Brokers are a cynical bunch – and why not, experience has taught them to be. So when one of their favourite insurers, a broker-only firm, is acquired by one of their least popular, a direct writer, they are naturally alarmed.
Their concern about Winterthur/Churchill's £120 million acquisition of NIG is focused on client ownership. Will the client details NIG Skandia holds mysteriously find their way into Churchill's direct mail house?
Time will tell whether they are right to be suspicious. For the moment, though, Churchill chairman and now NIG chairman Martin Long seems genuine in his desire to operate the two companies as separate and watertight entities.
And logically, that seems right. After all, direct selling has now plateaued at about 50% of the market. So Winterthur, Churchill's parent, knows that future progress depends on making money in the broker market. Why buy a broker-only insurer just to try to capture its client base if it knows that half the population stubbornly resists buying direct, and prefers to use a broker?
Yes, Churchill might achieve some conversions from NIG if it exploited the broker database. But this would seem a shortsighted strategy as, inevitably, brokers would shun NIG. That would be a massive waste of £120 million, and Martin Long is not renowned for wasting money.
What he is renowned for is underwriting, and he will hope to improve NIG's loss ratio – though, of course, being careful not to give the impression he is hardening NIG's rates in order to make Churchill look more attractive. Tricky, yes. But, again, the point is that if Long makes NIG's rates unappealing in order to drive more custom Churchill's way, then NIG suffers.
Some commentators might argue that it's worth an insurer writing off £120m in order to bolster its direct arm this way. And if more insurers acquire their own broker to do just this, then they could drive up the market's rates together.
This seems an oversimplistic view to take. For the moment at least, brokers should be pleased that the latest consolidation has not led to the loss of a broker-friendly insurer. And that they have as much choice as they did before.
Let's just hope it stays that way.
