Broker networks under the microscope

First it was managing general agencies, now it looks like networks are increasingly coming under the microscope. The message from insurers is loud and clear: “We want to see performance and profitability.”

The latest to tighten their channels is AXA, which is reviewing its partnerships with networks. AXA follows in the footsteps of Zurich which pulled out of Westinsure last month.

So how has it come to this? Broker networks originally started as a way of small brokers getting together for collective buying power, shared information, and ultimately better negotiated rates.

In return, the insurer could free up manpower – which had been spent visiting and nurturing contacts with brokers – as well as accessing a wide range of products that may have previously been out of reach. Networks were also supposed to deliver better risks.

It was an easy-gong relationship as insurers used every means at their disposal to snap up market share in a soft market.

But the economic downturn changed all that.

Clare Ryder, managing director of management consultancy firm Salient Solutions, believes networks have ‘lost their way’ in their relationship with insurers.

She says networks have demanded greater and greater commission, while insurers have not managed their relationships with networks efficiently enough.

Ryder said: “If you are a smart insurer – facing a current climate where you are looking a lower investment returns, rapidly increasing claims and still facing relatively flat markets – you will be looking at your distribution channels right from the drains up, by breaking it down and understanding what makes you money.

“Every distribution channel should be reviewed as you’ve got to pull back, in order to profit.”

Before networks, MGAs suffered a knock following both AXA and Norwich Union pulling out of Primary, and then AXA again, pulling out of Giles-owned Ink last month.

We’ve also seen Norwich Union issue a get tough line to consolidators over commissions.

Are networks the final piece in the jigsaw for insurers tightening up their channels? Brokers will be hoping so.