As a mortgage broker why should I be interested in selling general insurance products?
An increasing number of financial intermediaries are finding the sale of general insurance products provides an excellent opportunity not only to keep in regular contact with their client base but also to develop an additional income stream which complements the one-off fees earned through the sale of mortgages.
General insurance is a vast market and fortunately most products are relatively simple and easy to sell. At one time or another everyone has had to purchase a general insurance product either because of a legal requirement, for example: having appropriate buildings cover in place is a condition of their mortgage, or the need for travel insurance because they are going abroad; or the desire to protect their income because they are concerned that at some time in the future they might be made redundant. As a result, regular opportunities open up where mortgage intermediaries can market general insurance products.
The benefit of keeping in regular contact with clients is also important. Recent research undertaken by general insurance network CETA suggests just because a borrower has used an adviser’s services to obtain a mortgage there is no guarantee they will automatically come back to them when they move home or are looking to remortgage. It appears around 25% of all cancellations of household insurance policies arise due to the client changing their mortgage and at the same time changing the company providing household insurance. This means advisers are losing a lot of repeat mortgage business and so the bottom line is that to keep a client advisers have to keep in regular contact.
So what types of cover are classified as general insurance products and what commissions can be earned?
Currently, the best selling general insurance products are household cover (buildings and contents), income protection, commercial, pet, travel, non-regulated life assurance, personal liability and motor.
For each policy sold an adviser will be paid an initial commission as soon as a policy is in force, while renewal commissions are paid annually. Commissions vary from product to product, but are typically household (15%), mortgage protection (27.5%), travel (20%) and pet (15%).
In real financial terms this means that if a client purchases an accident, sickness and unemployment (ASU) policy which will provide £1,500 worth of protection an adviser would earn over £233 for each year the policy is live ‘ more than the procuration fees paid on some mainstream mortgages. While the initial commissions are valuable it is the ability to earn repeat fees through the renewal of policies that enable advisers to build a substantial income.
The key to selling general insurance policies is to assess a client’s personal and business needs. Many intermediaries have a large number of clients who run their own businesses. So it would be a good idea to think about quoting for their shop or office building policies or for their employers and public liability cover.
In addition, household policies sold alongside a mortgage can generate significant levels of commission.When securing a mortgage for a client remember to review the client’s life or ASU cover too. Following the demise of endowment mortgages, where life cover was built into the product, there is a growing need for borrowers to put in place some form of term assurance. Many new repayment mortgages are not supported by a life policy and as a result, should the borrower die within the mortgage term, their partner could be left to repay the outstanding debt with little means to do so.
What is the best way of sourcing general insurance products?
In the past intermediaries wishing to sell general insurance products would have sought to become an appointed agent of one of the big insurance companies. Today, however, this is not the only or even necessarily the best option. To begin with, the economics of the insurance industry requires agents to generate a guaranteed level of business on a regular basis. These targets are usually substantial and are far higher than an individual adviser will normally be able to achieve. Also, being tied to just one insurer could be a serious mistake. Insurers set their premiums in the light of their claims experience so if they suddenly get a series of claims from one particular geographical area or in terms of ASU from a particular profession, they are likely to raise the cost of cover for any new business they write. This could have the effect of suddenly making the products being marketed as un-competitive over night.
A better option might be to join a network or user group. These organisations use their purchasing power to negotiate agreements with a wide range of insurers ‘ their panel ‘ to secure products with unique or enhanced features often at a more competitive price than advisers could obtain direct from the insurers themselves. Advisers gain access to these products through a computerised quotation and sourcing system which, in the case of networks, is usually provided free of charge.
What are the rules and regulations covering the sale of general insurance products?
As with mortgages, general insurance products will be regulated by the Financial Services Authority from October 2004 onwards. Currently a voluntary regulation regime is in place which is monitored by the General Insurance Standards Council (GISC). Virtually all the leading insurers are members of GISC, as are many brokers and advisers. The GISC has established a Private Customer Code that sets minimum standards of good practice for intermediaries to adhere to. This requires advisers to: explain the type of service they are providing, ensure the product and service matches the client’s needs, give full details of all costs and to treat all information as private and confidential. The GISC monitors these conditions and if they are not adhered to can impose a penalty. In future, if the plans laid out CP159 are implemented, then to sell general insurance products, the majority of intermediaries will become appointed representatives of either an insurer or a network. Joining a network is likely to be the best route to follow as advisers will not be tied to one insurer and will benefit from having access to a far wider range of products and providers.