Insurance brokers' late lesson

By ANTHONY HILTON FOR MAILONLINE
Updated:

 

THE insurance broking sector awoke again today to the crunch of changing gears. This time, though, it was not a company trying to go into reverse to distance itself from the industrywide practice of market service agreements - the polite term for the kickbacks from insurance companies that have come to form such a large part of insurance brokers' profits.

Rather, it was a smooth double de-clutch from Heath Lambert, which announced it will continue to collect the money but tell everyone it is doing so, standardise the process and give it a new name.

Henceforth, Heath Lambert will collect just 1% under what it will call a Broker Insurer Service Charge to reflect the fact these payments came into existence originally as a way for companies to reimburse brokers for the back-office administration the brokers did on their behalf.

Heath Lambert has also tried to distance itself from the much higher agreements some brokers still have with companies, along with the dubious practice of contingent commissions under which the more business a broker directs to a company, the bigger the return payment from company to broker.

Neither position is acceptable, Heath Lambert says. The pity is that it has taken New York Attorney General Eliot Spitzer's attacks on the industry in the US to make firms here acknowledge even the possibility of a conflict of interest in what they do.

Morrisons mess

IT WAS Peter Drucker, the management guru, who observed the first rule in any corporate disaster is to find a scapegoat. Thus it seems to be at supermarkets chain Wm Morrison where, if the Sunday papers are right, finance director Martin Ackroyd is about to get the boot.

He allegedly failed to pick up on a difference between the way the group's recent acquisition, Safeway, differed in its treatment of supplier discounts from the way Morrison accounted for them and the result was a shortfall of sufficient scale to cause a profits warning - the second in just a few months.

This may be part of the reason why Morrisons is struggling with Safeway, but it seems pretty shoddy treatment of someone who has served the company loyally and, thus far, without any reason to doubt his ability. It is hard to believe other than that he has been made the fall guy as a public relations exercise designed to take the heat off chief executive Sir Ken Morrison and to appease City fund managers whose judgment has been shown to be wrong and who also want someone on to whom to lay the blame when they are called to account by their clients.

Behind this shabby charade there is a simple enough story. The supermarkets business is fiercely competitive, integrating businesses is time consuming, distracting and difficult and things are likely to go wrong when you try.

It is not the end of the world, rather it is confirmation that Sir Ken does not walk on water. Why his finance director should lose his job because of that is a mystery.

Housing hope

THE Council of Mortgage Lenders says the number of mortgage completions in February was 59,000, the lowest since it started collecting statistics seven years ago. The amount lent was 28% lower than a year ago, before the sharp slowdown in prices.

Most home owners should take comfort from these figures. There is clearly a dearth of demand, with new buyers holding off until they can form a clearer view on whether interest rates have peaked and prices have stopped falling. The comfort for those who already own their homes is that it would have been quite easy for prices to fall a lot further than they have, and what the resilience of the market tells us is that the chances of a major crash are diminishing with each month that goes by.

The overall strength of the economy and the absence of unemployment is supporting the market because it means there are few forced sellers ready to take any price they can get. In addition, people are either not putting their homes on the market at what they think are temporarily depressed prices or are prepared to wait months for an offer close to their asking price.

It is a much calmer market than last time round when banks and building societies made a bad situation much worse because they would foreclose on home owners then dump the properties on the market for what they could get. The fact that they too have learned from past mistakes is another reason to hope we may fare better this time.

• Anthony Hilton is the Evening Standard Financial Editor

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