Personal development

Is personal lines insurance the preserve of national intermediaries and direct insurers or can the traditional provisional broker still make a profit? The market answer seems to be the former, with many smaller personal lines brokers currently exiting the market by selling their books or shutting up shop completely.

Insurer consolidation, competition from direct insurers and Financial Services Authority regulation have all been cited as reasons to get out of personal lines. Direct insurance now has the largest share of this sector, accounting for 29% of business in 2002 compared with 14% in 1992, according to Key Note's Direct Insurance: Market Assessment 2003.

Market share

Brokers have seen their share of the market fall from 59% in 1992 to 41% in 2001. Last year, an estimated 35% of all motor premiums resulted from direct sales, and direct insurers handled 24% of household premiums.

Norwich Union has even started to buy brokers' personal lines books, dispersing the business into its direct arm. It will also take over brokers' personal lines administration, paying brokers an introducer fee for the business. Tim Rolfe, director of distribution and development at NU, says the scheme has attracted more enquiries than first anticipated.

He says: "Lots of brokers have decided they don't want to continue in personal lines. We expect to acquire around four personal lines books a month."

According to Rolfe, some brokers are not sure whether to exit the market completely. He says: "Brokers don't know what is going to happen but the semi-direct route allows them to take back the business in three to four years."

Budget buys personal lines brokers on a monthly basis and, according to Peter Winslow, group chief executive, has also seen an increase in numbers leaving the market. He explains: "For many small brokers there is not much profit to be made for a lot of hassle."

Andrew Briscoe, managing director of AA Insurance Services, also says he has noticed reduced numbers of small high-street brokers selling personal lines. He says: "The threat is not just from large intermediaries and direct insurers. We are also seeing the rise of supermarkets, which have marketing muscle."

Briscoe says smaller brokers are also feeling the pressure of insurer consolidation, leading to bigger providers losing interest in small accounts.

Paul Harrison, divisional chief executive of Berry Birch & Noble Insurance Brokers, agrees, attributing the success of his company's personal lines division to its high volumes.

Harrison says: "If you deal with lots of clients, losing a few is not business-threatening. It is about using technology to make it efficient and profitable."

Fred Roberts & Partners, which recently sold its personal lines book to Budget, backs this. Fred Roberts, partner at FR&P, says: "We didn't see a future in personal lines because we had too many eggs in one basket.

We had a big agency but when the insurer pulled out of the type of private motor market we were in we decided to focus on commercial lines. Commercial often involves less work for the return and we can concentrate on offering an expert service to our clients."

The larger personal lines brokers maintain that they can offer a personal, local service. For example, Budget has a retail chain of 81 high-street branches and is expanding. Winslow says: "It is a question of picking the right location. We only go to high streets that have busy retail outlets."

Similarly, Hill House Hammond has 235 local branches throughout the UK.

Alex Lovesey, head of communications at HHH, says: "We have kept our branch network and believe this is our strength."

Lovesey says service is essential in retaining personal lines customers, in contrast to the fashion for personal lines call centres. She says: "Our research has shown that people like local branches. The insurance market has been sales-focused but now the service element is coming into force. If a policy is taken out through a contact centre it will be transferred to the nearest local branch so the customer has a local contact."

On the high street

Accessible branches are also invaluable to Endsleigh, the student insurance specialist. Endsleigh has 126 nationwide high-street shops, an out-of-hours call centre and an online sales site. Carol Watkins, Endsleigh promotions manager, says: "We win over the students and keep their business throughout their working careers because we offer good service."

By contrast, the AA has two call centres employing around 2000 people.

It offers motor, home and travel, as well as policies that are sold online or via the telephone. It closed its 120 retail shops in 1996 because they were not cost-effective, according to Briscoe. He argues the move has not led to a fall in service standards.

He says: "It is easier to ensure a consistent service and compliance when conducting business on the internet or telephone. Everything can be automated, for example, by monitoring calls and using scripts to control what staff say. We can also carry out training at call centres on a mass level."

Online sales

However, Winslow says the high-street branches and online sales provide a significant amount of business. He explains: "Although the use of the internet has grown rapidly we have no plans to close any branches to focus on e-commerce. We see the internet as just another distribution route."

Although Endsleigh has seen significant growth in internet sales it has no plans to close any of its local branches. Watkins says: "People like to visit their local branch or talk to someone on the phone when they are taking out a policy. We find they often use the internet as a research tool but it is still important to offer a personal service."

Lovesey also claims that HHH's service-driven approach was difficult to maintain on the internet. She says: "We found online business wasn't that successful. Now we are looking at how to get the policy online while still offering the same level of service."

The AA competes with direct insurers via television and direct marketing campaigns. And Budget is currently running a television advertising campaign, though Winslow says there is no point competing head-to-head with the likes of Direct Line. He says: "We pitch our adverts at a different audience and carefully select the programmes we appear in."

However, big-budget high-profile advertising campaigns are not the only way to grab attention. HHH recently had an internal restructure of its marketing activities in order to give more support to its branch network.

Lovesey says: "We don't do the big television campaigns as we don't have the budget. We focus on marketing on a local level, which helps us hold onto customers. People have left us for a better price from a direct insurer but have then come back because the service was poor.

Tailored approach

The larger, personal lines brokers say they can fight back against direct insurers by offering a personal service, and some are using their size to create niche products for a more tailored approach.

For example, Carole Nash has become one of the UK's largest specialist motorcycle insurance brokers since it was established in 1985. It specialises in providing cover for motorbikes, from superbikes to scooters, plus a range of benefits including breakdown and legal cover.

In order to maintain its rapid growth while remaining niche Carole Nash has focused on extending the brand through the launch of complementary products. It has set up a national network of approved specialist repairers and fits motorbikes with security devices.

High-volume BBNIB specialises in home, motor and travel insurance for the over-50 age group. Its longest running product insures against oil-fired heaters breaking down, and BBNIB is one of only a few brokers to offer this cover.

High-value home insurance is another key area, according to Harrison.

He says: "High net worth is a product that does not fit into the conveniently packaged policies offered by mainstream insurers."

Similarly, though Endsleigh also works in large volumes, Watkins says her company has succeeded because it cornered the student insurance market.

Lovesey says the larger personal lines brokers can offer tailored products and a superior service to niche markets. The majority of HHH policies are underwritten via delegated authority, for example, allowing the broker to provide point of sale products. It also has delegated authority for claims, handling around 85% of cases.

Lovesey says: "Our close relationship with insurers enables us to obtain preferential rates while remaining independent."

HHH currently offers 85% personal lines and 15% commercial business but hopes to extend its commercial offering in future. Lovesey says personal lines will remain its main focus, however, and the broker is largely offering commercial lines as part of a full service.

Finding a niche

Rolfe says smaller commercial brokers can fight back in personal lines, with similarly serviced, well-tailored products. He advises brokers to find a niche in those personal insurances that need to be tailored in some way, such as mid to HNW home insurance.

Winslow agrees: "Small brokers have an active role in personal lines and make a good living by focusing on niche areas. Imaginative brokers have come up with areas where they will not be in competition with the big players."

Briscoe adds that brokers with a strong niche need not be concerned about competition from direct insurers. He says: "They need to offer something different such as personalised advice - something that cannot be bought online or at the supermarket."