The authorised representative (AR) sector of broking is going through rationalisation, says Westcourt founder Jeff Hollands, who last week sold the company to IAG.

He says some AR companies are “too skinny and we wonder how some of them survive”.

As reported by insuranceNEWS.com.au in a Breaking News bulletin on Friday, Mr Hollands and co-director Tremayne West sold the operation on Thursday.

The Perth-based AR group will eventually be integrated with IAG’s National Adviser Services (NAS), but Mr Hollands told insuranceNEWS.com.au “nothing will change [for Westcourt ARs] for the next 12 months at least”.

Westcourt’s businesses are primarily based in metropolitan centres, while NAS is among the largest rural and regional general insurance brokers in Australia.

IAG says once the integration is complete NAS will be the largest AR group in the country. “The acquisition… will strengthen IAG’s presence in the growing broker AR market.”

Australian Business Division CEO Ben Bessell says Westcourt is “a compelling strategic fit” for IAG. “It makes sense to look for ways to grow and enhance our existing offering.

“As a business, it’s important to continue to look for ways to respond to changing customer needs, and this is a great example of doing just that.”

Mr Hollands told insuranceNEWS.com.au he was approached by IAG last December, and signing the final sale documents late on Thursday night left him “sad but excited”.

In a note to Westcourt ARs on Friday afternoon, he says the AR market “is going through a lot of change [and] this move ensures you are dealing with a large, strong and secure licensee”.

He says the combined business will leverage the size and scale of existing businesses and enhance ARs’ opportunities in many areas, including buying power, technology, training and development, insurer relationships, marketing and sales.

Mr Hollands will continue to run Westcourt “for at least the next 12 months” as National Manager Network Relationships.

IAG says Mr West, a former Allianz executive who bought into Westcourt last year, “has declined the opportunity to participate in the new company and has decided to leave the business to pursue other business opportunities, effective immediately”.

AR group executives contacted by insuranceNEWS.com.au for comment say they agree that rationalisation in the sector is inevitable.

“The fees being charged by some groups to attract brokers aren’t sustainable,” one executive said. “Competition is driving down fees, and there’s quite a bit of ‘churn’ going on.”

They say ARs are usually only bound by 90-day agreements, and many smaller ARs are willing to move to secure lower fees.

“You can’t sustain a business on fees of about 6%, which is what some ARs expect,” one executive told insuranceNEWS.com.au. “To run an efficient, reliable and compliant company the level for smaller ARs should be around 20%.”

The recent collapse of Perth AR group Winley Insurance – which charged its ARs very low fees and had a minimal support structure – is also forcing insurers to be more cautious about who they do business with.

The insurers and Winley ARs are believed to have lost more than $7 million when two investors in the company stole premium money from its broker trust fund.