With the increase in the number of networks, brokers have more choice than ever about which one to join but is it always worth the extra outlay and will their cherished independence remain intact? Stephanie Denton investigates
The last 12 months have seen plenty of developments in the insurance broker network sector. Purple Partnership and Our Network are just two networks that have launched, while long standing player The Broker Network has been taken over by the Towergate conglomerate.
However, it seems with the competition hotting up that relations between the networks leave a lot to be desired. Last month the fury was unleashed after TBN confirmed it is taking legal advice after its boss Grant Ellis accused Our Network of plagiarism and Purple Partnerships of having questionable testimonials.
Is this just down to petty squabbles or are networks reaching a ceiling where business is at a premium and the gloves are really coming off?
Despite the impending legal action Mark Wood, managing director of TBN, says there is enough business to go around: "Competition is good and it keeps us on our toes and makes us respond and adapt. We welcome healthy competition and believe there is room for four or maybe five networks. Good levels of competition mean we have to provide good service propositions. We are the largest network so we can adapt to the varying demands of brokers. It is survival of the fittest to some extent and size does matter as long as you can be flexible and provide value."
Whether there is enough work for more networks to keep springing up is a matter of debate but there is general agreement that there is definitely a place for networks in the UK insurance market.
Paul Brierley, managing director of Our Network, says: "The concept of a network is right and there is a feeling of being part of something. We are starting to see pressure on commissions and the small independent intermediary may suffer because of this. Being in a group provides more muscle and insurers do see the value of networks. We are trying to be sustainable and give smaller brokers the ability to compete against larger brokers and also allow insurers to deal with the market they want to."
Mr Wood supports this: "Networks can provide a wide effective level of cover that brokers can't access themselves. Also there is the collective clout to interface with insurers."
Ben Lawrence, managing director of broker Beaumont Lawrence, which joined TBN in May, agrees brokers are looking for this form of assistance: "Firms tend to move to networks because the business support they can offer moves them apart from smaller brokers."
And even the insurers agree there is a place in the market for networks. Phil Bayles, director of trading at Norwich Union, says: "There will always be a place for independent networks but they have to add value. Brokers helping brokers will always be wanted and will survive."
Despite the popularity of networks or maybe because of it some believe that new entrants to the market are offering brokers little that is new. Adrian Coupland, head of insurer relations for SSP and Keychoice, says: "We have probably reached the ceiling now of traditional network as everyone seems to be copying what already exists. Networks either appear to be affiliated to technology firms, aiming to drive down costs and improve efficiency, or they are looking at preferential trading terms. There has been nothing particularly fresh over the last few years."
And he blames insurers for the fact so many new entrants have emerged in recent years. "Insurers have almost asked for more networks as they are keen to see better distribution of products. So where the entrance fee is low to join these networks or be on their panels this has encouraged insurers to support start ups," he explains. "Insurers went though a period of saying that they wouldn't deal with smaller brokers but now they are going full circle and backing the broker again."
So do insurers feel pressurised into taking business from all networks to keep their distribution spread? Not according to Mr Bayles: "The big question for me is do networks add value? Are they really offering something that is not available to the broker elsewhere?
"And my second stance would be to question whether they offer value from an insurer perspective. What do they offer us? Some are just another mouth to feed in an already expensive chain. The danger is that insurers end up paying £2 for what they bought before for £1 when you include the network mark-up. Networks can be paid a lot to do nothing but how much is actually passed on to the brokers? Our strategy is that we won't pay extra if there is no clear added value. We don't need them as we have local relationships but some small insurers don't have that infrastructure."
"Securing broker distribution is the key challenge for insurers at the moment so we have to be interested in this," admits Derek Plummer, commercial director at MMA. "Our philosophy is to work with selected networks and it is about choosing the right ones that work for the mutual benefit of both parties, the insurers and the broker."
But he adds: "They are an extra mouth to feed and so however much they take out must come back in value."
Despite insurers claiming they are free to pick and choose the networks they work with more seem to be springing up every year, so how do brokers feel about this?
