The consequences of net quoting in the Nordics – a lesson for other markets?

Erik Borjesson

Erik Borjesson

The Nordic insurance market has adapted well to the shift from broker commissions to fees. By Erik Börjesson

Traditionally, the Nordic insurance market had relatively low broker involvement. Over the last 25 years however, brokers have increased their operations, and all the major broking houses now have operations in the Nordic countries.

This increase in broker activity changed the tradition of direct contact between the insurer and the insured. Their entrance led to huge opportunities for international insurers with no local representation.

Between 1990 and 2000, the brokers also began to focus more on mid-sized clients and SMEs. Local carriers became concerned, as not only did they lose market share but the roles of the parties and their remuneration came under the spotlight.

The main concern was how a broker could represent an insured when paid by the insurer. This is an obvious and natural question in the transparent Nordic business environment.

In early 2000, a number of Nordic local insurers stopped paying commissions to brokers, forcing the brokers to negotiate a fee for their services with the clients.

Subsequently, the regulators supported the initiative, and we now have the following situation:

  • Finland – an absolute ban of commissions by law.
  • Norway and Denmark – a ban on commissions with exception for “large risks” defined as major accounts, marine, energy, aviation and reinsurance.
  • Sweden – a market agreement among carriers to not pay commissions. A regulatory ban was discussed but after consideration it appears that there will be a demand for full transparency.


One implication of the absolute ban on commissions in Finland has been that the broker-transacted share of all property-casualty premiums has fallen from 14 per cent to 7 per cent over four years.

The other countries did not see the same change. When fee agreements were introduced, however, brokers’ revenues per client fell substantially with the introduction of the net quoting.  Service agreements were also extended.

To replace the lost income, competition increased, which resulted in even lower fees for the brokers. Next, brokers began to aggressively recruit teams from each other, which led to higher salary costs. The result was a downward spiral over several years as the new teams competed to win back their old portfolios by decreasing fees and extending services levels.

Results for the big brokers decreased dramatically, but have since stabilised on lower levels. Overall, the local insurance market has protected the mid-sized and SME business from heavier broker involvement and also from competition from international carriers.

Finland’s absolute ban of commission has led to a significantly lower share of business transacted by brokers. We also see a consolidation of the insurance market with three carriers now handling approximately 90 per cent of the market and very limited success for the international carriers.

Other Nordic countries have developed differently. In summary we can see the following:

1)    Increased clarity on the roles of the parties and who they represent
2)    Lower fees than the original amount of commission
3)    Better defined service level agreements
4)    Lower profit margins for the brokers
5)    Higher staff turnover
6)    Establishment of agencies by intermediaries or sister organisations
7)    Brokers starting to build portfolios of similar risks to use buying power

The shift from commissions to fees has worked well in general for the local insurance market, even if the brokers have struggled to keep up profit levels. One of the main advantages for the whole market is clarity over who the broker represents and more detailed service level agreements.

For the insured, it is important to follow this evolution carefully to secure a wide and lively competition and avoid consolidation. At the same time, companies should avoid overuse of the market situation to push fees too low as this can lead to poor service and less skilled consultants.

From a helicopter perspective, the most dynamic market conditions seem to be in Sweden. The parties are free to agree on how to remunerate a broker, but it is very transparent. This has solved the question of who the broker represents without decreasing competition.

Erik Börjesson is Lloyd’s Nordic Area Manager.


Fredrik Finnman

Fredrik Finnman

Fredrik Finnman
Group risk & insurance manager at ASSA ABLOY
President of SWERMA

When introduced, net quoting was an important reform on the non-life market in Sweden. This provided for transparency and lowered costs for insurance buyers. Prior to the reform, the buyer often did not know the actual cost of the broker services. Apart from the risk of unreasonable commissions and margins for the brokers, one could question whether the broker actually represented the insured.

Brokers play an important role by opening up the international insurance market, thus increasing competition to the benefit of the buyers. They also provide for services that normally cannot be provided for within the insured’s organisation. Broker fees in Sweden are kept at a reasonable level today but it is also in the buyers’ interest that the margin provides for professional service and isn’t pushed too low.