Norwich Union rejects Giles’ proposed commission hikes.

Norwich Union has begun its fightback against the consolidators by refusing to accept new terms from Giles that would see the broker’s commission rise to over 40%.

It is understood that Giles has detailed its proposed commission hikes to major insurers including Norwich Union, which is understood to have said no to the proposals.

It follows recent crunch meetings between senior staff at Norwich Union and consolidator chiefs where the insurer made clear that it would not bow to demands for higher commissions, particularly on loss making business.

A source close to the negotiations said that Norwich Union was not prepared to entertain the consolidator model any longer as it was not sustainable given the current market conditions.

The source said: “This is all part of our strategy of saying no. If we entertain a commission of 40%, this figure along with our own expenses puts the figure at 50% and this cannot be sustainable.”

“If Norwich Union can be seen to be making a stand then the other insurers can follow suit and the market can see some realism.

Industry source

The source added that Norwich Union was not looking to cut commissions but would not entertain increases at this stage in the market cycle. The source said: “It is going to take a major insurer to stand up to the likes of Giles and stop this situation from spiralling. Perhaps if Norwich Union can be seen to make a stand then the other insurers can follow suit and the market can begin to see some realism.”

It is understood that Giles’ new terms of business would mean up to a 12 point increase in its commission from Norwich Union. Norwich Union declined to comment. Giles was unavailable to comment.

Norwich Union is also understood to be in talks with consolidators Towergate and Oval, though these talks are not thought to be strained. Consolidators are large brokers that buy up smaller brokers, and use their size to leverage higher commissions from insurers.

Earlier this year, Norwich Union chief executive Igal Mayer told Insurance Times that the insurer would rather lose business than pay sky high commissions to consolidators who were believed to be charging up to 50%.

In May, Mayer said: “We are concerned about the increasing levels of commissions that consolidators are demanding. The economics have changed; the margins aren’t there anymore in commercial lines. We will reverse the trend of these increases. That is what we are looking at.” He added: “We are happy with commissions paid to other brokers.”