Getting off the ground

Simply having a great idea for a new scheme is not enough for it to succeed – you need a great pitch, persistence and impeccable market research too, as Sam Barrett discovers 

A successful scheme can bring significant benefits to brokers, insurers and customers year after year. But, putting together a compelling pitch and finding an insurer that will listen are essential, and sometimes tricky, first steps. 

Just how much work can be involved in this initial phase is highlighted by Simon Henderson, managing director of Darwin Clayton. He recently launched a scheme, Darwinsure, with Ageas to provide insurance to small businesses in sectors such as cleaning, electrical and IT. “You need to have a good idea but also a full business plan to show the insurer how it will operate,” he explains. “Most brokers pitching schemes find that a lot of the work takes place long before they’ve even written any business.”   

Scheme inspiration

Having a good idea is essential. With many scheme ideas a rehash of something that’s already out there, insurers are looking for something a little different. “There are thousands and thousands of niches out there,” says Karen Beales, managing director at UK General. “If a particular niche has the potential to be successful it doesn’t really matter if it’s large or small.”

A scheme idea can also be built around the ability to use information to improve underwriting. Simon Rhoades, underwriting manager at Bollington Underwriting, explains: “If we can use customer data to help assess risk and enable more accurate pricing, this is a big benefit. If this insight means that a scheme generates a reasonable volume of the right kind of business this is very attractive.” 

While designing a product around the needs of a specific marketplace is one way to put together a scheme, insurers will also look for new distribution methods. For example, when Henderson developed the Darwinsure scheme he knew that quick quote functionality was essential. “These businesses want a rough idea of cost quickly so we built this scheme around six simple ratings questions. Once they have an indicative figure they’re much happier to go through a more detailed application process,” he says. 

It’s not strictly necessary to have a completely new idea either. Henderson says that anything too innovative may even put some insurers off. “Insurers will look at it but, if it’s really new, it can be difficult to know how it will perform and that can make them nervous,” he explains.

A foot in the door? 

Finding an insurer to pitch your idea to is also important. Sometimes this will be down to existing contacts but, with any scheme idea, it’s important to identify appropriate insurers. Jeremy Butler, managing director of Qdos Broker and Underwriting Services, says: “It could be down to the insurer’s rating, their location, their reputation within the market or their appetite for schemes business.” 

He recommends attending events such as the British Insurance Brokers’ Association (Biba) conference as well as Broker Expo to build up contacts, discuss potential scheme opportunities and ascertain the insurers’ potential appetites.

Existing contacts are a bonus but it is possible to cold call insurers that might be suitable scheme partners. For example, Beales says she regularly receives enquiries through her marketing team regarding new scheme pitches. “If you’re passionate about your idea, I’d definitely recommend a bit of persistence,” she adds. 

As well as persistence, developing the perfect pitch is also important. While the number of successful schemes in the market is proof that some brokers get the process spot-on, Rhoades says that many pitch ideas very badly. “A broker might put together a pitch for a scheme for funeral directors on the back of the fact that they know one,” he says. “They’ll show the insurer a standard policy with some areas of cover removed and new ones added and tell them how many members are in the National Association of Funeral Directors. This isn’t ever going to seal the deal.”

Know your market

Instead, thorough research and a good understanding of the market are essential. “You need to be able to demonstrate an in-depth knowledge of your product and market,” says Butler. “The insurer will want to see that you’ve carried out market research and can evidence demand for the product.” 

For example, at UK General, Beales says that if a broker turns up with a decent idea but without sufficient research, she will tell them to come back when they’ve done it. “They need to carry out surveys and focus groups and speak to customers to demonstrate there’s a real need for the product. It’s not enough to point to another scheme; they could be copying a failure or the market might have moved on.”  

As well as demonstrating a need for the product, insurers also want to see that areas such as marketing and distribution have been considered and that the broker has weighed up the competition. But what’s particularly important is to be able to demonstrate the scheme will be profitable. “Adding bells and whistles isn’t enough,” says Rhoades. “You need to be able to show that it’s something the market will buy and it will make a good return.”  

It’s also good to have an idea of expectations on both sides of the partnership before negotiations get underway. For starters, long-term relationships are important for both parties. “We would look to sign deals for a minimum of five years,” says Henderson. “Building a scheme into our systems requires significant IT spend and we would also want to ensure continuity for our clients.” 

