Daily briefing: Friday - Another fine mess

Yes, referral fees are in the news again. This time, Ages is at the centre of broker ire with its attempts to manage brokers’ third-party claims, according to an Insurance Institute of Brokers (IIB) bulletin.

The IIB bulletin says that Ageas’s terms of business arrangements “could prevent the broker from referring claimants to outside claims-handling services and require the broker to refer all third-party claimants to Ageas”.

But let’s ignore the Ageas dispute with the IIB – because the facts here are not yet out in the open – and talk more generally about this concept. Is it right that insurers want brokers’ third-party claimant arrangements referred back to them?

The broker standpoint

Looking at it from the brokers’ point of view, you could argue that referrals are a good way to earn extra income when margins are under pressure from the poor economy.

Added to this, insurers haven’t made life easy for personal lines brokers by setting up direct or aggregator products that, especially for the smaller players, undercutting their business.

Finally, and most importantly, brokers could argue that, by referring a third-party customer to a claims management company or law firm, they are simply addressing the customer’s needs.

Why should they refer a potential personal injury or credit hire claim back to the insurer, whose only intention is to minimise costs? Is that really treating customers fairly? Indeed, insurers pocket referrals all the time, so it’s rich for them to want to intervene when it suits them.

The insurer’s argument

Meanwhile, the insurer point of view is quite simply that credit hire and personal injury is rife with fraud, and brokers who pass on third-party claimant referrals aren’t helping to clamp down on that culture.

Another, even greater, argument is that the insurer has entered into a ‘good faith’ relationship with the broker by underwriting for their customers, only for the broker to turn around and encourage claims against them.

It’s a very thorny issue, and the rights and wrongs of it could be argued all day. What it does show, though, is that the whole process is in dire need of reform. Perhaps Jackson will be the answer.

Ben Dyson on the RBSI challenge

While RBS Insurance’s first half profit is encouraging progress, chief executive Paul Geddes himself admits that the work is far from done. The company still faces a number of challenges before its flotation or sale, currently planned for 2012.

Returning to profitability is but one part of RBSI’s turnaround plan. It now wants to reassert its competitive advantage as one of the country’s largest personal lines insurers, which in turn it hopes will lead to its third objective of profitable growth.

The company has to manage this continuing transformation while separating itself from the RBS group and ensuring it can run as a standalone entity. As Geddes acknowledged, RBSI needs to be careful that its restructuring does not distract it from focusing on the business.

Then there is commercial business. Geddes reports, without giving specific details, that NIG was on track . NIG both grew and was profitable in the first half. But the results coming out from its rivals this week suggest that things are going to have to get worse in commercial lines before they start to get better. This, despite its enviable broker relationships, might bode ill for NIG.

RBSI is undoubtedly in a far better position and its managers and staff deserve praise. However, they can’t afford to relax now.