Weekly briefing: 1-7 July - Fighting talk

Jack Straw clearly doesn’t mince words. After a week campaigning for a referral fee ban, he’s on the offensive again in this week’s Insurance Times with an exclusive interview. He labels as “preposterous” and “nonsense” the ABI’s stance that insurers can’t stop collectively taking referral fees because of competition law constraints.

But the ex-justice secretary makes it clear that insurers are not the real villains of this particular piece, pointing out that the claims management companies have not raised their heads above the parapet during the current debate.

He uses the interview to counter charges that he failed to act on the issue while in government because of pressure from the trade unions, saying that the extent of malpractice surrounding referral fees did not cross his desk as a minister. Straw will continue to be a pivotal figure in the referral fee debate, following his pledge to use legislation, currently going through parliament, to ban the practice.

He may be delivering some uncomfortable home truths to the industry, but on this issue it makes sense to form an alliance of convenience with the former justice secretary to achieve a ban.

At your service

The second joint Insurance Times/RSA regional roundtable looked at what service means to the industry, along with more broader discussions. Brokers can improve their service to clients while increasing premium income by offering non-insurance products, according to Perkins Slade associate director Lynn Richards-Cole.

Brokers could supply products like credit insurance bonds, Richards-Cole suggested. “You can’t just silo that off and say it’s not general insurance,” she said. “Are there things we can do to smooth the way for [our clients]? If we can’t do it, who else will?”

Waiting for a fall

It seems almost everyone - from jealous rival motor insurers to sceptical equity analysts – is watching and waiting for Admiral to trip up and embarrass itself. The company’s run of stellar returns while its rivals choke on rising bodily injury losses has everyone asking what will burst Admiral’s bubble.

The answer could well be a ban on referral fees, which looks increasingly likely since Jack Straw piped up about the issue. Admiral only retains 27.5% of the UK risks it writes, and makes over half of its profit from so-called ancillary income. Some of this is referral fees, although it is unclear exactly how much. Estimates range from 10% to 20% of total net profit.

Admiral’s share price has wobbled, likely because of uncertainty about a ban and its ultimate impact on the firm, but it hasn’t crashed. ‘If in doubt do nothing’ appears to be the stock market’s motto.

Nevertheless, perhaps it would be wise for Admiral to show its hand now to save any nasty surprises if and when the ban kicks in.

Profit happy

Elsewhere, MMA Holdings UK's various units are regaining their strength, which resulted in the group as a whole boosting profit by 14.6% in 2010. Swinton’s profit was up 14.7%, while MMA Insurance returned to profitability.

Over-50s insurance broker RIAS, meanwhile, is proving that there is both revenue and profitability growth to be found in broking. Profits were up 4% in 2010, while revenues increased almost 5%.

Aviva's boxing clever

Aviva is eyeing up a return to Lloyds after an absence of 11 years. The decision over whether to head back to Lloyd’s is in the hands of corporate risks managing director David Hall, who is carrying out a review with a decision expected at the end of the summer. Hall could chose to continue down Aviva’s path of underwriting for UK domiciled business. But it looks likely he’ll set up some kind of London hub to pull in foreign business.

By hooking up to Lloyd’s, Hall gains access to a range of international markets. He’ll be asking himself a number of questions over the cost of a Lloyd’s operation, how much support is out there for brokers who remember Aviva’s exit 11 years ago, and what kind of lines Aviva could write. Interesting times ahead for the UK’s number one insurer.

The lure of the aggregator

Zurich performed a U-turn this week in going back to the aggregators, returning to the space after nearly a year out. Zurich joins Aviva, which is also set to return to the aggregators this month. So why the turnaround? The simple answer is that the market has hardened sufficiently enough to make motor business profitable again.

Neither can afford to miss out on the volume that aggregators provide. One of the advantages these websites offer is that the acquisitions costs are low. Expect to see a stripped down, fairly simple product that aggregator customers can gobble up.

Bans and breakaways

Big broker stories this week have included the FSA handing out bans to Andrew Porter and Alexander Brincat. The actions of these two brokers were dealt with heavily by the regulator.

Bluefin's chief trading officer Graham Coates quit the AXA-owned broking group in a move that came as a shock to the market, and most probably his closest colleagues. Another departure, revealed by Insurance Times, was the boss of Aon’s classic car broker Footman James, Paul Matthews. He is understood to be moving on to pastures new.