Between a rock and a hard place

Being an insurance chief executive is not a fun job - just as one headache goes away, another three come along. As the weather has finally improved the economy turns sour, hurting investment incomes across the board while, at the same time, the consolidators demand more commission and the competition heats up, putting pressure on rates.

Igal Mayer, chief executive of Norwich Union, believes that raising insurance premiums is now vital and his firm has had some success. Announcing his firm's half-year results, Mayer told PB that there would be no backlash against premiums rising as, out of the total number of bills for companies and people, insurance is "modestly priced" and good value. However, he cautioned that anything over a double-digit increase would see brokers "struggling".

In addition to premiums, Mayer is tackling rising commissions and is advocating an acceptable level of 20%, citing that he has a problem in spending up to 50p in every pound on commissions and costs; of course, there will still be the usual special deals. Axa's new chief executive, Philippe Maso, agrees with Mayer in principle and told PB recently about his rejection of one consolidator's demand for 40% commission. NU's latest results show the challenges: profits were up at £305m (2007: £269m) but this includes £160m of reserve releases when weather-related losses had improved by £235m, showing just how much margins are being squeezed by claims inflation and commission hikes.

Mayer has been decisive with his plans to reduce costs (£150m of savings by 2010 and 1,800 job cuts) and he appears equally determined to keep commissions under control.

However, to a certain extent the economy is forcing his hand as investment income becomes more volatile. The question still remains: if premiums were at a sensible level to begin with, would Mayer and Maso feel so threatened by the demands of the consolidators?