Insurer cancels agencies with brokers they view as not acting in customer interests
Aviva has cancelled agencies with brokers they view as chasing higher commissions and not acting in the customer’s best interests.
The UK’s largest insurer is striking back against what it claims are brokers who are incentivised to transfer business away to other insurers who are offering higher commissions. It says this trend works “to the detriment of end customers”.
The insurer did not disclose the names of brokers it had ended agreements with, but revealed that one of the brokers was a top 75 broker.
Aviva chief distribution officer Phil Bayles said there were circumstances where brokers had also threatened to move, or had actually moved business away after they had entered into new full or part ownership deals with other firms.
Bayles told Insurance Times, StrategicRISK’s sister publication, that these conversations were part of a wider issue involving consolidators whose models were based on growing their business through acquisition, and then then leveraging their larger size to press for higher commission rates.
He added: “These actions take no account of what is in the customer’s interests, just a narrow perceived gain by the broker or new owner. We have shut down agencies and we will continue to do so.
“We have to monitor the conduct of our distributors. If a broker is acting in a way that is not in the best interests of customers, but is driven purely by commission leverage, from our understanding, they are not meeting their obligations.”
Everyone has a choice
“Everyone has a choice about their business model. We respect people who want to get paid properly to do their jobs, but there is a difference between that and a naked ‘pay up or else’ approach,” he says.
According to Bayles the insurer has not forgotten the lessons learnt from the last major round of consolidation.
Aviva has developed a multi-channel and multi-line business, which means it can withstand the pressure brought by demands for higher commissions by consolidators.
Bayles added: “This diversity gives us the strength not to be blackmailed into over-paying to keep business.
“We have a direct channel and partnerships channel that are both worth over £1bn each as well as over £2bn with brokers.
“We also have diversification within the broker channel with great strength in regional broking and are making further investment to support regional brokers to help them withstand pressure from the ‘new’ consolidators.”
The market is awaiting the outcome of the recent acquisition of Bluefin by Marsh.
On completion of the deal, Marsh will combine Bluefin and Jelf, which it bought in 2015, into a single business. The combined unit will be led by Phil Barton, currently chief executive of Jelf, and a management team drawn from both firms.
The acquisition means that there is now a big gap in size between the large brokers and the small to medium-sized firms.
Market experts say the purchase will also drive up the value of smaller brokers even further, as they are viewed as viable acquisition targets for consolidators.
To stave off the lure of the consolidators on a buying spree, Aviva says it has already invested heavily in supporting smaller independent brokers who feel the pressure to sell, amid growing regulatory demands and the increasingly competitive market.
The range of services Aviva provides include; regulation and compliance, marketing and access to funding via financial broker Integritas.
As a result of the insurer’s collaboration with Integritas, Aviva has helped more than 30 broking firms to secure £35m funding to expand their business or undergo a managing buy-out (MBOs).
In some cases the brokers have been able to raise the money they need through crowdfunding.
Bayles says the insurer is offering an alternative to big-guy consolidation, which is small peer-to-peer consolidation.
He adds: “We are looking at all sorts of ways to maintain independence. We have a tool kit of stuff we are trying to enhance all the time.
“There are various other types of support we can offer, but we will talk to the brokers first to find out what they need.
“This is not a pie in the sky approach. We can show that it is actually working.”