Surveying the scene

The Insurance Mediation Directive aims to create a level playing field across the European distribution market. However, some believe these intermediaries can never really work together because mainland Europe is so heavily dominated by tied agents and bancassurers. Alec Finch sounded out European colleagues from the Worldwide Broker Network to find out whether UK brokers will ever be able to work with or compete against their European counterparts.

Finch: How true is it that the insurance market in mainland Europe is dominated by tied agents and bancassurers?

Riehl: Germany has a long tradition of captive or in-house brokers, looking after the insurances of their parent organisations only. On occasion these companies seek the assistance of outside advisers, often firms that have subsequently been acquired by one of the mega-brokers. Increasingly, however, the in-house brokers are becoming less reliant on mega-brokers and it is the independent brokers that have the future with most potential.

Brousse: Independent brokers and tied agents each control about 50% of the intermediary business in France. Bancassurers are growing very fast in personal lines here, from a position only a few years ago where they had a minimal part of the market.

Schaft: The Dutch market is dominated by brokers. There are direct writers and bancassurance is taking an increasing hold in the market but independent brokers in the Netherlands have been a key feature of the market. There is a clear differentiation between brokers of provincial business and large industrial accounts.

Niblett: The generic name for brokers in Portugal is insurance mediator.

Of the 41 075 mediators a great many are tied agents or employees of the insurance companies, others are independent agents and 120 are brokers (Corretores de Seguros) of which 20 are tied in-house to their owner/client.

Bancassurers have a growing slice of the market, particularly of the private client and small business sector. The direct route is also increasing, either over the phone or electronically.

Sinabell: Austria has far more insurance agents than independent brokers.

Quite a number of brokers co-operate with only a small number of insurers, so they act more or less as agents. Also, many broking houses are linked to banks and some are under the influence of an insurance company. Bancassurers also have a significant part of the market, especially in the private sector.

Liinamaa: The concept of insurance brokers is new in Finland. For a long time insurance companies would do business direct with their clients but this is slowly changing. Our independent insurance brokers are usually very small compared to their European counterparts.

Finch: How do you earn your money?

Pramet: We will have both fees and commission starting from 2004. The biggest Swedish insurance company, IF, is to start with net premiums from the beginning of 2004. The other Swedish companies will probably follow later.

Schaft: As a general rule, most business is dealt with on a commission basis but the large accounts with sophisticated programmes are handled on a fee basis. Brokers choose this because of the fluctuations involved in an unstable market, which sees large premium increases.

Sinabell: Most of our income is from commission, only a small part is from fees - about 5% to 10%. Normally, almost every broking business is on a commission basis but the market for net premium is growing. In the higher segments it is becoming more and more usual to work on fee basis and, therefore, that part of our income is growing.

Liinamaa: Most brokers in Finland work as consultants to clients and until recently most of this work was remunerated by way of commission. Recently, however, the market has taken a unilateral stance in advising brokers to seek remuneration from clients by way of a fee. The way in which this was communicated to brokers has led the Finnish Brokers Association to take up this matter with the European Court.

Riehl: Apart from the largest accounts, German brokers work on a commission basis. The introduction of fees for services is becoming more of an issue for clients, however, as they see their premiums increasing considerably.

Brousse: Brokers work for commission except for the big accounts, where they earn a fee. On average, fees are used when the premium is more than EUR300,000 and sometimes more.

Niblett: Brokers are generally paid by commission and are paid an additional commission for collecting premiums.

Finch: Are premiums in your country subject to taxation and at what level?

Schaft: Insurance Premium Tax is 7%.

Niblett: Premiums are subject to various taxes: stamp, fire brigade charges, ambulance charges, and vary accordingly to the type of insurance.

Pramet: There are no premium taxes in Sweden.

Brousse: Insurance taxes are generally 9%, except fire 7%, plus additional contributions on motor insurance.

Sinabell: Taxes in Austria are 4% life and accident, 1% health, 11% liability, property and business interruption (with a 4% supplement for fire risk).

Riehl: Germany has one of the highest rates of Insurance Premium Tax. This varies from 16% for most commercial and industrial insurance to 11% for property and business interruption policies. The tax for personal lines is lower.

Finch: Are you faced with a single important renewal date? Are your policies generally annual or do you have long-term policies with break clauses?

