Saga-AA merger pressures insurers

Insurers could face pressure to increase commissions paid to AA Insurance in the wake of its multi-billion pound merger with Saga.

The deal, which has created an insurance giant worth £6.35bn, could also see the AA’s insurer panel cut back or disbanded in a realignment of the two insurance giants’ supply models, senior insurance figures have warned.

Patrick Smith, chief executive of Swinton, said: “We know that both the AA and Saga have considered going down the route of single supplier. No doubt we will see a new model, which could affect insurers.”

Mark Winlow, director of LECG, added that Saga’s high rates of commission, coupled with its insistence on retaining claims handling, could see insurers’ margins evaporate.

“As the dominant partner in the arrangement, Saga will apply its aggressive model to the AA intermediary panel. Those on the panel will be exposed, and could see their books running at a loss.”

Jack Brownhill, director of the World Motor Insurance Consultancy, said:“With the merger, there is great potential for synergies, and for keeping business in-house. The question is: what use will the AA make of Saga’s underwriting capacity?”

Saga played down the impact of the merger, insisting that its primary driver was growth derived from enhanced scope, scale and cross-selling.

The company said that the two brands would remain as separate commercial entities, catering for separate audiences. The two brands have a combined consumer base of 17.5m, and over 11,000 staff.

As part of the deal, three private equity firms will hold 80% of the group, which will be headed by Saga chief executive, Andrew Goodsell. Charterhouse will own 37.5 per cent of the company, while CVC and Permira will share 42.5 per cent. The remaining 20 per cent will be held by managements and staff of Saga and the AA.

Tim Parker, the AA’s chief executive, will leave the company.

Saga’s proposed flotation, the subject of sustained rumours in recent months, is thought to have been put on hold.