It’s also essential that the right framework is in place to ensure the scheme is sustainable. Often this comes down to data analysis, with brokers and insurers paying close attention to everything from conversion rates to claims and retention. “You need to constantly check the data to see how a scheme is performing so it can be adjusted if necessary,” adds Rhoades. “Insurers don’t always have the resources to carry out this insight so it will often fall to the broker. However, being on top of this data is often key to a successful, long-term relationship.” 

Spruce up your scheme

Underperforming or old and outdated schemes could benefit from a tidy up, or even a switch of insurer, but is it worth having a spring clean? Sam Barrett investigates

Time can take its toll on even the most successful of schemes, dragging down profits and sales. But while some schemes will reach their natural sell-by date, others can benefit from a fresh start with a new insurer. 

Although moving schemes doesn’t happen very often, Laura High, director at Yutree Insurance, says she constantly reviews the performance of her firm’s schemes. “Ensuring your schemes are with the right insurer can make a significant difference to their success,” she explains.”The relationship with the insurer is key to the scheme’s profitability.” 

Time for a change

All sorts of factors can affect this relationship and cause a scheme to lose its edge. The main reason is a change in the incumbent insurer’s appetite, strategy or service standards. It may be that the insurer has pulled out of a particular market or is no longer interested in schemes below a certain size. Similarly, if there’s demand from the customer base for a new type of cover and the insurer cannot meet this need, the broker may be forced to look elsewhere. 

Change can also be driven by a third party, especially where another insurer comes into the market offering more competitive terms. However, while higher commission rates may be on offer, it’s rare that this is a deciding factor for a move. “It’s much more about the right product proposition and relationship,” states Sara Simmons, head of high net worth and schemes at Covéa Insurance. “These will have a much greater influence on the sustainability and profitability of a scheme.” 

With schemes so dependent on the relationship between the broker and the insurer, changes in personnel can trigger a repitch. For example, it is not uncommon for schemes to follow the insurer contact when they go to work for a different company.  

Insurers are keen to avoid this though, as it can cause instability and affect service. “People do move on so it’s important to have as many touch points as possible,” says Darren Power, national schemes sales executive at Hiscox. “Our schemes team is made up of 19 people to ensure continuity of the relationship, whatever happens.” 

With so many factors potentially affecting the long-term profitability of a scheme, constantly reviewing the data is essential. Mike Owen, commercial director at Bluefin, says: “A scheme is no different to any other income line. You need to keep a close eye on how it’s performing and what you’d expect from a retention point of view. It’s also essential that you stay close to the customer base so you can respond to any changes in its requirements.”

As an example he points to some of the schemes his firm operates for the health and care sectors. To ensure these stay relevant to their customer bases, he has close connections with many of the trade associations in these sectors. “We also use social media to help us keep abreast of what’s happening in different sectors,” he adds. “It can be a great way to find out what a scheme’s customer base wants.”

A change for the better? 

Finding a new home for a scheme can bring a number of significant benefits. “It can have a massive impact on a scheme,” says High. “You might be able to add new areas of cover that the previous insurer couldn’t provide, improve service standards or develop a new marketing campaign based on the marketing and technical expertise the new insurer has to hand.”

As an example, Simmons says that many of the smaller brokers her company partners with take advantage of the access they’re given to the marketing team. This support includes advice on all aspects of marketing including social media as well as more traditional techniques.  “We also have an innovation team who will look at emerging risks or new developments. They will flag new areas up to our broker partners if they think their schemes would benefit,” she adds.  

Insurers are more than happy to take on an existing scheme too, providing the business case is still compelling. “It’ll take an initial investment in terms of resource, time and effort but a scheme that’s up and running will already have critical mass so it may be possible to explore new marketing and sales strategies,” explains Power.  

The use of technology for distribution is a good example of this. While a new, unproven scheme might not warrant the investment, technology could be introduced to a scheme that’s reached critical mass. This could reduce the costs and help it reach new markets.

But moving a scheme is not something that’s undertaken lightly. “It’s a big deal moving a scheme so we don’t tend to do it very often,” says High. “It’s much easier to make sure you have the right partner in the first place. This way you can constantly review the scheme, tweaking when necessary.” 

