Buying back the farm: distribution in the 21st century
Underwriters and intermediaries have been jostling for distribution dominance since the industry grew out of short pants after the removal of the tariff system in the early 1980s.
Stardex CEO Bob Lee told last week’s ANZIIF breakfast seminar many former underwriters set up shop as brokers in the early 1980s, armed with books of business provided by insurers.
“Insurers gave away the farm, have been rueing it for some time and are working out clever strategies for buying it back from brokers,” he said.
Macquarie Premium Funding MD Gary Seymour says consumer choice was also behind the rise of brokers in the early 1980s. “Perhaps the farm wasn’t given away,” Mr Seymour said. “Perhaps it was taken away as clients wanted advocacy.”
Brokers now control an estimated 75-85% of the commercial market (depending on who you’re talking to), but less than a fifth of the personal lines market.
Mr Lee says the market is “delicately poised right now” as the industry sees whether QBE succeeds with its offer for IAG.
If the merger goes ahead, Calliden CEO Nick Kirk reckons tied agents will enjoy a renaissance as insurers start buying into the broking channel to shore up their margins.
But he’s relaxed about the long-term future for brokers, as the entrepreneurial spirit is not easily quenched. “Major financial institutions owning successful entrepreneurial organisations is not successful in the long term,” Mr Kirk said.
CGU CEO Duncan West says it’s “70/30 likely” the power balance between brokers and insurers will be maintained.
And even if the status quo is disrupted by a “sheep-like rush” to acquire distribution channels, Mr West reckons the needs of consumers will ensure brokers are an integral part of the future insurance landscape.
But Mr Lee says insurers are likely to acquire distribution channels if brokers “continue to leverage their buying power” – much as in the UK, where Aviva has taken a stand against the commission levels charged by powerful consolidators such as Towergate.
As well as consolidators, the UK insurance landscape is dominated by online aggregators and affinity tie-ins. Could it happen here?
Mr Lee thinks so. He says big banks will undoubtedly start to look at leveraging their brand awareness to create affinity deals. And of course Wesfarmers waits in the wings, with its vast Coles and Bunnings customer bases as yet untapped.
Meanwhile, in the US and Europe tied agents hold sway, offering policies from a single insurer. Mr Kelly says Australian consumers are unlikely to embrace the concept of tied agents as they “are so keen on choice”.
But Aon Australia CEO Steve Nevett cautions that consumers are increasingly looking for insurers and brokers to cut through the chaff and simplify the buying process. “Do buyers want endless choice? Too much choice can get confusing.”
Examples of this include websites such as Budget Direct and AAMI’s bingle.com.au, which have gained market traction by freeing consumers from the burden of choice.
The losers in the 21st century distribution game will be those who fail to predict consumer behaviour and stick with old-fashioned methods such as TV ads, while the winners will be the more nimble brokers, cluster groups and insurers who use their entrepreneurial energy and buying power to start aggregator sites and harness the power of the internet.
Stardex CEO Bob Lee told last week’s ANZIIF breakfast seminar many former underwriters set up shop as brokers in the early 1980s, armed with books of business provided by insurers.
“Insurers gave away the farm, have been rueing it for some time and are working out clever strategies for buying it back from brokers,” he said.
Macquarie Premium Funding MD Gary Seymour says consumer choice was also behind the rise of brokers in the early 1980s. “Perhaps the farm wasn’t given away,” Mr Seymour said. “Perhaps it was taken away as clients wanted advocacy.”
Brokers now control an estimated 75-85% of the commercial market (depending on who you’re talking to), but less than a fifth of the personal lines market.
Mr Lee says the market is “delicately poised right now” as the industry sees whether QBE succeeds with its offer for IAG.
If the merger goes ahead, Calliden CEO Nick Kirk reckons tied agents will enjoy a renaissance as insurers start buying into the broking channel to shore up their margins.
But he’s relaxed about the long-term future for brokers, as the entrepreneurial spirit is not easily quenched. “Major financial institutions owning successful entrepreneurial organisations is not successful in the long term,” Mr Kirk said.
CGU CEO Duncan West says it’s “70/30 likely” the power balance between brokers and insurers will be maintained.
And even if the status quo is disrupted by a “sheep-like rush” to acquire distribution channels, Mr West reckons the needs of consumers will ensure brokers are an integral part of the future insurance landscape.
But Mr Lee says insurers are likely to acquire distribution channels if brokers “continue to leverage their buying power” – much as in the UK, where Aviva has taken a stand against the commission levels charged by powerful consolidators such as Towergate.
As well as consolidators, the UK insurance landscape is dominated by online aggregators and affinity tie-ins. Could it happen here?
Mr Lee thinks so. He says big banks will undoubtedly start to look at leveraging their brand awareness to create affinity deals. And of course Wesfarmers waits in the wings, with its vast Coles and Bunnings customer bases as yet untapped.
Meanwhile, in the US and Europe tied agents hold sway, offering policies from a single insurer. Mr Kelly says Australian consumers are unlikely to embrace the concept of tied agents as they “are so keen on choice”.
But Aon Australia CEO Steve Nevett cautions that consumers are increasingly looking for insurers and brokers to cut through the chaff and simplify the buying process. “Do buyers want endless choice? Too much choice can get confusing.”
Examples of this include websites such as Budget Direct and AAMI’s bingle.com.au, which have gained market traction by freeing consumers from the burden of choice.
The losers in the 21st century distribution game will be those who fail to predict consumer behaviour and stick with old-fashioned methods such as TV ads, while the winners will be the more nimble brokers, cluster groups and insurers who use their entrepreneurial energy and buying power to start aggregator sites and harness the power of the internet.