Aviva tries to rebuild its bridges

But has the insurer left it too late to become friends again with the consolidators?

When Aviva took 80 brokers and their partners on a luxury, all-expenses paid Mediterranean cruise last month, the five-star craft was dubbed “the love boat”. It was a timely symbol of Aviva’s new attitude towards its biggest brokers, the consolidators. After months of public brow-beatings and posturing on commissions, the UK’s biggest insurer has ever so quietly started to change its stance.

The story begins last August when Aviva chief executive Igal Mayer began to talk publicly and loudly about commissions. He made a point of telling the press that he had set a limit of 30% on commission, plus expenses. At the time, the consolidators were demanding commissions of 40% plus; in some case 50% and more. With soaring expense ratios in a soft market, Aviva had little choice but to act. Indeed, all the major insurers were driving down commissions though some, such as RSA, refused to talk about it publicly.

But Aviva shouted about it – either because it felt duty-bound to lead the market or perhaps because it wanted to use publicity as leverage. This, coupled with its tough negotiating stance, led to some difficult conversations over the course of about six months.

Meanwhile, a number of other insurers, led by Allianz, were quick to spot an opportunity to widen their distribution, and became aggressive in snapping up the business coming out of Aviva.

As a result, Aviva now writes considerably less of the business produced by all the major consolidators; its account with Towergate, for example, has fallen from about £400m to £250m. Market sources suggest that, if current trends continue, this could dwindle away to next to nothing in a year.

Moreover, the public and personal nature of the negotiations led to some rather unbusinesslike fallings-out. Certain characters among some of the consolidators were barely on speaking terms with the senior team at Aviva.

Meanwhile, the world’s banking system goes into meltdown, causing investment returns to plummet, and the soft market lingers on. Suddenly, Aviva looks like it’s in a tight spot, and those falling premiums become much more important. It is due to report its half-year result in August and – so market speculation has it – premium will be significantly down.

Mayer needs to have a story to tell the market – not to mention the Aviva bosses – when that happens. And that story needs to be that Aviva is building up its business with the consolidators once again. Hence what one chief executive describes as a “love-in”: a concerted effort to rebuild bridges.

Aviva is not raising commissions so it would be a little unfair to accuse it of a turnaround. Having achieved what it wanted on remuneration – which most brokers agree was fair – it is now looking at other ways of rebuilding its accounts. These centre on underwriting risks at which it had previously turned its nose up.

The market now is left with a number of questions. First up, what of Mayer, the man behind the strategy. There has been no suggestion that he’s about to depart, but he certainly has had to make a number of personal concessions. Second, where does this leave the ongoing power battle between the country’s biggest insurers and their brokers? All of a sudden, the brokers are back in play.

ellen.bennett@instimes.co.uk