When business was flowing through the door in 2007, it was easy to make money from mortgages, and few intermediaries were interested in pushing buildings and contents insurance and the like. However, as the credit crunch turned into a full blown recession and the housing market ground to a halt, there has been a resurgence of interest from intermediaries in the sale of general insurance products.
Recent research taken from Assurant’s intermediary partners reveals that just 8% regard the sale of general insurance products as not important, compared to almost two-thirds who view these sales as very important to their business. Looking ahead, over 60% confirmed that the sale of general insurance products is going to be more important in the future.
Among our own partners, there appears to be no real debate that general insurance has come to represent an important revenue stream for mortgage intermediaries. As it is highly unlikely that the mortgage market will ever achieve the heady heights of 2007 again, I firmly believe that general insurance will remain an important income generator in the years to come. So what is the opportunity for mortgage intermediaries?
The good news is that most Brits buy some kind of insurance. According to the Association of British Insurers (ABI), over 70% of UK households buy buildings, contents and motor insurance. A fifth buy mortgage protection or income protection. In 2008, total general insurance net premiums amounted to £33.8bn. The motor insurance market is the biggest, worth almost £11bn last year, followed by property (£8.8bn) and accident and health (£4.6bn). And, if your clients accuse insurers of never paying out, you might like to point out that they actually paid £22bn in claims last year.
Before you get too excited at the prospect of tapping into some of those billions yourself, the bad news is that the distribution of personal lines insurance such as motor, household, travel and ASU has experienced tremendous change over the past decade. The ABI reports that the proportion of people buying insurance policies through brokers has fallen from 54% in 1998 to 35% in 2008. In contrast, 17% is now sold by banks and building societies, when 10 years ago they sold less than 5%.
One of the biggest changes in distribution was brought about by the emergence of the so-called direct players who commanded a whopping 32% of general insurance retail sales last year. In fact, when it comes to selling domestic motor policies, the direct channel has become the primary route to market for insurers.
However, the development of price comparison sites in recent years has had the biggest impact on the market. Their marketing spend is enormous, but the results achieved more than justify that spend. The popularity of “Alexsandr the meerkat” as the face of Compare the Market has resulted in an 83% increase in traffic to the website, while the likes of Confused and Moneysupermarket have lost market share.
So is it realistic for mortgage intermediaries to compete effectively in this space when competition is fierce and everyone wants a share of this multi-billion pound pie?
I do not see the current distribution split of personal lines insurance changing that dramatically in the short-term. If you accept that a third of all products will be sold direct, whether from the insurer with off the page adverts or from the banks and other high street distributors, and a third via the price comparison sites such as Go Compare, that still leaves a third being sold by intermediaries. I would argue that mortgage brokers are in a stronger position than their specialist general insurance broker counterparts. While they struggle to get in front of consumers, figures from the Association of Mortgage Intermediaries reveal that 90% of people believe that seeing a mortgage adviser is important to them. They value advice on their mortgage, and this provides brokers with solid opportunities to discuss their other financial needs.
This is the key to success for intermediaries. While buying insurance has arguably never been easier for your customers, it is still a complex transaction whether they are buying buildings and contents or a single trip travel policy. At the end of the day, an insurance policy is a contract between the insurer and the insured. I do not believe that consumers truly understand the level of responsibility that they have as part of the contractual process, nor do I believe that they really think they have any.
Buying any insurance online is fraught with danger for consumers, particularly for the less financially sophisticated. Take the online aggregators, for example. Your average customer does not have a clue how these sites operate. They do not know that insurers often pay to be at the top of the listings. They only focus on the one thing these sites want them to see and that’s price. The increasing levels of fraud – whether deliberate or as a result of genuine misunderstanding by the consumer as to what information to disclose – are raising serious concerns among many insurers. I firmly believe that the advice and guidance intermediaries can provide is going to become increasingly important. This is particularly true when it comes to the sale of protection policies such as mortgage payment protection. The changes to the sale of PPI products as a result of the Competition Commission marketing investigation are going to force an advised sale in my opinion.
And if it is a sign of the times that a third of personal lines insurance will be purchased online no matter what, I do not see why mortgage intermediaries cannot play in this space as well. Entry into the online market might seem a daunting prospect to an intermediary who has only really sold a bit of buildings and contents or mortgage payment protection in the past, but there is an opportunity to capture a piece of this pie. To do it successfully, however, intermediaries must be willing to take the fight to the competition – and their best form of attack is to be far more aggressive in marketing their skills and knowledge to target those clients who will naturally buy online.
Intermediaries can help guide their clients through the online minefield and by taking the time to establish their customer’s specific needs, and may well be able to source more appropriate cover at an equally competitive price. And if you can not beat them, join them. Some general insurance distributors – ourselves included – are building solutions to give intermediaries access to a range of smaller, customer friendly aggregator sites. These tend to be slightly less aggressive than the big three, and are perhaps more concerned with offering the right product at the right price to customers.
When times are tough, as they are now, it is the best time to get out there and market your business to generate new lines of income and bring new business on board. So go on – go and grab your share of that general insurance pie. n
Nigel Payne is managing director of Assurant Intermediary
