Consequences of the commission ban in the
Norwegian insurance market
Ståle Frausing – Head of Broker & International Dept.
Oslo, 22. June 2011
Vital
- part of DnB NOR, Norway’s leading Bank
Pre-tax operating profit before write-downs
NOK million
The DnB NOR Group's market capitalisation
NOK billion
25,000
150
18,717
20,000
21,081
120
133
118
111
102
15,627
15,000
90
10,000
60
36
5,000
30
0
2008
•
•
•
•
•
2009
2010
0
31 Dec.
2006
2.300.000 retail bank customers
200.000 corporate clients
Market leader in all main segments
11.000 employees in Norway and 3.000 abroad
Specialized in Shipping, Energy and Sea-food abroad
* 1EUR=8NOK, 1USD=5,5NOK, 1GPB=9NOK
31 Dec.
2007
31 Dec.
2008
31 Dec.
2009
31 Dec.
2010
Vital
•Norway’s largest provider of individual
and group life insurance and pension
savings
•Life insurance
– 1 million retail customers
– 26 000 agreements with companies,
municipalities and public enterprises
Our marketplace
- Brokers operate solely in corporate market
• Personnel insurance
> Workman Compensation, mandatory covers paid by
employer
> Group Life, standard cover in most industries
> Limited demand for Health-Insurance
• Disability & Old Age Pension
> 1 million Individuals in minimum mandatory DC-scheme
• > 1 million Individuals in medium/high-contribution
DC-schemes or DB-schemes,
Disability-cover is normally included.
Insurance brokers in Vital
• 35% of the pension market and 60% of
personal insurance is covered by brokers
• Vital is doing business with 23 brokers of
which “the big 4” represents 80%
of the volume
• The 3 largest brokers are international:
AON, Willis and Mercer
• Commission-ban was introduced in Norway
in 2004 for non-life insurance and in 2007
for life-and pension-insurance.
Consequences of the commission ban
Providers introduced a 2-price system
-Broker’s customers received a rebate representing
provider's lower cost of service
Brokers started to bill their customers for their services
- brokers' loyalty shifted from the provider to the
customer
- increased competition between brokers focusing on
brokers ability to
- give administrative relief for customers
- consulting in connection with customers EB
program
- achieve lower prices
Brokers' business model - professionalism
Commision ban has not yet led to structural changes in the industry, but the business
models has been greatly professionalized
• Several firms focuses less on day-to-day value chain and more at high-valueconsulting:
- running tenders
- renegotiates rates
- adapt and change pension plans, such as the transition from DB to DC
• Billing Models:
a) Basic solutions covering access / x-consulting hours + tender every x year
b) Basic solutions + separate pricing of transformation from DB to DC, change and
tender
c) Basic + profit-share linked to price decrease
Most brokers have managed this adaptation in a good way. AON delivered a very
good 2010 with 20% profit margin.
Vital customers:
What matters most to your business when choosing a
pension provider?
150+ employees
good prices
Gode priser
44 %
13 %
11 %
16 %
Nevnt
som viktigtste
mentioned
# 1 important
mentioned
# 2 important
Nevnt
som nest viktigste
mentioned
3 important
Nevnt
som tredje#
viktigste
mentioned
4 important
Nevnt
som fjerde#
viktigste
good return
on assets
under
God avkastning
mgt.
19 %
good advice &
God rådgivning
consulting
Effektiv
efficient
kundebetjening
customer service
23 %
16 %
8%
0%
20 %
25 %
22 %
22 %
27 %
23 %
16 %
28 %
10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 %
År
2010
150+
59
Consequences
For customers:
• The former brokers were well paid in the form of comission from suppliers
without necessarily doing a good job for the customer.
• Now we have brokers working for the customers and they are depending
of showing their value - otherwise they will loose the client to other
brokers.
- better consulting
- lower cost of pension and personnel insurance
For providers:
• Previously, we lived well in a sheltered competitive climate.
• Today we are experiencing very strong competition where the market is
highly price focused as a result of the brokers need to show value to his
client.
- pressure on margins / pricetariffs / underwriting
- need to cut costs to maintain earnings
Thank you!