Personal lines roundtable: The broker perspective

Seven takeaways from the Allianz-sponsored personal lines roundtable at Broker Expo

Insurance Age and Allianz gathered a group of personal lines brokers together to get their thoughts on everything from regulation to service differentiation, and the value of marketing to whether insurance is a ‘grudge purchase’. Jonathan Swift reports.

 

Price is still king, but service can be a differentiator for discerning customers

The panellists passionately debated the value of advised sales versus non-advised sales and argued that those that fall into the former camp tend to have a better retention rate.

“I know people who just go on an aggregator every year and buy the cheapest insurance. They don’t care who it is with, there is no loyalty and they don’t want advice. But I don’t want those customers,” noted one attendee.

The delegates who attended the roundtable in the main agreed that price was still king with many customers, but that it was not the case for everyone. Brokers need to tailor their propositions around these two types of customers depending on who they were targeting, with digital the preferred route for those that did not want advice.

“There are customers who purchase insurance purely as a commodity product,” continued one broker. “They think it is just house insurance and don’t care about anything other than they just need to buy some cover. They don’t worry about the policy wording because they don’t think they’ll ever claim.

“And then there is the more discerning customer who wants the advice and it is up to us [as brokers] to align our propositions to attract these people. For me they don’t cross over. I can never be as competitive as an online firm.”

Another compared the difference to buying groceries from M&S and Waitrose compared to Aldi and Lidl. 

Claims – the moment of truth – is where the broker can shine

The difficulty we find is explaining why our price is different, because they can go to the same insurer online and get the same cover – but cheaper.

One broker told attendees that some potential clients were taking his advice and then going direct to buy insurance elsewhere – heeding what they had been told.

“The problem here is that there is such a disparity between the distribution models [in terms of price], so customers are seeking our advice and then checking everything we have told them – but buying online.

“The difficulty we find is explaining why our price is different, because they can go to the same insurer online and get the same cover – but cheaper.”

This led attendees to stress that the major bonus of buying through a broker is the after sales service, but that as a “grudge” purchase this was often not considered.

“At claims time I will hold [a customer’s] hand and support them throughout the process, and that service is not available online,” commented one, while another said: “I know someone who never wanted advice and when buying direct strips everything back.

“And then last weekend their car was stolen and they assumed someone would give them a free rental and I asked: ‘You did have the replacement car on your policy didn’t you? And they responded: ‘Why would I do that?’ and I said: ‘Because if you had, you’d have a car now’.”

This prompted a discussion about what value could be given to that after sales service, with one noting that claims support might be invaluable when needed, but at the time of purchase “a price difference of £350 is £350”.

The roundtable also discussed the nuances of pricing direct business versus intermediated; and whether the risks associated with direct customers outweighed the extra costs that come with selling through brokers.

“What is difficult for me to accept is that the data that comes out of insurers is that the business sold by advice-led brokers is better and more profitable, but is often penalised with the highest premiums,” remarked a broker.

“The price you get from an aggregator is lower, but the data that we as brokers get from insurers is that business comes with higher claims experience, more fraud, greater default propensity, yet that is the one that gets the cheapest price, and to me that is not risk-based pricing.”

What is difficult for me to accept is that the data that comes out of insurers is that the business sold by advice-led brokers is better and more profitable, but is often penalised with the highest premiums.

The difference between standard and non-standard cover gives brokers ammunition to win clients

The roundtable attendees agreed that the need for advice got stronger the more specialist the product being purchased.

As one attendee said: “When it comes to my car even I have to admit I buy the cheapest price possible, but anything more specialist like a motor home you have to go via a broker because I want the reassurance about the claims journey; and that if I break down on the side of the road I have all the service and support I require. If I had a non-standard car I might think differently.”

Insurance is not necessarily a grudge purchase

It comes to how upset is my family going to be when I claim. If I smash my car no-one will really care. But if the dog is ill... that is a different matter.

One of the key issues discussed was how insurance is viewed as a ‘grudge purchase’ or not depending on the attachment to what is being insured.

“To many people, cars are just a commodity to get through A to Z, it might cost £70,000, but it is just a car,” explained one broker. “But I’ve got a £300 dog that I will spend as much money as I need to cover.

“And I use that argument quite a lot when someone complains about price. I say, how much do you pay for your pet insurance? And they say it is only £100 a month, and yet they moan about an extra £200 annually for their household insurance.

“It comes to how upset is my family going to be when I claim. If I smash my car no one will really care. But if the dog is ill… that is a different matter.”

This ‘attachment’ factor meant that for many brokers around the table it was easier to upsell household cover than motor, because it is the biggest purchase in someone’s life. However, underinsurance is still rife.

“In an 18-month period we’ve done 135 desktop surveys for clients and identified over £100m worth of under insurance which is scary,” a broker said. “Because, if we are finding that, I daresay a large proportion of other brokers are discovering it too, so it is about making people aware about what will happen if they are underinsured”.

