THB MD Andy Hawkes on brokers' moves towards MGAs, insurer chiefs in their "ivory towers", and why commission disclosure is an "equitable solution"

Andy Hawkes is better placed than most to comment on the state of the market.

Following the establishment of the company’s underwriting agency, Unicorn, in January he now straddles that increasingly uncertain ground between broker and underwriter.

He explains that the creation of Unicorn was an attempt to build a Chinese wall between the manufuacturing and distribution ends of insurance products.

“Unicorn was a recognition that probably at some point the FSA was likely to want brokers to split their broking and insurance parts,” he says.

“MGA’s as a way of distributing risk capital are part of the future. Insurers see them as a useful part of the distribution strategy. Brokers are responding to that; most of the major international player now have underwriting agency vehicles.”

Does that mean that every broker with sufficient scale will look to bring some of its underwriting in-house?

“You’ll see more of them,” he says. “Whenever you see more, at some point there will be consolidation, and there will be winners and losers.”

He adds that unlike some of its competitors, underwriting will not become a core contributor to THB’s bottom line.

“It’s unlikely to be a major part of our portfolio. We are still a broker at heart. If we get 5-10 per cent of our revenue over next five years [from Unicorn] we’d be very happy.”

Start me up
Instead of focusing on integration and leverage, Hawkes suggests that the consolidators will play a vital role in ensuring that a healthy pipeline of start-ups emerges.

“Consolidation will continue. Being bigger appears for most brokers to be the way forward. But I’m too sure just by being bigger you can balance looking after clients in a personal way.

“It will interesting to see how the larger consolidators will manage their debt when commissions are being pushed backwards.

“You’ll start to see some new blood emerging. It’s difficult to be an entrepreneurial spirit if you’re part of a large organisation.”

He does observes that commission pressures could hit the some of the larger players where it hurts.

“A number of the larger players are heavily in debt. It will interesting to see how they will manage this when commissions are being pushed backwards.”

Sharing the profits
On ratings, he explains that until shareholders see their returns diminish, little will change.

“We’re just starting to see signs of hardening, but it’s not significant at this stage. We’ll continue to see P&C continue to be in a soft state. I don’t see that changing for two or three years.

"It's a pure supply and demand scenario. There’s new capital coming into our market. Whilst there’s excess capacity, there’ll still be pressure for a downward position.

“There’s always talk about hardening rates,” he adds. “That’s what it is – talk. You get the boards sat in their ivory towers; by the time it does get to the coalface, dilution of the message is often the way.”

As for the FSA message on commission disclosure, despite his vested interest as a wholesale broker, he is refreshingly candid.

“If I was a commercial buyer of commercial insurance, I’d say a fee-based approach to business is far more equitable.

“Take cross-subsidies where bigger clients pay commissions to subsidize smaller clients. Is that right? That’s a decision brokers have to ask themselves.

“I think there’ll be a half way house. There is a political argument to leave it where it is. But to be totally honest, my view is that fees and transparency is the right way for our industry to go.”

Andy Hawkes - Biography

Following an early career with Sun Alliance, Andy joined Lombard Elizabethan in 1984 before joining Independent Insurance as a regional manager in 1987.

He then moved to a marketing role heading up this function until he moved to Cheshire to run the main administration office being responsible for the re-engineering of processes.

In 1999 Andy founded Independent ebusiness function which became which was sold to Axa in 2001.

Andy was a founder shareholder in Evolution Underwriting Group and today heads up the insurance schemes, fleet and Health & Safety risk management, and underwriting agency divisions within THB non Lloyds operation, THB UK Ltd.

In May, Andy was elected President of the local Insurance Institute in Peterborough.