"Brokers are probably overwhelmed by networks and it can be hard to know which one works for them," says Mr Brierley. "They can, of course, try one and then move on and see which one delivers what they really need."
Mr Coupland supports this: "There are now around 11 networks compared to only four or five a few years ago. It is almost a part-time job to work out who to be associated with. More insurers are asking brokers to pin their colours on their chests and the position where you could be a member of two or more networks is gone."
However, Stephen Albutt, sales and distribution manager at Allianz, says it is up to the networks to make their benefits clear rather than the broker to wade through the offerings: "Anyone who is selling something must make their offering clear and promote their unique selling point. It is down to them to get their offer out there."
Mr Lawrence agrees and says that brokers are pretty savvy anyway: "There are two sides to every broker: the side that offers a service for the client and then the one that deals with getting the most from insurers. So it isn't too hard to be looking to get the best from a network."
In fact, the only thing that seems to hold brokers back from joining networks is the long-standing question of whether they can remain truly independent and still be part of a network.
And Mr Bayles believes this is still a valid question. "Who gained when TBN grew and was sold? Cobra is also trying to sell and Westinsure too but is this in the best interest of the brokers? Or is it just people making money?" he asks. "They say they are altruistic in their sales pitch but their behaviour can be self-interested. Did all brokers want to be part of Towergate? You have to ask who do the networks represent, themselves or their members?"
He agrees there is safety in numbers to an extent and it is fair to say brokers often feel they have a bigger voice with networks but argues this is not always true: "For independent brokers the most direct voice is to speak to the insurers."
However, Mr Lawrence argues that brokers do not need to be worried about their independence: "I still feel we have a direct relationship with insurers and if anything we see more of them now than we have ever done. The initial reaction was concern as we have never done this before but it was never a show-stopper. I don't see a negative side to it as we will get a better relationship with insurers. We have not sold out to Towergate but why not use their relationships and buying power?"
With insurers saying they are selective about the networks they work with and brokers claiming they work hard to pick the best one for their clients, will the market soon be filled with mergers and acquisitions as the battle for business continues?
According to Mr Plummer it will: "There will be winners and losers in the market and we have to decide which are the right ones for us. The big merger has been seen but with the economic downturn I wouldn't be surprised if we see more consolidation.
"Another issue is that most networks are only a few years in and they have to achieve cost synergies and integrate systems. Some networks have also promised to invest in technology and only when they achieve this can they demonstrate a successful model."
Survival of the fittest
Mr Coupland agrees: "There will be consolidation but there will also be some networks that don't get off the ground if brokers don't see the value and insurers don't get a return. In the next 12 months the market will be interesting as insurers are looking at the acquisition cost of business and who they are paying for business. Only those with competitive offerings will win."
And Mr Lawrence believes the market will come down to just the big players: "The credit crunch means raising finance to merge is unlikely, and the bigger networks will buy the small or where the small can't get the bulk and the critical mass the market will then come down to four or five players in the next couple of years.
"Networks only work if there are four or five big ones. If there are lots of little networks then really you might just as well have lots of different insurers."
In addition, Mr Plummer urges brokers to remember that networks are not the only option: "We are seeing early signs of another development as brokers are feeling they have lost their independence and are not comfortable with that. We have recently seen a handful of applications for agency from new brokers that used to be part of networks. This is a sign that brokers do value their independence."
Whatever the options, in the end the decision lies with the broker and Mr Lawrence for one is confident that the strongest market solutions will survive. As he concludes: "Grant Ellis (of TBN) got it right when he said brokers are intelligent and brokers know where to go.
"I think the new networks are a response to the economic environment; a way of getting closer to the market. However, brokers are looking to make money and any broker worth their salt will know the more established networks are proven. Having looked at the whole market recently I know there is more to this than just commission."
Sounded a good plan, Exec Team Visit to our wonderful claims team in Morecambe, bit of a ‘Back to the Floor’ & dish out some Easter Eggs. Lovely. So how did I end up with these & having to wear them home on the train? Thanks @helenidle @AXAUK @AXA_Broker #BunnyEars pic.twitter.com/cNd80WnRPd— David Williams (@AXADavidW) April 17, 2019
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