As the battle with combined operating ratios continues and claims aren’t just going to magic away, insurers look to take on consolidators

As the soft market continues to grind their bottom lines, insurers are reviewing commission payments with an eye on trimming the high margins some brokers are squeezing out of them.

AXA and Allianz are in review mode, while Aviva and Zurich say they will not take any action. RSA is likely to take a ‘wait and see’ approach.


One strategy that insurers could pursue is to reduce commission payments by a couple of percentage points gradually over the next two years, rather than the aggressive reductions sought by former Aviva chief executive Igal Mayer two years ago.

Another is to work on building closer relationships with independent brokers that are charging lower commissions in an effort to realign the distribution flow.

Why now?

The pursuit of lower commissions has been triggered by a number of factors.

The soft market continues to put pressure on insurers’ bottom lines, and last year only Allianz and Aviva hit a sub-100 combined operating ratio.

The economic downturn has also put pressure on the pact between insurers and consolidators whereby consolidators would help insurers retain business and push through rate increases.

Instead, hard-pressed clients are demanding their policies are re-brokered in pursuit of cheaper deals.

Consolidators first

Finally, there are grumblings from independents who are unhappy at differential pricing, whereby consolidator premiums are higher because insurers need to compensate for the commissions. All this is being played out against a background of rising costs from recession-related claims.

A source said: “We are all tackling our own costs; we have got to attack the broker costs and the prices. Because claims aren’t going away. You have got to look at other things. If it’s not claims costs it is premiums up, commission down, expenses down. There is no magic formula. You need money in to pay claims. None of these distribution deals give you lower claims.”

Following Mayer?

There is a general consensus among insurers that out of the three areas of broking distribution – consolidators, independents and nationals – the consolidators is the least profitable and now is the time for action.

Aviva was first to take action under former chief executive Igal Mayer, and although the insurer lost a near billion in premium, the retraction from consolidators helped it achieve a 97% combined operating ratio last year.