In Depth: Schemes and the pandemic

The evolution of the insurance industry throughout the past 18 months has caused the £8bn scheme space to experience an upturn since the pandemic first hit, according to property and casualty insurer Travelers.

The provider says it has increased its schemes appetite in the past year, being focused on many sectors such as motor trade, IT and medical technology, retail shops, and transportation, to name a few.

With more brokers and MGAs alike starting to enter the scheme space, the changing market has opened the door for more opportunities, with specialist sectors catching the eye of many. But what has driven the growth in schemes?

Competition
Travelers talked to Insurance Age about its schemes and revealed that the upward trend in this space is an ongoing development of what they’ve seen pre-pandemic.

Jonathan Forster, Travelers SME distribution director, explains: “More and more brokers and some MGAs who’ve got specialist schemes are looking at ways in which they can compete. The market’s changing, and there are new models out there through which insurance can be purchased.

 “Schemes, by their inherent nature, tend to be good for a business in terms of the margin and in terms of the longevity as well, both attracting and retaining customers, so they tend to have greater loyalty too.”

Expertise
The challenge for brokers when it comes to setting up a successful scheme is developing the right specialist knowledge.

Suzy Middleton, CEO of SEIB, which offers a funeral director proposition, draws attention to the fact that brokers need to fully understand what having a scheme in place means and what needs to be done to manage it, and the fact that products should be carefully tailored to suit niche industries.

She says: “Generally, an insurer is looking for a partner that takes away the onus of them having to do the day-to-day underwriting.

“From a client perspective, if the product is set-up correctly and designed for that business activity, you’re giving the client value for money but also the cover that they might need, which is slightly different from a general off-the-shelf product.”

Niche
According to Middleton, diving into a niche with a particular scheme helps to increase visibility for smaller brokers who may struggle to grab the attention of providers. The specialist focus and market expertise can be an opportunity for independent broker access capacity they were previously unable to obtain. 

Adding value is one of the key reasons insurers look to back brokers on certain schemes. Lee Scott, head of commercial schemes at Aston Lark, explains that insurers are always looking for brokers to add value to the sector they’re in, and the expertise becomes even more necessary in the scheme space.

He noted: “Schemes can’t be developed because I suddenly realize I have quite a few bits of business in the same sector. We’ve got to add value to that particular sector, and we’re going to bring that knowledge to insurers. You have to see risks before they happen, identify areas where you can improve wordings. Once you do that, I think insurers are far more collaborative.”

Data
In order to gain the expertise required, brokers pointed towards the importance of data and how collecting it is paramount to developing and maintaining a successful scheme offering.

Richard Webb, regional managing director for Towergate Insurance Brokers, comments: “I think data is driving the vast majority of decisions nowadays. But the days of having a conversation with an insurer and a business development manager and exploring a new scheme are over.

“Everything now is about actuarial analysis, claims performance, and if the data gets the conversation off the ground, then you can get into the details. Data is the starting point now, whereas pre-pandemic or five years ago, the starting point was a general interest in that scheme and then the data followed.

Webb emphasises that the focus on data and proving that the scheme can be profitable is the number one factor in any scheme negotiation at the moment.

Tech providers also see data as the way to a successful scheme. Toby MacLachlan, managing director of Ignite Insurance Systems, highlighted that, in order to have a compelling proposition that insurers will back, the availability of data for brokers is critical.

In that sense, he says Ignite offers read-only access to its SQL database, so brokers can run their own queries and decide what data is important to them without having to wait weeks or months for it.

Technology
Alongside a deeper understanding of data for brokers, MacLachlan also points out that there is also an increased need for digitalisation which paves the way for technological advancements in the space.

MacLachlan notes that the high amounts of automation and self-service products in major business lines could be used in the scheme areas to improve the customer journey with lessons from personal lines filtering through into the more specialist arena.

He details: “A lot of the benefits of digitisation within the major personal lines are starting to trickle down to the schemes area. For example, we provide systems to major brokers to do price comparison-based motor insurance, which also enables customers to self-serve, and this causes less need for intervention, less administration costs.

