Leader: Where next for the insurer-owned broker?

We are officially in recession, but I make no apologies for returning to a different industry hot topic: the independence of brokers. Before the financial crisis distracted us all, the debate had reached fever pitch. Take your average family-owned, regional broker and compare its agility and management to, say, an insurer-owned broker such as Groupama’s Bollington or any of the businesses subsumed in AXA’s Bluefin.

Regulatory constraints prevent these tied brokers from placing a disproportionate amount of business through their parent carriers, but the model relies on the business somehow achieving leverage. You have to wonder, too, what internal political constraints the insurer-owned brokers operate under when they want to manoeuvre on commissions. Could they move as freely as Aon, for example (see page 7)?

The managers of these tied brokers are at pains to point out that their advice, service and placement adheres to the highest professional standards. And the scrutiny of rival insurers should keep them up to scratch. But what started as a defensive play by insurers – designed to put the wind up consolidators, see off aggregators and to secure the swathes of small and medium-sized clients in the regions – is beginning to lose its zest.

Consolidator growth has stagnated, the bulk of aggregators are spending more on television marketing than they can earn and small clients are beginning to behave erratically. In fact, clients of all sizes are acting like punch-drunk boxers on the ropes. Risk managers are taking centre stage and many do not know whether they need more cover, less cover or whether they can afford any cover at all right now. What they need is the right cover and the right advice to take the tough decisions. This is where the broking purist takes centre stage.

These independent brokers – who might just be wondering when insurers will fall out of love with the broker-owning model, and what this will mean for their client relationships in the medium term – are beginning to receive an even greater amount of attention from insurers that have chosen not to buy brokers.

The debate will continue over what advice customers need in a period of economic turbulence. But in hard times, the key to managing clients is to deliver the simple things well. The industry, including those insurer-owned brokers, has not done that as well as it could. How quickly the market can get back to basics remains to be seen.