Dual pricing for risks by insurers…
Thursday, 9 April, 2009 Leave a comment
Dual pricing results in increased costs for both broker and insurer!
I have recently been asked to comment upon insurers whose rates for new business differ substantially from those charged on business that they already hold. Apart from discouraging loyalty it positively encourages "promiscuity" amongst clients who are, otherwise, content with the cover and service they already receive from their broker/insurer.
Any additional income secured will be the "icing on the cake" of a period during which the worst offenders have failed to invest in improving service and/or products. Preferring to increase commissions and reduce rating to unsustainable levels. All this to the detriment of insurers whose commissions have remained at sustainable levels, underwriting discipline has, to a large extent, been maintained and whose service and product propositions offer more stable solutions to both broker and client.
It is a business strategy based upon quantity (turnover – vanity) rather than underwriting quality (profit – sanity).
We all know how, similarly motivated, abandonment of good governance by our banks (for similar reasons) has affected each of us and UK plc.
Many brokers, faced with intense “price-driven” competition in recent years, have unwittingly endorsed this strategy in an effort to retain their clients. Often brokers have had to compromise established, stable, tripartite (client – broker – insurer) relationships that offer genuine client VALUE through sustainable rating. If the relationship, cover and service are unaffected and clients enjoy a short term saving the true cost only becomes apparent when clients are faced with premium increases. Coming at a time when businesses are suffering in a recession and they are least able to afford it.
For as long as we fail to advise our clients of the pitfalls of pursuing the cheapest premium year-on-year we are doing our clients and ourselves a great disservice.
Those of us who still harbour aspirations that broking may be perceived as a “profession” cannot, realistically, expect any change whilst we, effectively, endorse strategies that do such substantial reputational damage to an entire industry.
Fears of insurer reaction, resistance to change or inability to interpret the “big picture”, lack of resource, etc. are all factors but broker inertia is also a factor.
Brokers MUST recognise the strain that dual pricing places upon the broker/client relationship. Particularly in these difficult economic times. If this is what insurers peddle as a means for brokers to "exploit opportunities for new business in a tough climate" then I, for one, despair!
I feel strongly that any right-minded person cannot sit idly by when we have seen the evidence and are collectively paying the price of the worst excesses of institutional greed and ego that have, so recently, been laid bare.
Take a look at this spreadsheet to get some idea of the cost to your business:
Figures are purely for illustration purposes so that brokers can give more careful consideration to their current and future strategy with regard to best use of their staff resource. Do not include the additional costs and expenses incurred by insurers.