Aggregators’ personal lines dominance might not be as strong as it once was

One broker commented that the “elephant in the room is the dumbing down of a complicated purchase [whether motor or household],” which had been very much driven by the growth in aggregators.

However, another predicted that while the recent price hikes in motor and household might have seen an uptick in aggregator use, with interest rates coming down there could be more potential for conversations around ‘value’ again.

One other interjected: “Some might say the personal lines brokers have had their day but, if you look at the aggregator model, I think it is fundamentally broken because they take such a big slice of the cost of acquisition and it is getting higher and higher.

“And customers going down that route are often buying blind and we have discussed where that can end up [with unrewarding claims experiences] so [is that channel] getting broken?”

The regulator is not helping with added costs

The brokers around the table – to different degrees – thought the regulator was not living up to its role as the champion of the consumer.

One said: “The Financial Conduct Authority has not done any of the things that it is supposed to do. All it has done is drive up costs for the end purchaser by creating extra work for brokers and insurers, which has to be passed onto the buyer.

“Has an end purchaser ever asked a broker: ‘Have you done a fair value assessment?’ No, because they don’t know and they don’t care – and all they get told by the FCA is to buy the cheapest insurance anyway.”

Another bemoaned the introduction of new [General Insurance Pricing Practice] rules: “Previously we had discounts in our pockets that we could give out to the right customer who met the right criteria, and that was selective, but we were choosing good policyholders who weren’t making claims, who were loyal, all the right things.

“We weren’t overcharging old people and giving that excess payment to some else. A lot of those discounts got cut and that has made us uncompetitive in a lot of instances.”

One other said: “How does an independent broker in the short to medium term survive if the price that is being set has to cover FCA costs, software house and EDI charges, the cost of working with an aggregator etc…

“And bear in mind the FCA does not have visibility of the software house or aggregator charges which are a massive component of the end price, so our biggest challenge is the direct writers. They can go absorb all those costs, they can go sub-net, they have the high volume to do that, it is phenomenally difficult when it is a scale game.”

Has an end purchaser ever asked a broker: ‘Have you done a fair value assessment?’ No, because they don’t know and they don’t care...

Become a trusted source of information … and the insurance purchase might follow

Another topic the roundtable brokers agreed on was the value of giving basic free advice through channels such as social media, as one said: “We have to sell ourselves as an industry”.

“It is not all about selling a product,” another added. “It is like dealing with commercial clients, you need to explain these are the risks, and this is what you should consider and, if you need me to talk any further, come in as I am ready to listen.

“What we are doing more of is just offering simple advice, and it’s cheap to do with social media. It is about planting seeds to tell the consumer this is more than a commodity product.”

As another put it: “There is only so much good in us having this knowledge, but if more people can have [access to] that information then hopefully it will lead to some saying actually this seems more complicated than I thought, maybe I’ll talk to someone who deals with it.”

And this was an area, the brokers noted, in which insurers could help. Not least with support around using social media and offering [white-labelled] marketing tools.

“It could be something as simple as advising people about getting their homes ready for winter, because insurers see a lot of storm claims between November and March,” commented one attendee. “The insurer could then send it to us brokers who can pass it on to those in our localities to ask people: ‘Have you considered this?’”

One broker who already did something similar remarked: “We get really positive feedback by doing this.”

Conclusion: Does personal lines broking have a future?

I think we will trade out of [this difficult market] but we have got to become more innovative, we have to become more customer-focused and live and breathe our clients’ [needs]

“My answer is yes,” one broker asserted. “And the reason I am so confident is because when the big bright red telephone came along [Direct Line in 1985] we were told we needed to get another job, and how many times have we heard that since?

“So I think we will trade out of [this difficult market] but we have got to become more innovative, we have to become more customer-focused and live and breathe our clients’ [needs]. We’ve also got to cut costs where we can and make ourselves more relevant”.

Another said that, to help brokers, products from insurers needed to remain as relevant as direct offerings, noting that they had seen intermediated products with £1m of buildings cover, £75,000 of contents cover and £20,000 of valuables cover; while a direct proposition had unlimited buildings cover, unlimited contents cover and £40,000 of valuables cover but cost £100 less.

Finally, one broker said they would like to “flip the question around and ask an insurer what they see as the future for brokers?”

The managing director of Allianz’s personal lines broker business in the UK, Nicola George, responded: “We have gone out with a really strong message and put investment in the brand to say we are committed to the broker market. That is not just a UK position… that is a global position.

“And so we need to make sure that we have the right products, and I would go further and not just match the direct offering but be more flexible than the direct offering, and provide a wider range of cover, a wider footprint than we have in direct.”

George concluded: “So there is a clear message from Allianz in that we see a strong future in the [broker] channel and there are a few niches where brokers are particularly essential. While we recognise that it is going to be a difficult journey in the more mainstream product lines, we want to work with you make sure we are here today and tomorrow, and you are here today and tomorrow with us too.”

Sponsored content