“There’s automation around the chatbot as well, we have a chatbot that answers about 60% of enquiries, which cuts down on the administration required of policies. I think these options becoming available to scheme brokers is changing the landscape of it.”

He further notes that brokers looking at schemes thinking that they’re more niche has led them to believe that, traditionally, customers want to extensively talk to someone about their policy to make sure the cover is right.

However, he explains that this is not mutually exclusive with offering technological alternatives to people who want to just engage with products on an app, and that tech strides are starting to take shape.

Benefits
Travelers’ schemes development manager, Simon Medhurst, believes there are a number of benefits for brokers that come from having greater control of a scheme. Meanwhile, Middleton suggests that control over business books can result in a more consistent and concise broker offering.

Medhurst used to work as a broker before stepping into the role of schemes development manager at Travelers in January this year.

He says: “The broker has control of the process. In my previous life, as a broker, we had the pen, and it enabled you to obviously service more efficiently than referring to an insurer all the time.

“So, the quality of service is better, there’s a less volatile book, and obviously you can demonstrate your expertise in that particular niche market.”

Scott adds that there are also benefits for insurers. He explains: “Having the ability to quote and bind cover without referral to an insurer just reduces the costs to the insurer, which means that we can stay competitive. If all the documentation is issued by us rather than insurers, we just manage to help you keep the insurance costs very low.”

Paul Anscombe, CEO of Seventeen Group, pointed out that specialising in the scheme area not only enables brokers to offer competitive premiums on appropriate cover, but that they also convey confidence and reassurance for clients that find it difficult to get policies.

However, it is not all positive and brokers with schemes will still face some challenges. Middleton also suggests that brokers should also be aware of the downsides to schemes which involve a higher amount of regulation, compliance restrictions, and auditing.

Trends
Despite the regulatory pressure, schemes are still a growing sector, and with the growth seen in this area, brokers have also paid attention to emerging trends, particularly during the pandemic. This has created opportunity for fresh schemes as people develop new interests and businesses start to work in new ways.

Webb comments: “I think the pandemic has changed society and how we want to interact in our social and our working lives, and that changes insurance needs and creates opportunities to grow new schemes and specialisms.

“For example, lots of people bought dogs during the pandemic, you see a lot more dog walkers now, so, all of a sudden, there is an opportunity for a dog walker scheme. It’s our job as the broker to create that proposition to take to the insurer, to explain ‘we are seeing this happening in the market, we believe that the opportunity looks like this’.

“The more powerful and the more supported that conversation is by good data, the more chances brokers have of insurers wanting to back that proposition.”

Forster also agrees that the change in the nature of risks in the scheme sector has been fuelled by the pandemic. To illustrate this, he uses the example of a smaller retailer.

He says: “Before, they [smaller retailers] could quite clearly define where their customers are buying from. Now, with a combination of a physical retail outlet plus the internet, their customers are coming from all over the world and inherently bring in new risks with them. So as customers change, brokers will adapt and look for solutions.”

Collaboration
Going forward, the success of a scheme is heavily reliant on the collaboration between insurers and brokers.

MacLachlan highlights that the availability of data is critical for brokers in order to provide comfort that they’re going to use the insights that they gather to protect the insurer.

Anscombe draws attention to the fact that the collaboration between brokers and insurers has so far been patchy and suggests more could be done.

Anscombe insists: “Too many insurers have vast amounts of knowledge of the brokers’ clients, but they’re not sharing that knowledge. It’s great that they’ve got it. But unless they’re working with brokers to really maximise a scheme opportunity or the product they’re selling, it defeats the object.

“So yes, there’s lots of data out there. But are we working together, in partnership with insurers? I don’t think so.”

Future
In order to improve collaboration, Forster stressed that trust and transparency are key words in an insurer’s relationship with brokers.

“Whilst schemes are great, they do come with a little bit of increased risk and an insurer is delegating responsibility that it normally has itself to another party.”

“Insurers will start to ask a lot more questions now, about the exposures, the types of risk. And that may feel like a little bit of hard work for a broker. But once that’s done and up and running, it mitigates the possibility of any strained relationships, because you are both going into it with absolute transparency around the business plan,” he concluded.

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