Flavour of the month

They got off to a flying start but have broker networks reached saturation point? Rachel Gordon finds that although they no longer tickle brokers' taste buds in quite the same way, networks still have a place in the market

A year ago, broker networks were incredibly popular and popping up all over the place. Since then, one has backtracked from its original business plan and there have been questions raised over the viability of others.

Ask any insurer what they think about networks and most seem to give the same answer - it is all a question of the value they bring. Simply providing volume business with no guarantees of reduced loss ratios is of little interest to most insurers, unless they are desperate to build up a book of business.

Dave Smith, head of market management for Zurich, says the newcomers will have a tough act to follow if they are to challenge established players such as The Broker Network, which targets smaller intermediaries, and Willis Commercial Network, aimed at larger corporate brokers.

"It's difficult to see what these newer, smaller networks can offer. They can have a hand-holding role in terms of regulation and can offer access to markets, but they are going to have to work harder if they are going to survive."

Mr Smith has had his fair share of meetings with networks and consolidating brokers that want a special relationship with an insurer if they can offer increased levels of business; but he says they will not be in for an easy ride with Zurich.

"In some cases, there has been no reason we should pay them more commission. They have expectations that are generally out of kilter, and we need evidence of expense reduction if there is to be what we call a value creator deal."

Commission benefits

He emphasises that a network that can offer Zurich benefits would receive the same commission as that paid to a key provincial broker. "Extra commission has to be earned and we like to reward brokers in a transparent way. We will not pay more simply for aggregation," says Mr Smith.

He adds: "Networks can be a good thing and there are some I have a lot of respect for." He believes that in the future the overall offering will be under scrutiny. "There will need to be first-rate services for members, and savings for insurers. I would also like to see savings passed on to customers."

Norwich Union is continuing to work with the Folgate Partnership, which has a network offering, but its director of distribution development, Tim Rolfe, comments: "It is not accurate to say we are extending commission, though we cannot say how the arrangement works. We are not in the business of offering fantastic deals."

He emphasises that NU wants to continue working with smaller independent brokers. "Some brokers are now questioning if a network is right for them - the concept is like oil and water. They are true entrepreneurs and the Financial Services Authority does not want to destroy them, wanting customers to have choice."

And he points out that it is not in the consumer's best interests if a network seeks to only work with a few insurers. He points out that the arrival of imarket will also bring better technology to many smaller intermediaries prepared to use it. In the past, some software houses made this a key part of their network proposition, although, as Mr Rolfe points out: "All they need now is a £500 PC to run it off."

He states that analysis from NU showed there were around 60 propositions in the market if it includes networks, alliances or consolidators. "There has to be shrinkage, although some of them do have a sound model. Mr Rolfe adds that he has had "some good meetings" with Cobra, an independent commercial broking alliance that works with a panel of insurers.

Lloyd Hanks, who joined Allianz Cornhill recently as its broker development manager, left Camberford Law's Network Extra after the company decided to 'reshape' the business months after its official launch. He says if networks are set up properly they can work out, though he emphasises there are many brokers that are determined to keep their independence.

Allianz Cornhill's national key account manager, Dave Ball, says insurers that want to access the market need to deal with networks. "There is a place for them but they need to deliver to their membership. We would want to see costs savings and base our commission on individual arrangements. We would not pay more just for volume."

In January, insurer MMA announced it was to expand its distribution strategy and work with volume producers for the first time, signing up deals with Misys Countrywide and the Willis Commercial Network.

Member base

Clare Tilly, MMA's sales and marketing manager, says: "As a broker-only insurer, we felt we needed to work with them - they have a good reputation and a sound member base."

She explains that MMA will "reward depending on what value they add" and believes those that are satisfying their members have a strong future.

"They can provide a voice for their members in the market, although those who jumped on the bandwagon are unlikely to attract brokers. As for insurers, no one is holding up a shotgun and saying we have to work with them. It is a commercial decision."

Brokers that choose to remain outside networks remain sceptical about the model. Phillip Hodson, chief executive of fast-growing consolidator Oval, comments: "We want to be in charge and offer a total service to our clients. I come from a one-man band business and know that to be successful you need to grow - that means taking risks. I cannot see a lot of value in networks and this is why some insurers are treading warily in their dealings with them."

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