There’s certainly a lot more work required if you do need to move. Although the scheme may have been running for many years, you will still need to put together a pitch in exactly the same way as when you were first looking for a partner. This will have to show what the scheme will deliver and how sales trends are likely to change.   

Moving a scheme can also be extremely disruptive. “There can be a lot of upheaval from an internal processing point of view,” says Owen. “You might need to change systems or develop new ones to work with the insurer. There can be costs involved with this.” 

And it can also take time. Although the existence of a track record means it’s usually a faster process than an initial pitch, moving a scheme will still take a couple of months or more to complete. However, where it’s necessary, High says this investment can pay off. “Having the right partner is key to the success of a scheme,” she adds. “Re-pitching does involve a lot of work but if this leads to improvements it can be well worth it.”

Schemes and the Insurance Act

Aviva’s Simon Northam explains how the changes will affect schemes

The Insurance Act 2015 comes into force in August 2016 to provide a more up-to-date framework for commercial insurance in the UK, with a focus on fairness, transparency and certainty over the rules that govern contracts between commercial policyholders and insurers. The challenge now is to deliver the potential offered by the Act. Making this happen will require insurers, brokers and customers to work together effectively.

All brokers will need to have a clear understanding of the key changes introduced with the Act – in particular fair presentation of risk (FPR), warranties and remedies, and the abolition of the basis of contract – but the unique relationships within schemes makes it especially important that the scheme broker understands their insurers’ position on each element of the Act.

Communication

Collaboration and good communication will be the key to ensure the Act delivers fairness and transparency. Scheme brokers should review their own expectations regarding FPR but also be clear what their insurer expects. They should work together with their insurers to ensure that the information being obtained provides a fair overall basis for them to underwrite the risk in the scheme environment. Working with an insurer you trust should ensure there are no nasty surprises.

Clarity on what information is required is vital and retailers need to ensure they present accurate content, agreed with the customer and in an accessible format, presented in a logical and clear fashion with important information appropriately highlighted. They also need to ensure that a ‘reasonable search’ has been completed and that all relevant information has been captured.

Documented underwriting rationales will be extremely important in helping to deliver transparency and certainty. They go hand-in-hand with FPR to help build a picture of the risk and as an aid to decision making. A good rationale will show why a risk was underwritten in the way it was and which elements of the disclosed information impacted the underwriting decisions or the contract terms. It should also record any additional conversations with the customer or retail broker.

Rationales will take on particular significance when the customer has failed to make a fair presentation. The Act abolishes the sole remedy of avoidance for breach of duty of fair presentation and introduces a new range of proportionate remedies dependent upon whether the breach was deliberate or reckless, or not. There is consequently an increase in the importance and complexity of the inducement test and underwriting records will be crucial in helping to indicate which matters influenced the underwriting decision.

Scheme underwriters will need to prove that they were induced to a much finer degree including being clear on specific terms that they might have imposed or additional premiums charged.  Evidence of decisions taken on previous risks may be taken into account and clear rationales, safely stored and accessible, will be important to support this. So too will be scheme underwriting guides which cover the key areas of risk and specific guidance to underwriters on what action should be taken in certain circumstances. Clear rationales supported by good underwriting guides will assist in the swift and equitable settlement of claims.

Documents

As well as reviewing underwriting guides, scheme brokers will need to review all their documentation to ensure they are compliant with the Act.  Most insurers will have already reviewed their own wordings and many will have provided guidance to scheme brokers.  The scale of the changes required will depend upon a number of factors, including how the scheme has previously operated with respect to warranties and the changes required for these to become suspensory conditions.  Collaboration between you and your scheme insurer prior to the Act is key to insuring a smooth transition.

Updates

At Aviva we’ve been producing updates for brokers since mid-2015 and have recently advised all our scheme brokers of the changes required to their policy documentation in order for it to be compliant with the Act.  We’re reviewing all scheme underwriting guides to ensure the information they provide is specific and clear, providing guidance to enable brokers to support the Act. We’ve held a series of Insurance Act Masterclasses, focusing on scheme and wholesale brokers and how they go about preparing for the introduction of the Act. 

We encourage all scheme brokers to maintain an active dialogue to ensure any potential issues are addressed well in advance of the Act so that by being prepared, for the majority of transacted business the transition will be almost unnoticeable.

Simon Northam, SME propositions and portfolio underwriter, Aviva