June 22, 2001 – Over the next four years distribution channels of commercial insurance
will change dramatically, undergo rapid consolidation, and will see larger provincial brokers expanding rapidly
through acquisition, research published by Cap Gemini Ernst & Young concluded today. The research, carried out
amongst leading insurers, looked at current and future distribution patterns of commercial insurance, in
particular in the Small and Medium Enterprise market.

Andy Baldwin, Vice President with Cap Gemini Ernst & Young’s Insurance Industry sector commented:
“Competitive pressures, succession issues, rising costs and the need to invest in new technology to reduce
cost will drive smaller, more inefficient brokers out of business. Within the overall market, brokers will
continue to dominate distribution but the size, scale and capabilities of individual brokers will increase within
the SME market new channels such as Affinity, Direct, Bancassurers will exapnd to account for 32% of the

The research concluded that for the first time, the major Commercial Insurers will need to develop
true “multi distribution” strategies to ensure they are positioned to take advantage of the emerging

Andy Baldwin continued: “Few commercial insurers in the UK have the necessary CRM skills
(e.g. marketing, data mining, technology) to exploit the future opportunities, but the high street banks are
ideally placed to secure more SME business as many of the ‘local brokers’ are absorbed into larger companies,
although to date many have failed to make inroads into the SME market.”

According to the research, on the commercial insurance market:

In 1999 88% of the market was controlled by brokers with a bias towards the major international
and national brokers, as well as the top 600 major regional and provincial brokers;
Over the next four years distribution of commercial insurance will consolidate rapidly but remain concentrated
with brokers.
“Tier 1 brokers”, ie the top 200 provincial brokers, will expand rapidly through acquisition.
The direct players will grow as a channel, mainly through SME business.

On commercial insurance in the SME market generally:

Brokers do not control the market to the same degree as the overall market, but have expanded
since 1995 – in 1999, 73% of the SME market was controlled by brokers, compared to 88% for the CI market as
a whole. Nationals have a low market share, having traditionally focused on larger risks. They are now focusing
on SME business, which offers them a route for expansion
Tier 1 and Tier 2 market share has increased in line with the overall market as they acquire smaller operators
Direct channels have a larger share of the SME market than the overall market, but has contracted since 1995 as
traditional branch direct business runs off.
By 2003 broker control over the SME market will reduce to 68% as direct, affinity and bancassurer propositions
are developed. Tier 1 brokers (the top 200 provincial brokers) will continue to increase their market share
at the expense of Tier 2.

Explaining the concentration, Mr Baldwin said: “There are a number of factors which will
play a role, including the expansion of larger brokers through acquisition of smaller ones and the fact that
direct distribution, as well as bancassurance and affinity distribution, will increase.”

He concluded: “Technology, though, is the key factor for the SME market, with remote sales
increasing across all channels, both in terms of call-centre and internet activity. However, the success of
industry e-initiatives may slow the broker consolidation in selected segments.”