I have recently been investigating the potential opportunities that working with new partners might bring, and have found that entering into a formal agreement is fraught with danger unless you are well advised and extremely cautious.
It may seem obvious, but unless firms are on top of the contract they are offered, they may easily find themselves left without a leg to stand on when it comes to defending ownership of clients and claiming ongoing commissions.
A certain insurer offers, among other products, payment protection insurances (MPPI and PPI), selling almost 240 000 insurance policies in the UK through a panel of over 40 brokers and dealers.
However, when I considered acting as one of its agents, it soon became clear that the contract did little to promote my side of the deal and everything to protect the insurer’s own position and future development.
In some respects this is fair enough and we are, after all, talking about a commercial business arrangement. But surely the best partnerships in life are those that are mutually beneficial?
Client ownership is key to any successful broking business, and successfully generating repeat business and cross sales is essential if firms are to thrive. To do this, intermediaries need to have ownership of the client.
To, therefore, enter into a contract, which would make it likely for any clients introduced to the insurer, to then become its clients, does not bode well for the future.
Like any business agreement, contracts come and go. But simply because a contract has ended there is no reason why intermediaries should not be rewarded for future renewal business that they introduced to the provider in the first place.
An intermediary’s client may continue to renew with the provider long after it has stopped acting as an agent for the firm, but surely the intermediary deserves ongoing commission for bringing in the business in the first place?
This insurer does not think so and the contract it offers appears only to make allowance for commission to be paid while a contract between it and an agent is in place.
“An intermediary’s client may continue to renew with the provider long after it has stopped acting as an agent for the firm, but surely the intermediary deserves ongoing commission for bringing in the business in the first place?
After a contract is terminated there is nothing to stop the insurer continuing to deal with a broker’s clients and the contract it put on the table even allowed for it to demand copies of client records.
Everything may be fair in love and war, but surely there is a point when intermediaries have to draw a line and protect their own position?
In fact, given that the insurer’s contract did not allow agents to comment on the products or associated materials being sold, it must surely be very difficult for its agents to comply with the FSA’s Treating Customers Fairly principles?
It is all too easy for firms to see partnerships as a fast way to bigger volumes and better business.
In many instances teaming up with other firms can be hugely successful, but intermediaries also have to be confident that their own position is protected, that their own clients are safe and that they can ensure their future commission streams.
Larger firms will always have the upper hand, but a business relationship still has to be a two way street if it is going to be genuinely successful.
Simon Burgess
Managing director
British Insurance
