Mall-practice
INSURANCE TIMES - 15TH NOVEMBER 2007
Tesco’s current television marketing campaign includes the legend ‘every little bit helps’. It refers to the savings customers can make by shopping in its stores; however, it could quite as easily refer to the supermarket’s bottom line and return to shareholders.
In an effort to squeeze another ‘little bit’ out of its customers it has targeted the space currently occupied by the insurance broker and has set itself up as an intermediary selling policies covering everything from car insurance to building and contents.
In doing so it is replicating its food retailing policy – slashing the price of products. And like the local shops, traditional brokerages are being by-passed by the public as they seek out supermarkets that can better compete on price driven commoditised products such as travel, car and even dental insurance.
The supermarket giant has just entered the dental insurance market with two dental insurance products and a free dental accident plan – the first supermarket to do so. This move follows its launch of health insurance in January. For both it has teamed up with AXA PPP Healthcare.
It is the latest addition to a suite of products that have been brought to market by the UK’s leading supermarket since it launched Tesco Personal Finance covering insurance and banking among other services, in 1997. Tesco currently operates more than five million accounts, jointly with the Royal Bank of Scotland (RBS) Group. RBS operates the Direct Line, Churchill, Privilege and Tesco brands and as such is used to bypassing the broker in the distribution chain.
In common with the direct players, Tesco offers a hefty discount for buying car insurance and offers other inducements such as free named drivers on Tesco policies and 30% - 50% discount off the risk based premium when they take out their own policy.
Supermarkets started in the financial marketplace with store cards a decade ago and quickly expanded into credit cards, personal loans and savings accounts. According to a survey by fool.co.uk, the four supermarket giants – Tesco, Asda, Sainsbury’s and Morrisons are set to steal 17 million current account customers. Supermarkets are good at marketing cover such as travel insurance. With their low running costs, they can easily undercut other providers.
Where it may not have the capability to service this area it is turning to third parties to provide the service. The affinity brand has outsourced a core insurance product to one party, that, when looking to move into a new and related market, turns to a second party to provide this. A good example of this is pet insurance, which is heavily outsourced to a few core providers. The implications of affinity marketing for the insurance industry are significant, as customer relationships with trusted brands have become a key driver of business. Some of the insurers that are underwriting the supermarkets’ offering, and at the same time buying up distribution, continue to voice their commitment to the independent intermediary community. You can’t blame them for wanting their cake and eating it. But it serves to increase the pressure on the insurance intermediary sector.
Some brokers have responded by launching their own consumer brands and, if they had the capacity, by providing the insurance service to the customers of the more powerful brands.
So what else can brokers do to stop customers haemorrhaging away? One obvious tactic would be to attempt to compete with supermarkets on service. For example, Legal & General announced its departure from the private medical insurance (PMI) market in February – after agreeing that its policyholders could switch to AXA PPP Healthcare at renewal. With AXA PPP also having acquired SecureHealth in April 2006 and taken over the underwriting of Health-on-line in September 2005, it seems intent on buying up the whole world and limiting customer choice for individual PMI. This is the provider of choice for Tesco and others, yet has been slammed for its levels of poor service in the protection insurance trade press.
Buying insurance from a travel agent, or off the supermarket shelf, is quick and easy. But it’s then vital that the policyholder tell the insurer about any medical treatment they have had or pre-existing conditions such as angina, asthma or diabetes.
Buy from a regulated broker or form an insurer and the policyholder will be asked to declare their medical history because not disclosing a pre-existing condition could result in the policy being voided. But how enthusiastically is this point pressed home when policies are bought off the supermarket shelf? Even the assumption that motor is a simple class of business is actually questionable consider the amount of fraud it attracts. And how confident could you be in the general car-driving public’s understanding of exclusions on their policy?
Of course, brokers could instigate their own relationships with third party providers. Presently, brokers may be turning away business because it is not core – here the value of the broker’s brand is being thrown away. The broker may be reluctant to pass on leads or customer relationships to another br4oker, concerned that they will lose the client completely. However, with the right safeguards in place, brokers can offer an enhanced service to existing and potential clients. By working with a third party that is able to offer the relevant cover, they can simultaneously earn income from these leads and fulfil a customer need.
Brokers should embrace affinity business. They need to be looking for value wherever they can, be it in exploiting the strength of another’s brand or maximising the revenue from their own.
As the broker market contracts and consolidators, direct players and supermarket gain the upper hand, brokers need to consider how the public perceives them. In the face of competition from banks and supermarkets, as well as direct writers, many brokers should be overhauling their marketing efforts. But because many brokers have not traditionally engaged in advertising or marketing, the challenge of producing an effective campaign is considerable. But a successful marketing campaign is the best way to gain a competitive edge over nearby rivals and offer an alternative to the supermarkets and direct writers. There is a future for insurance broking. But it has to adapt and move with the times. It cannot compete on some of its traditional territory, so much seek allies to help it conquer new ground.
