The pressure to make a profit is creating divisions in the PMI sector that are pitting broker against broker, and in some cases even insurer against broker.
Currently no PMI insurer is getting an adequate return in profit, because of both cost pressures and high levels of claims, which are only going to get worse as funding for the NHS declines in real terms through this Parliament.
As a result of this pressure, insurers are seeking to use selected brokers to distribute volume, and give them advantages in the form of more rapid response to quotation turnaround times and commission enhancements. The practise was ably described by my friend Colin Boxall in this column last month.
Whilst I understand this commercial necessity, this practice is causing divisions within the broking community, introducing an element of dual pricing by default, with the larger specialist intermediaries having an advantage.
How this advantages or disadvantages the client, I will leave you the reader to decide, but I believe there are factors for the regulator to consider with regard to treating customers fairly. I fully understand the commercial pressures of this situation for both the insurers and brokers as I am one myself, because as we all know, it is really tough out there commercially at the moment.
Whilst I can accept this polarising of brokers by insurers, based on their distribution capabilities, what I cannot accept is where insurers have a direct channel or even worse, a directly owned sales force which also acts as a multi-tie broker.
In this situation, you can have different premiums from an insurer for the same risk in the broker market and the multi-tie distribution force for what is essentially the same product. This makes a total mockery of what we are trying to do when giving independent advice, and confuses the client.
This dual pricing results in total dissatisfaction for the client when the lower price is suddenly withdrawn from the market, or causes confusion where the broking price is lowered to match the multi-tie one. Such a farcical situation does not do our industry credit. I know of one AMII member whose price for a piece of business through an insurer was double the premium for the same risk offered through a multi-tie.
This begs the question whether insurers should align themselves with direct distribution or intermediated only. I believe there is a case for insurers to do only one or the other.
In the last couple of months we have seen a genuine shift to intermediated advice with many of the major insurers taking the difficult commercial decision to close down their direct external sales forces. This is a move that I fully support.
Of course I have some sympathy for the mainly self-employed people who find themselves unable to earn a living, but the move reflects the reality that PMI should be a whole of market advised sale owing to its complicated and serious nature. Therefore I applaud both Aviva and Bupa for taking the decisions they have.
Many of these previously direct channel advisers, who are well trained and well educated have found a warm welcome within brokers who have long been starved of new talent to supplement their sales teams.
Yes there are special commission deals in the market and you will never be able to stop these because size is important, but like in anything else in life, it is how you use that advantage
Conversely, at this time of almost revolutionary shifts in the distribution model, one major insurer who always criticised those insurers with direct sales arms has now gone completely the other way and decided to develop a direct sales force model.
I have always asked myself why the PMI industry has not followed other sectors within general insurance by adopting a level commission model, as this would help alleviate to some extent the issues of broker on broker contact at renewal and some of the less salubrious elements as mentioned by Colin Boxall in this column last month.
Yes there are special commission deals in the market and you will never be able to stop these because size is important, but like in anything else in life, it is how you use that advantage.
We have seen a gentle drift in group PMI to the level commission model, albeit with steps, as introduced by Bupa, and now latterly Pru Health. The adoption of level commission over the next couple of years is both inevitable and desirable. Level commissions do not mean every broker will receive the same amount as that would be commercially unwise but they would, over the medium term serve insurers and brokers better, and that would be an advantage for the client.