Hiscox chairman hits out at broker remuneration

No comments

Rivals’ underwriting discipline also slammed

Hiscox chairman Robert Hiscox has criticised the practice of insurers paying brokers and described competition levels for fees as “ridiculous”.

In his chairman’s statement accompanying the Lloyds insurers 2010 results, Hiscox branded insurers giving brokers a cut of the premium as “a deficiency in the insurance market”.

“This not only leads to obvious conflicts (the higher the premium, the bigger the pay; the placing of business with the highest payer of commission not the best insurer), but also made the clients believe that they got the services of brokers for nothing,” Hiscox wrote.

He added that brokers had been reluctant to charge clients the proper fee and were competing with each other on fees “to a ridiculous extent”, and were therefore seeking to make up the shortfall by charging insurers.

“This is a big issue at the moment, and I just hope that it will be resolved sensibly before a solution is imposed either by the law, or again by a crusading regulator.”

Hiscox also lashed out at his competitors’ underwriting discipline. He cited an example of the premium for piracy insurance in the Gulf of Aden, where the appropriate premium is roughly calculated by relating the number of journeys through the gulf to the number of successful kidnaps. He said rivals undercut Hiscox’s rates by 50% at the same time as pirates’ ransom demands doubled. “How can any management allow an underwriter to compete at a quarter of the rates of the established market?” he asked.

“There is talk that a major market loss is needed to turn the market, and it would appear that some competitors are hanging on to business at the wrong rate hoping that a big bang somewhere will enable them to increase the price. I personally hope that there continues to be a constant attrition of medium losses and no major event so that discipline has to be learnt the hard way.”