The personal touch -

The pros and cons of outsourcing came under close scrutiny recently following a roundtable event that sought opinions from brokers on the reality of doing personal lines business and whether it would be effective to pass this onto another provider.

The aim of the roundtable was to find out how important personal lines business was for brokers, as well as to ask for their preconceptions on the topic; both good and bad.

This is an emotive subject. Many brokers would be happy to concentrate solely on commercial lines business but they fear the loss of control and the possibility of alienating clients if they were to outsource personal lines to an external company.

Personal lines - is there a future?

The event kicked off with the brokers being asked whether they felt there was a future for typical brokers within personal lines, or if this made sense only for the large volume specialists such as the AA, AutoDirect, Budget and Swinton.

Ian Dickinson, commercial executive with Gloucester-based The Brunsdon Group, admitted that motor cover is a loss leader at his firm and can be viewed as a time-wasting activity. However, he emphasised that this is not the case for personal lines as a whole: "You can have some good niches; travel and household in particular are easier to sell on value. These include good quality affinity schemes and mid and high net worth. You have to ask yourself whether you want a policyholder or a client."

Clifford Humphreys, partner with Bridge Insurance Services, said that small ticket personal lines are often frustrating for smaller brokers. He remarked that consumers are being bombarded with misleading advertising from the big players where the sole message is cost, and commented: "You find that these TV advertisers are not going into detail of the product they are offering; it is certainly not treating customers fairly."

He added that he is fed up with being beaten on price by insurers such as Direct Line and banks like Barclays, pointing out that the latter recently knocked £100 off a quote he had provided to a client.

Meanwhile, Ian Mantel, director at Manor Insurance Services, agreed that motor was particularly tough for the smaller broker, and that the business was not profitable. Mantel went on to say that his firm has sought to recoup costs by adding a small "policy fee" across the board onto policies. He explained that brokers have to be selective in personal lines and that his firm has scored a big success with travel schemes aimed at people with pre-existing conditions.

These include a scheme for the British Heart Foundation, with business largely being driven to his website by web searches. Mantel said: "A small broker just can't compete with the marketing budgets of the banks and direct insurers. I've tried advertising, including radio, but paying for key words on search engines for niche business has proved most effective. There is also a link to our site from the British Heart Foundation, for example. However, we no longer advertise for motor."

Anil Kumar, group finance director at Citybond, said that his firm has also succeeded with lower budget sales initiatives and, in particular, database marketing.

Aggregator pressure

Beyond direct insurers and banks, the aggregators have piled on further pressure for smaller brokers that do not subscribe to them.

Dickinson said that these could be unclear: "The public believes it is getting a quote from all the suppliers, but it's just a selection and the Financial Services Authority should get on top of this. Brokers should also be aware that they might be dealing only with a relatively small panel of insurers. We have to keep customers informed."

Kumar commented that aggregators are further evidence of the constant focus on price, but that consumers can become unstuck if they have a claim and the insurer is not up to scratch. He said that there are shortcomings and that there could be delays in updating products.

However, Peter Wright, director with FiftyPlus, had an opposing view: "I don't see the sense in criticising aggregators. They are a natural evolution and they give the public what they want. If you can't beat them you should look to join them, but do it better. Direct Line took the market by storm in 1985 by saying, 'come to our company and we'll be cheaper', although this was not necessarily the case. The aggregators are just the next phase."

Dickinson refused to be mollified: "Often it is not fair competition. If it were, brokers would be more relaxed about aggregators."

Mantel says that aggregators attempted to circumvent regulation by saying they went to "around 40 providers" but that the customer was still likely to be confused about the service they were receiving.

Paul Finigan, a director at OutRight, added: "Motor is particularly price sensitive, as 90% of people shop around for motor compared with 30% on household. The rise of both the internet and aggregators has impacted significantly on the shape of our business. The internet provides 75% of our leads, up from 40% in 2003."

