The Zurich-gate affair reinforces the need for business agreements

The unfolding events surrounding the severing of relations between Zurich and Folgate cannot have gone unnoticed by many readers, but I wonder how many of us should have been shocked by what has happened so far? Indeed, I am a little surprised that it has taken this long for matters to come to a head. Look at the facts.

Folgate is an acquisitive organisation that, when it purchases a book of business, "inherits" with it the insurer preferences of the vendor principals. Clearly there is little chance that this will match Folgate's own 'preferred insurer' panel.

Zurich took a decision not to be one of Folgate's preferred insurers, and I'm sure it knew the consequences of this at the time. It was inevitable that business that could move would be moved away from it. I'm surprised it has taken it this long to shut off the supply by putting the agencies into run off.

Let me be very clear, Folgate has an absolute right to pursue its 'preferred insurer' strategy. It should not be criticised in any way for doing that. It has negotiated hard for the terms secured from its panel and has, I'm sure, made commitments to that panel in return. It should be applauded for having the courage of its convictions and delivering on its promises to those supportive insurers.

But while Folgate has this right, Zurich has an equal right not to play. In Zurich's eyes, it has taken steps to protect its business. No one should be surprised - I'm certain Folgate isn't, and nor should we be.

This focused approach by a broker on preferring only certain carriers is high risk, and is always going to lead to some insurers being excluded. Withdrawing their agency is the natural next step if they are to protect their position going forwards. After all, what would you do in their shoes? It is no broker's God-given right, however big they are, to have access to all insurers.

What I think is causing some consternation here however is not just the fact that the agency has been put into run-off, but that Zurich plans to try to renew some of the cases via other brokers. The broker's natural reaction to this is to cry "foul" and cite "client ownership" but I'm afraid that it isn't as clear cut as that.

For a start no-one 'owns' a customer. That said, it then depends entirely on what was said in the terms of business agreement (TOBA) that existed between the broker that sold the business to Folgate, and Zurich. If that specified that the insurer would not solicit customers for a period, then on the face of it, Zurich could not pursue the clients, direct or otherwise. However, I'd be very surprised if there wasn't a get-out clause covering sale of business. Folgate would have been very much aware of the terms of all TOBAs as part of its pre-purchase due diligence.

It is just as likely however, that no written and up to date TOBA was in fact in place. As an industry we are notoriously bad at documenting our terms of business with one another. Indeed, the number of pieces of business that are transacted between brokers and other suppliers, such as wholesalers and sub-brokers, without any form of TOBA far outweighs those with formal agreements.

The FSA is set to change all that and has gone as far as to suggest that none of the current crop of agency agreements is sufficiently clear as to satisfy its requirements. As a result it has suggested that it will be necessary for all insurance suppliers to enter into new TOBAs with their broker customers prior to 14 January.

In my view this is a very positive step forwards as at long last we will all know exactly where we stand in our dealings with insurers and other carriers - there should (in theory) be no surprises at any stage. But don't be surprised if it's not entirely to your liking. You have to decide whether you accept their terms or not .

Zurich response

I am sure your readers will be somewhat perplexed by the contrary views that have been expressed over the past couple of weeks in the light of our decision to terminate our Folgate agency.

This is a trading relationship between two corporate entities and we agreed with Folgate that the details surrounding our decision to part company would remain confidential. Throughout our discussions with Folgate, we have stuck faithfully to that agreement and we will continue to honour our word.

That said, in your lead article of 8 July, unattributable comments were published, which we feel it is important to pick up on. The first relates to our approach to relationships with our broker partners, and the second to brokers' understanding of our strategy. While we were pleased to see David Slade's letter of support in last week's edition, we would like to ensure that all brokers are as comfortable and supportive of our approach as he.

Should those who felt compelled to comment, albeit unnamed by Insurance Times, wish to contact me, I would be more than happy to meet them at their offices to outline our strategy and answer any queries.

Peter Burrows
Managing director
Zurich UK Commercial

Letters intended for publication should be sent to Insurance Times, 30 Cannon Street, London, EC4M 6YJ, or faxed to 020 7618 3499, or emailed to
letters@instimes.co.uk