Winning the price war

The fact that the adage 'win on price, lose on price' is an old one does not make it any less relevant or compelling today. To put it another way - no matter how frugal you are, there will always be someone who will do the job for less. It is therefore a matter of survival for local brokers to find a way to win and retain business without having to use price as the prime weapon.

It should not be forgotten that commercial insurance policyholders are also buyers of private motor and household policies away from work. They have been brainwashed by red telephones and mice advertising cost saving for the last 20 years, so it is hardly surprising that they think this is the way the insurance industry operates as a whole.

Some insurers and brokers are going down the same route in the commercial sector, but the professional intermediary market cannot afford to allow the creeping commoditisation of commercial lines. If this customer acquisition strategy comes to dominate, little more than internet quote models and overseas call centres will be needed to run the business.

In their fight back against this onslaught, professional brokers must nurture the concept of added value and superior service. Easier said than done - but what is the alternative?

Central to this is the process of re-educating clients to look at their risk-related expenditure as a whole rather than isolating their premium spend. Brokers' overall cost may be higher than that of a rival, but that is because brokers provide risk assessment and prevention. Brokers contribute towards the efficient, safe and compliant running of the business throughout the whole year, in all likelihood reducing the number of incidents whether insured or not. That is where the notion of value comes in. That is where clients need to see the difference between a quote collector and a true professional.

The structure of the insurance market conspires against professionals. Brokers seek long-term relationships but face the upheaval of annual renewals, which give competitors a chance to stick a foot in the door. Brokers also deal in vitally important matters, often hugely complex, but face the commoditisation of products and the emergence of off-the-peg solutions. How does a broker promote the benefits of a bespoke approach?

The first thing to recognise is that the bulk of the momentum for commoditisation of commercial insurance is coming from the major insurers. They like selling off-the-peg packages with set cover and fixed limits because they are quick, inexpensive and easy to administer. They suit offshore call centres, internet selling and direct marketing by non-expert staff.

Never be fooled into thinking that these companies are interested in the wellbeing of the intermediary market. If they could sell everything direct - preferably without any human involvement whatsoever - they would do so. That suits them, but it should be questioned if that is what their customers really need.

Personal lines

Remember how certain insurers paid lip service to the importance of broking when the personal lines market started to turn direct? Actions spoke louder than words, which is why personal lines is dominated by direct writers and major intermediaries that have buying power and are able to benefit from economies of scale.

Personal lines is an advice-free zone. Products are commoditised with the only comparison the customer makes being the price. Some of the largest private motor retailers are supermarkets. Do brokers really want to see this dismal situation replicated in the commercial arena?

If commercial lines continues on the road to commoditisation, it will be the major insurers, national brokers and networks that flourish. Buying cover will be as easy as choosing a packet of cornflakes. That is why supermarkets are making such hay in personal lines.

To pursue the supermarket analogy further, they are extremely good at what they do, and people flock to buy an ever-widening range of items, products and services. But there exists the beginning of a backlash. People bemoan the disappearance of specialist food retailers on the high street and they are suspicious of the way supermarkets treat their suppliers. They do not like the vast amounts of packaging, the bland uniformity, the 'buy one, get one free' marketing tactics that are hugely seductive but are, given any rational analysis, just another way to transfer money from your pocket to their tills.

Brokers should look to capitalise on the desire for service and value that exists within some insurance buyers. These people are the equivalent of food shoppers who seek out the delicatessen or traditional baker. They are prepared to pay more for quality.

Brokers need to be aware that, in the advice market, long-term competition may not come primarily from other brokers or even from direct insurers but from other advisers or consultants. If an accountancy practice can secure a bigger share of the clients' advice spend, it will be delighted to do so.

So, it is all the more important for brokers to defend their patch. But defence is only half the battle. Naturally, brokers want to grow their business, which means developing a marketing strategy. The route to marketing success is actually very simple. It involves choosing a group of customers or identifying a target market, determining what their needs are and then matching them with a product or service at a price the client is prepared to pay and that makes a profit.

The hallowed SME market

As a regional broker target, customers are more than likely SMEs. These are firms with up to 50 employees, but probably many with fewer. Between them they employ the vast proportion of the working population and they are the 'engine room' of the economy. They tend to be businesses whose senior managers are close to the shop floor and that take a keen interest in all aspects of the operation. Marketing efforts directed towards them must take these factors into account.

It is especially important to remember that these managers want to grow and develop their businesses, make a profit and have an easier life - insurance is either not on their minds or is viewed as a necessary evil. Understanding this shapes the pitch: brokers should stop selling insurance and tune in to what they can do to help match their customers' real needs and aspirations.

So, back to basics - bad stuff happens. All businesses face risks and threats, which everybody, including the businesses themselves, know. Their real need is for help in identifying what these risks and threats are, and for advice about what they can do to prevent them happening in the first place. And when something does happen, what can be done to mitigate or even negate the impact?

The last thing that clients want is financial compensation in the form of an insurance payment. Better to reduce the occurrence of incidents in the first place than the severity of their impact and, finally, focus on business recovery.

Why should risk management and professional advice not be at the heart of the product or service? Clients need help in the same way as they do with finance, tax or the law. They are happy to select other professional advisers for their skill, knowledge, expertise and experience and to pay them accordingly. The insurance profession does itself a vast disservice by offering itself up to the lowest bidder.

It is not essential to be a talented, experienced broker to place an insurance package, especially in this market, but skill and vision to identify and manage risk are needed. How many clients, when asked about their appetite for risk, have to ponder the question for the first time? How many have business continuity and recovery plans? How many are confident that they are compliant with health and safety legislation? Simply by asking these questions, a broker can increase the business's awareness and give it a new way to look at risk.

Brokers need to communicate better the service they are able to provide and the value it offers. It is not just a case of arranging cover. There is assessment, analysis and planning. There is a year-round service in terms of keeping clients up to date with regulation and legislation. The programme must adapt to take account of changes in the business or the market and there is a need for a first-class claims service.

So much for the theory. The following practical steps can be taken:

Policy benefits - many insurers provide a wide range of excellent risk management, health and safety and business continuity planning services, along with dedicated helplines. The key here is to identify the client's needs and align the relevant facilities. Simply sending a pile of insurer literature will only serve to confuse if the benefits are unmatched to specific needs.

Updates - communication should be regular and meaningful. Providing updates on relevant issues demonstrates an all-round full professional service and is in contrast to many brokers who turn up once a year at renewal.

Market knowledge - clients are not interested in the insurance market, but brokers have to be interested in theirs. Stay in touch with developments for their sector, especially new regulatory, legal and health and safety issues. Help them find out what they need to know and cut through the red tape to the essential information.

Visibility

Added value - visibility is key. Visit the client away from the renewal date. This shows there is a genuine interest in their business and how it is developing and not simply a desire to collect a cheque.

Remuneration - there must be transparency over remuneration. Brokers should not be embarrassed about charging a reasonable fee for their professional skill and expertise. After all, if brokers do not value their own skills and experience, why should anyone else?

Exclusivity - explain that having three brokers chasing quotes gains them nothing and is effectively the same as having advice from three lawyers or accountants. By all means, undertake a competitive tendering process of brokers if they desire to identify the best, but they should select one and then let them provide their professional service. Insurers should not quote terms to more than one adviser - but that is another lengthy issue.

Winning business without using price is not easy. What is more, winning business by using price can be easy. But, as stated at the outset, losing business on price is even easier. Price should be the last thing to be discussed once needs are identified and matched. Risk management, business continuity, claims handling and service should be at the top of the sales agenda.

Kevin Pallett, Managing director, Fusion Insurance.