Checkout the competition

As Tesco exceeds the one million policyholder benchmark, with several other brands such as Asda and Marks and Spencer hot on their heels, the broking fraternity must be wondering where it went wrong.

The idea that a shop providing cut-price food and over-priced 'essentials' is better placed to provide a complex legal agreement to cover a personal liability that could reach into the millions is hard to comprehend - yet a significant percentage of the insurance buying public has decided to vote with their feet over the past ten years, abandoning the broker for the high street's brand champion.

The broker reaction was initially one of disbelief and then denial: many questioned the Tesco model, feeling that it could not last long term, as price seemed to be the major factor in selling the product. As its success grew, however, grief and despair followed.

So where have brokers gone wrong to make price such a deciding factor?

Brokers are professionals - many in the industry take CII examinations to increase learning and professionalism - and broking is one of the UK's most regulated professions, yet has failed to achieve 'professional' status in the public's eye. Nobody asks for a cheap accountant or solicitor but price remains a determining factor for the consumer seeking out an insurance broker.

One thing that supermarkets do well is packaging a product to make it look and sound much better. Their stock carries values such as 'Finest', 'Value' and'Traditional' to help promote their products. They are all easy to prepare and cook. M&S in particular has a way of turning mashed potatoes into a ready-made package that you are prepared to pay through the nose for, just to sit it in your fridge.

Benefit promotion

Maybe the broker market should take a leaf out of the supermarkets' book. When was the last time anyone promoted the features and benefits of an insurance contract? Do customers know what a broker does for them, or do they truly feel that buying insurance is like buying baked beans off the shelf? And, if they do, who is to blame?

It is interesting to note that for some years now Direct Line has been advertising its products not on price but on benefits: a courtesy car when your vehicle is damaged; non-fault accidents not impacting the no-claims bonus; and named driver bonus builder. All features that are readily available through most products but the promotion of these benefits influences the customer's decision to buy, believing they are getting something new - a bit like M&S mashed potato.

Brokers need to speak to their customers and find out what they really think. What kind of service do they expect? How do they prefer to buy? Can they actually glean what they need to know from the rainforest of information brokers are required to pass on simply to comply with regulations? Do they understand that the legal document being arranged for their motor insurance can stop them from personally losing all their money and possessions by being liable for injuring someone?

Fortunately, brokers are a resilient breed and many have decided to reinvigorate their operation and face the challenges ahead.

As brands started to grow their presence in the insurance market, so customers began to change their buying habits. Local brokers and chain brokers soon began to realise that they would never have to replace their office carpet due to the drop in foot traffic and needed other ways in which to handle their customers. So a number of brokers changed their offering into distinct camps - telesales, internet, community and niche.

Many telesales and internet brokers have withdrawn from customer contact, and adopted a sausage factory process to try to compete head on with the direct and brand market. A number are having great success. The internet in particular continues to be an interesting model, and most insurers are finding that it has offered improved loss ratios. Some think that this is because customers fill in their own information and so are more accurate; others believe that if the customer has a computer and broadband connection, then they are cash rich and time poor, so this distribution route is a kind of credit check. It may be that customers get bored answering the same questions on each site and pick the second or third one they try. However, with 59% of UK homes now having a PC, and broadband access widely available, the growing number of aggregator sites has created a model based purely on price.

Building brands

The only issue with these methods of transacting business is the question of how a broker adds value and earns their commission. With little or no client contact other than within cyberspace, how can they justify being part of the chain? Many brokers now see themselves moving more towards becoming a marketing channel rather than acting as a professional intermediary. Their goal is to build an insurance brand or to work on the back of someone else's to develop their business.

So how can you work to convert business on the internet when Google shows 64.9 million results when you search for motor insurance?

Many deals have brokers trying to improve their conversion on internet business. It is interesting to see a number of insurers are quoting motor insurance with a £500 or £1000 excess, simply to get at the top of the screen. The high volume of quotes and low conversion ratio usually seen in motor insurance is very interesting. In terms of customer buying habits, it seems that a number use the internet to find a guide price but are not willing to buy online. Double figure conversion rates only seem possible by contacting the client and walking them through the cover and providing the opportunity to up-sell against competitors with lower prices and add on the important legal expenses and breakdown cover.

However, with hundreds of thousands of quotes potentially coming in from the aggregators, how can all these be followed up with a personal call? Brokers need to look at what type of business usually converts well within their standard book to create a profile of risks that have a propensity to convert. These should be targeted with telesales follow up, using a sales script that emphasises the benefits of the policy and the added value a broker brings to the customer experience, rather than focusing on price alone.

The cost of acquiring new business to these operations is staggering. Some brokers are prepared to pay in excess of £100 to attract new business - nearly half that paid by some direct writers. However, is this a false economy? The majority of large brokers have less than 1.3 policies per client. How can this be so, given that most households have two cars and need buildings and contents insurance, let alone pet insurance, creditor insurance, life, pension, health and so on. The opportunity is tremendous, yet most brokers achieve just one policy per customer. How can a customer buy a product from a broker and not feel that they are dealing with a professional that can look after all their insurance needs, not just one?

This typifies the problem that the broking fraternity faces - brokers gain their customers' trust to buy in the first place but rarely approach them to buy again. In the drive to continue to gain new clients, brokers seem to forget the success that can be achieved by taking the time to promote the different type of insurances that they can help the customer with and asking for renewal dates to build up a prospect bank.

Insurance companies and software houses have also fallen short in their service. Why is there not the option to have multiple risks like buildings and motor on one policy? Why can all the premiums not be tied in together with one renewal date? Some have tried but none have succeeded. From an insurer viewpoint, the market has always been about product push rather than understanding the customers' needs and creating product to meet them.

Generating awareness

The one-size-fits-all approach is an area that has worked well for brokers in the past, and as direct operators do not have the time and in most cases the skill to handle this type of business, it represents a real opportunity. Many have looked to turn their hobbies and passions into specialist insurance niches, such as classic cars, and this has served to reinvigorate many high street brokers. It just needs the broker to have a plan to develop an untapped or underperforming area of the market and find a responsive insurer partner. Creating a brand and generating awareness within a small affinity group is much easier than trying to advertise to the general public. The niche customer is more aware of what the offer represents and how it impacts them. The trick is to then use this as a sprat to catch a mackerel. Once the customer has made contact, they should be made fully aware of what else the brokerage can offer and at least one other prospect should be gathered. In some cases, if it is an insurance that is hard to place or particularly unprofitable, it could even be conditional that they move their other insurances to allow them to take up this offer.

Insurance brokers and insurers make a valuable contribution to society but they need to do a better job of making sure that their customers understand and appreciate their value. Of all the professions, brokers must have the most satisfying role as they help so many people. The challenge is to recognise their value themselves, so that their customers will value them in return.

- Mike Smith, Director - marketing and channel, Link and Zenith.