RSA faces struggle to grow SME business

What next for RSA’s SME ambitions? Today Insurance Times reveals that Scotland and Northern Ireland sales manager Sandra Stewart  is heading for Aviva.

It’s a small coup for Aviva and its regional capabilities, but if you step back and look at the bigger picture, there is more significance in this move.

RSA, along with AXA and Zurich, has ambitions to grow its SME account. The market is so mature that significant growth in a down-trodden economy can only realistically be achieved by winning business from rivals, and as by far the largest player in SME, Aviva is there to be shot at.

But Aviva isn’t giving ground easily and, as today’s move shows, it believes it can in fact win business from RSA by poaching one of its longest-standing sales staff. After 30 years, she will have built up a lot of goodwill with brokers that can eventually be tapped into.

So where does this leave RSA and SME? E-trading will help insurers grow their business more efficiently, and RSA is making steady improvements in rolling out new products with e-promise.

If Aviva can transact £70m on e-trading and RSA only £5m last year, you’d certainly hope there’s room for growth.

By far the hardest decision RSA, and Zurich and QBE for that matter, will face is how deeply they want to be involved with the consolidators, especially the likes of Towergate and Giles, which demand high commissions in return for volume.

Aviva, of course, still trades with the consolidators, but has pulled back and is continuing to do so, judging by the fallout with Broker Network. AXA also plays with them but remains cautious.  

Meanwhile, there are indications that RSA and QBE stepped are stepping up their relationships with the consolidators. Both parties have signed capacity agreements with Towergate Underwriting over the past two years.

Bulking up with the consolidators is an easy way to pile on the volume. The problem is that investment income is on the floor and will probably remain that way as indebted Western economies push down interest rates with quantative easing and anti-deflationary tactics. With insurance rates continuing to remain soft amid high capacity and businesses fighting for cheap deals, insurers will have to make underwriting profits.

Unless Aviva’s rivals can negotiate reduced commission deals with the consolidators, which is doubtful, there is a risk that those who decide to bulk up with the consolidators in the quest for SME growth will end up losing money.

Unless of course, rates and investment income picks up. Good luck on that one.