Costs squeeze to hit brokers

Insurance brokers could lose out next year as life companies become increasingly concerned about the cost of distribution through…

Insurance brokers could lose out next year as life companies become increasingly concerned about the cost of distribution through the broker channel. Smaller brokers selling straightforward savings and investment products are most likely to suffer.

Irish Life & Permanent may move quickly next year to mobilise its new TSB branch network as well as the Internet to sell some life assurance products more profitably. The broker channel is expected to remain important to IL&P for some categories of business.

Some life companies privately contend that the division of profits on life assurance business between life companies and brokers is too much in brokers' favour.

They complain product distribution costs on broker business are disproportionately high compared with business generated through company owned bank branches.

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One source suggested distribution through bank branches was about eight to nine times more profitable than through brokers. The costs of selling through brokers include commissions, other rewards and servicing brokers and their clients.

IL&P's chief executive, Mr David Went, recently indicated that his company cannot sell some of its products through the broker channel because brokers feel they don't get enough for it.

Some companies are confident Internet services can be developed to cut the cost of servicing brokers, but when most life companies still depend on brokers for a sizeable proportion of their business, they are reluctant to go on the record.

"The broker market is just one big popularity contest and the winners are the companies who offer the best commissions and other rewards," one source said. "Brokers have disproportionate bargaining power. The only way we can change it is to expand other distribution channels."