Niblett: The majority of industrial business is renewed at the end of the year. Policies are for one year only and, except for marine, are renewed automatically unless cancelled with 30 days prior notice.

Brousse: The majority of policies renew on 1 January but there is a trend to follow the clients' accounting year. Policies renew annually with a tacit renewal: cancellation requires one to three months' notice. In property and BI policies and insurers can increase the rate at renewal then clients can cancel the policy within two weeks and the cover is effective one month after cancellation.

Pramet: We have annual renewal.

Schaft: Many large risks in the Netherlands have renewal dates at the beginning of January each year and this causes a bottleneck in marketing exercises. As a result, some of the largest companies in the Netherlands are moving their renewal date to the middle of the year to give their brokers more time to do their job.

Liinamaa: The main renewal date in Finland is 1 January and about 70% - 80% of insurances will renew then. This is partly due to the fact that statutory insurances have to be fixed according to the calendar year.

Finland has moved away from long-term policies because the underwriting cycle is such that carriers want to have a more frequent review of the profitability of their accounts.

Sinabell: There is no large renewal date where all policies renew but, depending on the reinsurance contract, many bigger industrial risks have a January 1 renewal date. For those risks annual renewal is common. In the middle segment there are still 10-year contracts, some of which do not have a cancellation clause. It is only possible to cancel these contracts in the event of a claim.

Riehl: Many large insurance programmes in Germany have renewal dates at the beginning or during the first three months of the year. The country has drawn away from long-term contracts but usually an insurer has to provide three months' notice of cancellation.

Finch: I have found with WBN that it is possible to co-operate successfully with independent brokers throughout the EU and worldwide. Do you see a situation arising where the EU directive would encourage UK clients to talk to you directly, to place their insurances in your country?

Brousse: It would be difficult for brokers to compete in a foreign country, as insurers will not quote for clients abroad. Almost all insurers have subsidiaries in various countries, except those where they don't want to work, so they will want their subsidiary in the country of risk to quote, and not somewhere else.

Pramert: Certainly we could learn a lot from other EU countries, in spite of still dealing with the Swedish Krona.

Schaft: The Dutch broking scene is very transparent, many brokers are involved with international business and many of their clients have international exposure of various sizes. It is difficult to see foreign brokers getting involved with domestic business but should an EU directive make this possible the chances are it will happen in the Netherlands first.

Liinamaa: The Finnish insurance scene is similar to Sweden, where there are many domestic insurance companies. There are only a few international carriers and they are often only there to service incoming international business. Although Finland has traditionally been keen on European integration, it is difficult to see how the Finnish public would seek the assistance of brokers in other European countries.

Sinabell: Beside the new EU directive I think business will stay local, due to the necessity to be near to the risk and give a local service.

Riehl: Within the EU, freedom of service implies that the provision of broking services by a UK broker to a German insurer should be possible.

The only real problems are logistics and familiarity with what local clients want. Most German insureds want German language policies and people to call in their own country who understand the characteristics of the German market and the way German legislation is interpreted.

Niblett: It is unlikely that a UK client is going to ask us to place their business in our market after 2005. We do not have anything special to offer because our market is going to be dominated by the same European insurers operating in the UK, supported by the same reinsurers. The trend is for private and small commercial businesses to go direct, leaving brokers to service the medium and large domestic client. The foreign enterprises operating in Portugal will increasingly have their insurances placed centrally in their country of origin, leaving only motor and WCA to be placed locally.

Finch: Brokers across the EU are facing similar issues with differences often due to the maturity of our respective markets. An alarming thought from my point of view as a UK broker, however, is that this forum was conducted entirely in English and apart from Bill Niblett and myself, all the other participants were speaking in a second language.

WHICH MEMBERS OF THE WORLDWIDE BROKER NETWORK TOOK PART?

Bernard Brousse, Dujardin Assurances, France

Alec Finch Alec Finch & Co, England

Leo Liinamaa First Brokers, Finland

Bill Niblett, Mediain Corretages de Seguros, Portugal

Yvonne Pramert Factor, Sweden

Reinhard Riehl, Sudvers Gruppe, Germany

Michel Schaft, Meijers Assurantien, Netherlands

Christian Sinabell, Internationale Versicherungsmakler Kiefhaber, Austria.