Distribution power struggle erodes independence

The acquisition of Layton Blackham and Stuart Alexander by Axa has inevitably ignited debate over the pros and cons of insurer-owned distribution. Many will be dead set against it out of concern for their futures and the future of truly independent broking. Of course, insurers buying personal lines brokers is nothing new but this commercial broker double whammy is different.

One effect this deal does precipitate is broking becoming a market consisting of the very large and the very small. And, at the risk of sounding like a broken record, this is another parallel with the IFA market.

The rise of Towergate is one factor that cannot be ignored in insurers' move towards having the ultimate veto over those closest to the customer. No one can dispute that the return on capital model has been a roaring success but, as Chris Giles mentions in the interview (see p20), insurers are concerned that, as things progress, there are dangers in their over reliance upon it. Insurer-owned distribution is very likely to be the alternative strategy insurers will go for to regain some of the control lost to the consolidators and to avoid becoming just capital providers in the longer term.

The other reservation those set against it have is how much those insurers - now holding the power of ultimate veto - will exercise their right to strategically tinker for the benefit of the wider group? Granted, Axa has installed someone to ensure its brokers are kept separate from the main business but they are hardly an impartial referee. Indeed, the phrasing in the release states that the brokers will have 'considerable autonomy', not total autonomy. What that means in practice only time will tell but it cannot be independence as we now know it. Unanswerable questions remain about this - what about the customer? Can brokers owned by insurer A really get the best deals from insurer B? Are tied agencies a logical conclusion to that? These concerns are real but it seems that, despite the uncertainty on the surface, the industry is now heading down a path towards diminished independence.

The pros and cons of insurer-owned distribution will be the subject of debate at Professional Broking's next Broker Management Forum. Panelists include Stuart Reid, James Simpson of IMAS and Andrew Paddick. Log onto www.brokermanagementforum.com to register.