Distribution model facing fundamental change, MGAA head warns brokers

Brokers need to earn their commission - they ”don’t deserve to be fed”, insists MGAA chief executive Peter Staddon.

Speaking to Insurance Times, Staddon said the distribution models will look completely different in five years’ time.

“I believe distribution in five years’ time will look fundamentally different to what it is today,” he said.

“If you look at the way it is now, there will be a time where people look at products completely differently. There will still be a place for brokers, they will still have a vital role to play, but people will look at products very differently.”

He felt that certain markets are starting to shift more towards a pay-as-you-go basis.

“My car sits in the garage from Sunday night to Saturday morning, but I pay for five days of insurance that I just don’t use,” he said.

“That brings different dynamics when you look at this pooling system, it brings different needs for the customer and that is why it will change fundamentally.”

‘Riding the system’

But he feels that while some provincial brokers will continue to play a vital role, some ride the system and he wants to stamp that out.

“When I was at Biba, we set up an accident, sickness and unemployment product. It was a contract with AXA for brokers to access.

“It was writing about £750,000 worth of income, not bad for a £300 product. We found that in excess of 300 brokers were buying into it, but 16 brokers produced 90% of the claims.

“So I threw them off. I wrote to the chief executives and told them that they were screwing the system, and not one complained. So we brought the loss ratio right down.

“That is what Lloyd’s needs to do. Some of the brokers there are riding the system with terrible loss ratios.

“A broker doesn’t deserve to be fed; they need to earn that right. Many do, some don’t.”

MGA capacity struggles

Recently, MGAs have been struggling with capacity, with Aspen folding in May, Tokio Marine scaling back its business to focus on Lloyd’s, as well as rumours of others also struggling.

Staddon urged MGAs to be smarter amid political uncertainty, and to concentrate on good communication with their capacity providers.

He said: “A lot of the capacity problems are driven by uncertainty within the UK. A lot of companies are storing money away for obvious reasons. MGAs need to be smarter with their money.

“I don’t want it to become a situation where capacity providers are dipping in and out. That is no good for anybody. They should be speaking to their MGAs and working out a way to solve the issues they face.”

Brexit

With the UK seemingly approaching a no-deal Brexit, Staddon said the MGAA and the industry as a whole is looking at passporting rights, but the way Brexit negotiations are going is a cause for concern.

“It is still a worry,” he said. “We have about 11 members who write millions of pounds worth of business over there [European Union], but we are still trying to work out the passporting rights.

“But if business owners ran their companies the way these guys have dealt with Brexit, they would either be broke or in jail.

“They said ‘we are leaving in March’, then that was pushed back to October. The Europeans are looking at June next year. Why? Because that is when it sets the budget for the next seven years. So we have to be out by then.”

Bringing in new talent

Staddon believes the industry doesn’t do enough to talk itself up, and all the good the industry does.

“It is like a big secret, how big the insurance industry is and how interesting it is. Adversity is what sells the papers, and not how much of a good job we are doing. Maybe we should be doing more of that,” he said.

But to attract young talent, Staddon wants to show schoolchildren how interesting the business can be, and has led tours of Lloyd’s which he said has been very successful.

“There have been times where school trips have been taken into Lloyd’s. You show them Nelson’s fork. He had one arm so he had a special fork made. It was a fork one side and a knife the other side. You take the kids and you show them the gallery and I have had messages from teachers who have had kids in their classes absolutely loving the trips.

“You talk to these kids about the benefit and how much insurance does for the market. We are bigger than the UK’s agricultural industry, we give billions to the UK every year, and we employ over 300,000 people in this country. We do so much good, but we don’t shout about it and that has to change.”