Independent broker blog: Two shouldn’t always become one

I was intrigued by all the sudden activity between insurers last week. It seemed like everyone was trying to out-do each other with acquisition and counter-bids.

RSA bid for Aviva, which was subsequently rejected, there were rumours that Zurich were about to bid for Legal & General, further rumours AXA may make a counter bid for Aviva, and continued speculation regarding Brit and the recent purchase of KGM by Canopius.

Perhaps it is all just a reflection of the current buyers’ market and I read with interest that Lloyd's businesses are ‘under-valued’, that insurance companies are ‘cash-rich’ but private equity firms are struggling to raise funds.

If I am to be brutally honest, most of the last sentence doesn’t make a great deal of sense to me and while I can understand that the city and shareholders are looking for businesses to protect and even grow their investments, I can’t help thinking that this could all be at the expense of service. There is a lot of ego around business, large or small, and the bigger the firm, it seems, the bigger the desire to be number one.

Mergers and acquisitions are a part of business life and I’m not naïve enough to think that everything will remain the same forever. Figure heads come and go, markets ebb and flow and the economies of business mean that anything or everything can be bought or sold.

What I am concerned about is the impact on service and quality when two major insurers come together to form a ‘superbrand’, especially when the models would appear from the outside to be quite similar. If that is the case then one must assume that one or other of the parties is looking to dramatically increase their market share – what else is there to gain other than the loss of a competitor and another established brand?

Consumers like choice. They are particularly sceptical about insurance and the whole financial industry in general and therefore one large brand swallowing up another large established name is not, in my view, good for the industry.

If previous experience is anything to go by, it does not, certainly in the early days, streamline the process of purchase or claim, nor does it mean the development of new or innovative products, far from it. Iin order to make the transactions justified, there has to be a process where two products become one, two departments become one and two systems become one, and this won’t be achieved without at least a little pain for staff, brokers and ultimately the clients involved.

This is not always the case. The recent purchase of KGM by Canopius would appear to be the merger of two very separate books of business, and if the skills and knowledge from both can be formed into one larger offering then I see this as a positive move, made for the right reasons. The purchase of Highway by LV= is another case that springs to mind and one that has proved to be very well delivered and received within the broking arena. The alternatives muted at the time would have meant the ‘death’ of a product line.

Mergers and acquisitions amongst insurers are, in my view, the single biggest threat to the traditional independent high street broker market, bigger than direct writers and even the aggregators. We need to be in a position to offer choice, not just choice of insurer but also choice of product. After all, this, combined with the professional and personal service we provide, is our unique selling point.

I make no excuses for my biased view, made from my own little goldfish bowl, nor do I apologise for not trying to comprehend the world of finances within these multinational corporations. I speak on behalf of the end user: the customer in the street who will expect me and my staff to make sound recommendations when it comes to their insurance purchase. One size does not fit all!

Peter Smits is managing director of The Ashbourne Insurance Group.