insurance for his client. He is acting as the agent of his client and, as such is not a party to the contract he has brought into being between his client and the participating insurers. He can only act on the instructions of his client and, apart from his lien on a marine policy for unpaid premiums, has no interest in the policy he has effected.
Furthermore, with the exception of marine premiums he is not liable to insurers for the premium.
Brokers, as agents, are not permitted by Agency Law to use their position as an agent to obtain a benefit ("secret profit") from a third party (eg an insurer) without the consent of their principal (client).
AIRMIC are thus quite right to demand total transparency on the issue.
They are supported in their stance by the Australian Government which has passed legislation – Insurance (Agents and Brokers) Act 1984 – which in Section 35, prohibits a broker from being remunerated on the volume of business placed with an insurer as this would necessarily compromise the broker's impartiality.
Additionally, in 1995 the Australian Insurance and Superannuation Commissioner stated he had obtained legal advice indicating that Section 35 would also prohibit a broker from receiving a profit commission from an insurer based on the profitability of the broker's book of business.
Lastly, the Conduct of Business Rules of both the SFA and IMRO require that all regulated entities make a full disclosure of all their earnings to their clients. If this is the norm for stock brokers and investment managers, why is it unacceptable to insurance brokers and intermediaries?
One is forced to conclude they have something to hide.
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David H Boag,
Insurance Consultant,
Eastgate House,
Norwich.
Bridging the gap…
I was somewhat disheartened by some of the points raised by Frank Cottle (Iron Trades move, Insurance Times, September 9 issue). Unfortunately, most of these points come as no surprise. It is the responsibility of the broker or intermediary to develop accounts he sees as mutually beneficial and in the best interests of their clients. In ideal terms, it is the responsibility of both the intermediary and the insurer. However, in the absence of insurer-based activity, the intermediary should surely be seeking to improve those areas he feels will be of most benefit and,let's face it, help to ensure the long-term future of his business.
In my experience, insurers are not naive enough to simply offer better rates to those distribution channels that can offer greatest volume, but it would appear that it is the larger broker who offers the most attractive option on many occasions.
Can I suggest that this may be one of the reasons that they ended up a 'big broker' in the first placeNULL Insurers consider business planning, resource and of course profit against other things when choosing who to work with – as we brokers do too!
By bridging the gap between all aspects of both businesses, from marketing to management information, customer services and claims, we can work towards developing business where the customer, the insurer and the intermediary can see their expectations exceeded. Brokers and intermediaries will never dictate rates to all insurers, but the broker of the future will know as much about account performance management as the insurer and will work with insurers to achieve mutually agreed and defined goals.
If we accept that in any industry, if a wholesaler loses money by dealing with a particular retailer or vice versa, two options are available – improve or remove.
At that stage, the innovative, pro-active and customer focused business (both insurer and intermediary) gets bigger – irrespective of current size. The customer wins, but the insurers and intermediaries who refuse to seek continuous improvement lose.
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Bobby Gould,
Select Direct ,
Glasgow.
DRL 'first' to IIP accolade
The letter you published recently (September 9 issue) from Kirstie Wood, of Rainbow International, alleges that the statement "Fire and flood restoration specialist Disaster Restoration has become the first company of its kind to achieve the prestigious Investor in People standard" (your article in the August 20 issue) is not accurate.
She states that Rainbow International, "also specialists in disaster restoration", was recognised as an Investor in People in February 1997.
We should like to point out that while Rainbow International is to be congratulated on that achievement, the company is, to the best of our knowledge, principally a carpet cleaning and dyeing franchise operation, whose franchisees also undertake fire and flood restoration work.
Disaster Restoration Limited is the only nationwide network solely dedicated to fire and flood restoration, hence our claim. Your article omitted to mention that DRL's Investor in People accreditation covers not only headquarters staff at the company's Basildon control centre but also every one of its area co-ordinators and teams of technicians up and down the country – 166 in all.
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W J Lakin,
Technical Director
Disaster Restoration.
Subsidence 'renaissance'
I cannot help but reply to the subsidence article by Alan Harris (Insurers will Rue their Chase of the Quick Fix) published on September 9.
It is not my intention to deal with our strategy in detail, but I feel it would be helpful to comment on some of the issues.
In subsidence, our vision is to provide the very best service in the marketplace. It was not good enough for us to continue to deal with merely competent firms but rather we wished to work more closely with those who excel in the service they provide to our customers, or have the clear potential to do so if given support and commitment from us.
Inevitably claims cost savings will arise, and these savings will be substantial. Such savings primarily arise through process re-engineering which also enhances the service we give, but also removes outdated processes which delay resolution of the claim.
Our service will be quicker, more cost effective and provide superior customer care. I would also like to touch on the issue of certified specialists. This is a good idea and overdue. The major engineering and surveying institutes currently appear unwilling to take up this initiative but I anticipate that by the end of 2000 we may see 'company approved' individuals.
In closing, I believe that the fears expressed by Alan Harris reflect a natural reaction to change.
We have however entered a renaissance of subsidence.
Our research indicates that our customers are responding very positively to what we are doing.
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Tony Boobier,
Subsidence Manager
UK Personal Financial
Services,
Royal & SunAlliance.
BIBA and the missing egm
As a founder member of BIBA who attended the egm necessary to become BIIBA (and voted against the proposal), I am surprised to learn that we are once again BIBA, apparently without an egm. Can anybody explain how and what has become of the investment brokersNULL
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John Lynch,
Insurance Advisory Service,
Hillingdon,
Middlesex.
