A recent review by the European Commission is likely to have serious implications for insurance brokers across the EU including the UK. The new rules are likely to be signed into effect during 2013 and with the exception of life products (which have a 5 year grace period in the directive) all insurance products are likely to be affected immediately.
What are the big changes for brokers?
The biggest change is a new legal obligation. Brokers will have to disclose the commissions paid on their sales to their clients. The initial introduction period allows for this to be “on request” (e.g. if the client asks – you have to disclose) but the long-term arrangement is for this to be a standard.
Worse direct insurance underwriters will only have to disclose the variable portion of salary paid to staff whereas brokers are going to be required to disclose all earnings and costs. This leaves brokers in the high-commission/low-service arena particularly vulnerable to losing business.
In fact we suspect that this change is going to mean that coupled with a heavily increased reporting burden; brokers are going to have to run top to bottom process improvements within their business to remain competitive.
Another requirement of the framework is that all insurance products that are to be sold as part of a bundle must be identified as individual elements (as well as part of the bundle) and priced accordingly. That means brokers that rely on add-on elements of their offering to maintain margins are going to find themselves struggling as clients begin to opt out of these measures when confronted with a “mix and match” pricing scheme.
Finally, the rules make provision for an increased general reporting regime when compared to the current regime that brokers already have to comply with. This isn’t a minor annoyance as it is likely to add a substantial amount of administrative burden to broker’s costs at a time when the other rules begin to drag down profitability.
Which brokers are going to be best equipped to survive these measures?
We think that the brokers who already use automatic work flow and customer interaction tools are going to be in the best position when the rules start to take effect. Software suppliers are likely to move quickly to enable the additional reporting requirements and analysis of work flow is easier when using an automated platform – thus identifying process areas for streamlining.
Making a change once in the documentation and then being apply it to all new revenue streams at the touch of a button is perhaps the only way to stay ahead of the curve on this.