Who Gets the Customer: Channel Conflict in SME Commercial Lines

Start with the economics, because the broker's book is genuinely good. At a 44% loss ratio, even with commission of around 15% and expenses near 12%, the broker book contributes roughly 71 paise of cost per rupee of premium. The direct channel at 79% loss ratio plus 12% expenses runs near 91%. Per rupee of premium, the broker book is the more profitable business - and it is 42% of the segment.

But both demands are bad value in their current form:

• Three-year exclusivity on a package product removes the insurer's ability to serve other segments through agents, IMFs and direct. The broker places 30% of its business with competitors, so it is not offering loyalty in return - it is asking for a lock on a product while keeping its own options open.
• A most-favoured-customer clause is effectively a price floor across the market. It would stop the insurer serving price-sensitive micro-shops whose only viable channel is direct, and it converts a commercial negotiation into a restriction on how the insurer prices for everyone else. Price differences that reflect real differences in cost-to-serve and advice are legitimate; a parity clause set by one distributor is not.

Counter-offer: no exclusivity, no price parity. Instead: enhanced service levels (quote turnaround, delegated underwriting limits for this broker's risk classes), a bespoke variant of the package product for its segment - for example, differing deductibles or extensions - and a volume-and-loss-ratio bonus paid on results. Offer a two-year term, not three, with performance conditions. That gives the broker something its competitors do not have without handing over the pricing pen.

Diagnose before defending. The agents' grievance is legitimate if customers in their book were routed to a cheaper direct quote without the agent being told or the customer being informed that buying direct changes who services them. Renewal commission is normally payable to the agent of record, and a book that quietly migrates to a cheaper channel looks like the insurer competing with its own distribution force.

But the direct channel's 79% loss ratio is the clue. Renewals that migrate to the cheapest channel are often the ones being re-underwritten or the ones where cover needs have changed - adverse selection follows price-led migration. So the insurer is acquiring worse business while damaging agent relations.

Fixes:

1. Rules of engagement. Flag agent-of-record business in the website and call-centre systems. A renewal within an active agent's book should be routed to the agent, or the customer told clearly that direct purchase removes agent servicing and is not the same proposition.
2. Pay for servicing, not for the accident of the channel. Renewal commission follows genuine servicing of the policy; a purely migrated renewal does not generate a windfall to the direct channel either.
3. Communicate openly. Tell agents what the rule is, publish it, and provide an escalation route when a renewal is misrouted. Silence is what turns a pricing decision into a trust crisis.
4. Price honestly. If direct is cheaper because it carries no commission, say so - and underwrite the risk on its own merits rather than inheriting a 79% loss ratio through price-led migration.

Segment by customer need and risk complexity, not by which channel shouts loudest.

Segmentation:

• Micro-shops and standard risks - direct, agents with digital support, IMFs. Standard product, price-led, low advice need.
• Mid-market and bespoke risks - brokers, with delegated authority where the loss ratio supports it and dedicated service levels. Advice and claims advocacy are the value here, and the broker's 44% loss ratio earns it more influence, not exclusivity.

The same risk should not be priced differently without a cost-to-serve justification that is disclosed and consistently applied - otherwise the insurer is running an arbitrage between its own channels.

Remuneration aligned to outcomes: commission plus a performance element tied to loss ratio and retention for every channel, brokers included. The broker's bonus should reflect its 44% loss ratio, not the size of its demand.

Governance: a standing channel-conflict forum with written rules of engagement covering lead ownership, agent-of-record protection, quote routing and escalation. Publish the rules to brokers and agents alike.

The test to apply to every channel decision: does it grow profitable premium and keep the customer properly served? Exclusivity and price-parity clauses fail that test because they protect a distributor's position rather than the customer's outcome. Bespoke product, service levels and results-linked pay pass it.