Q. What opportunities are there for advisers to sell household insurance products?
Household insurance (buildings and contents cover) is a vast market. Lenders require anybody who has a mortgage to have an appropriate buildings policy in place while contents cover for UK households is advisable but not compulsory. Research has identified that around 40% of households do not have any contents cover and those that do have little idea of the true value of their possessions and are therefore significantly under-insured. Advisers are ideally placed to source cheaper products than those supplied by high street lenders and their ability to provide independent, objective advice can provide excellent marketing opportunities.
Q. What are the rules and regulations governing the sale of buildings and contents policies?
At the present time a voluntary regulation regime is in place monitored by the General Insurance Standards Council (GISC). However, just before Christmas, the Government announced that within a few years, the sale of all general insurance products will be regulated by the Financial Services Authority (FSA).
Currently, members of the GISC are required to abide by the organisation’s Private Customer Code that sets minimum standards of good practice for intermediaries to adhere to. The Code requires advisers to explain the type of service they are providing, ensure that the product and service offered closely matches the client’s needs, give full details of all costs and treat all information provided as private and confidential. Members are independently monitored by the GISC and if they do not satisfy the requirements of the Code they may face a penalty. Full details of the Code can be obtained from www.gisc.co.uk.
Q. How can an adviser source buildings and contents policies?
The major general insurance companies are usually reluctant to appoint advisers, who are only going to generate low levels of business, to act as agents to sell their products direct to the public. Therefore, in order to gain access to a range of competitive products, smaller brokers need to join either a general insurance network or a user group.
A general insurance network uses its buying power ‘ it can guarantee to generate a substantial volume of business ‘ to negotiate a range of products directly with individual insurance companies. Brokers can gain access to these products by becoming a member of the network, which is usually free of charge. Many products may be exclusive to the network or have additional benefits built into them.
A network normally provides its members with a free quotation system ‘ either computerised or manual ‘ which enables brokers to obtain quotes and apply for policies. The leading networks will also provide full administrative support and ensure members comply with GISC standards ‘ leaving the broker free to concentrate on marketing.
User groups may be more appropriate for more independent-minded advisers, however, there is an additional financial cost for this independence. The principle difference between a user group and a network is that user groups require advisers to purchase a quotation software package. These packagers can normally provide details of every product available in the market as well as exclusive products which the group may have negotiated with general insurance companies.
Advisers, whether they are members of a network or a user group, will receive a commission ‘ normally 15-20% of the premium ‘ for each piece of business they generate. Commissions are paid annually as policies are renewed each year. Selling general insurance products provides an excellent opportunity to build up a valuable additional income stream that can complement the one-off fees earned through the sale of mortgages.
Q. Do household insurance policies differ or are they all the same?
The majority of needs can be satisfied through standard policies which on average provide up to £1m of buildings cover and up to £75,000 of contents cover. Where a client’s needs are more unusual there is a wide range of specialist products available.
Q. How are premiums fixed?
Premiums are based upon an insurer’s perception of the risk they are taking on by agreeing to provide the required cover.
The large insurance companies have sophisticated software ‘ many using full postcodes ‘ that enable them to identify areas or individual properties which have a higher chance of, for example, being burgled, flooded or affected by subsidence. The higher the perceived risk, the higher the premium demanded.
Other ‘lifestyle’ factors are also taken into account when fixing the premium. A property fitted with an alarm or which is situated in a Neighbourhood Watch area will have a lower premium. Age will also have an important influence on the premium set. Generally, the older the applicant, the lower the premium will be. Similarly, people living in rented accommodation will pay more than owner-occupiers.
Q. Are there particular pitfalls that advisers should be aware of when giving advice?
Most disputes occur not when a policy is sold but when a client makes a claim. At this point, the client may find that their policy does not provide the cover they thought it did. Advisers should take time to ensure that their clients are fully aware of the risks the policy does cover them against and more importantly the ones it excludes.