Outsourcing

Returning to the topic of outsourcing, some brokers expressed negative connotations. Mantel aired his concerns: "You could say that outsourcers do the job the broker is supposed to; I have preconceived ideas about it. I like to keep my clients under my control, so the big issues have to be control and trust. You'll have clients that like dealing with familiar people, those they have known for years."

Others want to know more. Humphreys said: "I'm open to outsourcing, but I would need to know that my clients were being well looked after; after all, my business is my pension."

Dickinson commented: "I agree that lack of control is the most worrying aspect and I am also not clear on where compliance lies. I think the broker that has outsourced retains responsibility for this. Another matter that needs to be considered is whether you want the outsourcing provider to take on your corporate identity." He continued: "I'd also have concerns about where they are located and commission sharing. However this is something we are looking at, as it would also give us greater flexibility to grow our commercial business. We would not want to make anyone working in our personal lines redundant though."

Dickinson had further concerns that a "virtual office" is not as good as allowing customers to phone the broker and deal with people they know. For most brokers, job losses need not be necessary, added Kumar who said: "There is such a shortage of good people; I think it would be more of a question of redistributing them."

Home or abroad?

Kumar explained that Citybond has been outsourcing and offshoring for a few years: "We outsource to India and it works well. We were forced to do it because of the sheer economies involved. Our Mumbai office is seen as an extension of our one in the UK; people in Mumbai speak good English and people are sent over to our office to train."

Kumar said that there is some hostility from a minority of customers, but that this has not lasted: "Our people in India are knowledgeable and you have choice out there. We choose to use a top call centre and pay top dollar for it."

Kumar explained that his company looked at a number of outsourcing locations including the UK, Ireland and South Africa, before settling for India because of its established infrastructure. Kumar said: "We have complete control over it, deciding on the kind of people we want working there. They work only for us and don't hold any information over there.

"Calls come here first and are all recorded. The employees there are not allowed to speak in their own language when in the office. Also they have the option to pass the call politely to the UK if they need to."

He added that out-of-hours work also makes outsourcing a necessity: "In the travel business you need to allow customers to call you 24 hours a day; few companies in the UK can manage this."

Even so, Dickinson said that he would question the value of using call centres abroad for standard business. He commented: "Even if English is spoken I would argue that colloquialism is often a problem with communication in foreign call centres."

Humphreys added: "Using overseas calls centres makes the direct writers more competitive, but with respect to the people working in them, they don't always understand what is going on. We have had customers leave for one of these insurers and then come back to us when something has gone wrong."

Wright, meanwhile, took a contrary view: "I think it can be difficult to find good people in the UK. I have no problems with outsourcing but it very much depends on the situation of the broker. Our core business is personal lines and so it is not something we would look at. If you outsource, the key question becomes 'will the service still be as good' rather than 'where is it'."

Mantel, who describes himself as 'fiercely independent', said that although he would be reluctant to outsource he could see the logic of it when it came to areas such as motor, which are unprofitable for the broker.

Outsourcing already?

Later it was revealed that some brokers are already outsourcing, even if on a small scale.

Dickinson said that his firm's commercial line prospecting is outsourced. He commented: "It's working. We're going into large organisations and saying this is our business solution. We target by postcode, the Standard Industrial Classification and turnover."

Mantel added: "I have a partner scheme where the customer phones you up, we give them the phone number of another broker and tell them to mention our name. This is in the case of customers that I am not able to service, and so we offer them to another company in exchange for six per cent commission. The client gets a product, we get the commission and so everyone is happy."

Finigan said that outsourcing would not suit all brokers but that they should find out more about it before rejecting it out of hand. While customers might not be able to drop into the broker's office in the same way - and few did this anyway - he says that service could be better.

Some brokers will want to hang onto their personal lines no matter what. By the end of this session all the participants were thinking how important the sector was to them and whether they were wasting existing resources by retaining it. Outsourcing is one solution, but it is a decision that needs careful consideration and a full and frank discussion with the various providers in the market.