Does ownership equal control of distribution?

Chris Hanks, General manager commercial, Allianz

The battle to secure commercial insurance has taken on new impetus and insurers are deciding what strategies will win and what it will cost.

At the core of commercial is expert assessment of individual risk, independent advice and placement. The market is dominated by independent brokers. Change any of those and the market dynamics change.

There will be migration of small to medium-sized enterprise business to direct sales. However, most research shows businesses still want professional advice. That means a strong and continuing role for brokers. Many struggle to see long term economic benefit from small business but the rapid development of e-trading should resolve that.

Commercial business insurers are considering how best to have certainty of distributing their products. Three models are emerging:

- Own the distribution: will this secure distribution or undermine the independent franchise?

To protect the independent franchise, brokers owned by insurers have to demonstrate no conflict of interest or diversion of business to their owner. This may be impossible as the leaders of the broking unit will be privy to the insurers strategy, part of their leadership team and have the same boss.

Insurer-owned distributors may have to choose between diverting business to their parent insurer, destroying the independent franchise or accepting that ownership is just a stake in a business and distribution is not secured.

- Invest in the independent franchise: how this is best achieved depends on the needs of each independent. The nationals can make their own running.

For provincials and consolidators, assistance can range from better/exclusive products and loans through to limited equity stakes to release value without affecting independence.

This requires working in partnership and insurers can trade strongly with the independents but cannot claim to have secured distribution.

- Multi-tied: this is emerging and providing an element of choice and competition but from limited carriers. This justifies higher remuneration as there is less work and more certainty for the insurer.

This demands independence of ownership but may be a short step for insurers to have an equity stake.

The current Commercial model of many Insurers independent of many Intermediaries who are independently owned, is changing. Each new model has challenges but the future has yet to unfold to declare which mix of models will prove successful.