IT spotlights: Broker networks

When Aviva left Broker Network’s panel in June it sparked fears that other insurers might follow and pull out of networks. This would be devastating for networks and the hundreds of brokers that rely on them to get enhanced commission from insurers and to handle their back-office and compliance work.

However, some insurers have complained that broker networks have become greedy and exploited their buying power. A common gripe is that some use their scale to beat too much commission out of insurers. When this is combined with the other common insurer complaint - that some networks are not delivering a sufficient volume of profitable business - then networks have reason to be worried about an insurer exodus.

Demonstrating value

So is the Aviva/Broker Network fallout a portent of things to come? One thing is certain: insurers are scrutinising their arrangements with networks and are not afraid to cut poor performers loose.

AXA commercial lines and personal intermediary chief executive Amanda Blanc says AXA is supportive of networks, but warns: “Those that attempt to take advantage of market conditions or are looking for remuneration based on scale will fail.”

However, most networks chiefs deny the Aviva case is part of a wider problem. “This is a one-off,” says TEn Insurance Services managing director Malcolm Lee. “Many insurers are reviewing their network relationships but it all comes down to negotiations. In this instance, they failed.”

Bluefin Insurance Services managing director David Hopwood says the benefits of networks will outweigh any negatives in the long term. “It is incumbent on the network to demonstrate the benefits of working with it, and I believe networks will continue to do this for years to come.

“The support a network can bring will always be greater than what an individual insurer can provide. So networks will maintain the collective buying power of their membership.”

Purple Partnership managing director Les Brewin criticises Aviva’s stance. “Aviva hasn’t supported networks in recent years and takes the view that it can succeed without them,” he says.

“It is effectively working against them and that’s short-sighted. On the other hand, why should any insurer work with a network that it doesn’t believe adds value?”

Clubs vs networks

Another threat to the network model is the rise of insurers’ own broker clubs, such as Aviva’s Club 110. Some have suggested that insurers dissatisfied with networks may favour their own clubs. Most insurers operate these, many of which share the same functions as networks, such as offering enhanced commissions or profit-share deals, as well as helping brokers with training and compliance.

But Brewin is scathing about the possibility of broker clubs edging out networks. “Some, like Aviva, probably see their club as the equivalent of a network, but why would any broker want to be a member of a network that only offers one insurer?”

Hopwood agrees. “The problem with an insurer club is that it only takes into account the view of that insurer and will seek to protect its own interests above everyone else’s. A network can take a broader view and come up with a solution for the broker that works for them.”

Most network chiefs agree that a broker must have GWP of £10m or more to survive without a network, meaning there should always be a high proportion of brokers in networks sustaining the model.

“But it comes down to the make-up of their book and their attitude to networks,” Hopwood says. “Brokers willing to engage with insurers and ourselves will gain the most.”

So what’s next? Broker network bosses insist their model is attractive to insurers and, admittedly, no other insurers have left network panels since Aviva. However, rumblings of insurer disquiet towards networks are unlikely to go away.

Q&A with Les Brewin, The Purple Partnership

Aviva’s withdrawal from Broker Network is a one-off, according to Les Brewin, managing director of The Purple Partnership, who believes broker networks will remain in rude health as long as both parties see it as a true partnership and benefit from the arrangement

Q: What do networks need to do to keep insurers and members happy, and still make money?

A: Networks, or perhaps I should say some networks, provide insurers with greater access to distribution in a cost-effective way, while bringing a range of benefits to the broker and the end customer. We’ve steadily grown our membership and continued to develop our proposition. In turn, that has led to a marked increase in GWP placed with our partner insurers.

Purple’s model, which is to work with a limited panel of insurers, means they can see genuine value in what we do. That’s why I believe the only sustainable network model is one based on a true partnership.

I would question whether networks that work with virtually any insurer they can get their hands on can satisfy them all. Purple adds value for insurer partners because we’re focused on a limited panel.

Q: Are there enough insurers prepared to sign up to network panels?

A: We enjoy strong support from our partners and have no shortage of others who show an interest in working with us.

Q: What size of broker gets the best deal from networks, and why?

A: There isn’t a simple answer, as networks boast brokers of all shapes and sizes as members. Our members range from start-ups to £12m GWP. The benefits of different networks can be varied. Some networks are expensive and I wonder how they justify their fees.

Q: Is there a conflict of interest if a network is owned by a larger broker?

A: No. Indeed, it can be positive, provided the parent respects that members are independent brokers and doesn’t become too intrusive.

Q: Do some networks use their membership to push insurers’ products without really respecting them?

A: Some might be guilty of that. They seem to see their membership as merely a way of filling their own hoppers. Purple has a proposition that enables members to maintain their independence while improving their competitive position, the products and services they offer their customers, and their revenue and profit.