Following reports in Post that the mid and high net worth markets have been experiencing an increase in competition and downward pressure on rates, Ralph Savage discusses what reaction this has elicited from insurers and brokers in terms of their marketing and distribution strategies.
Like fine wine, high net worth insurance tends to be referred to in the language of the connoisseur. Its intricacies are necessarily opaque and its establishment figures require that they remain so. On reflection, this is not such a surprise and yet it continues to be something of an industry sport to question whether HNW brokers and specialist insurers will muster the means to fend off a mainstream market that appears determined in its quest to access Britain's wealthiest customers.
As reported in June, HNW personal lines is a segment that has seen rating pressure intensify since 2003 causing one of its most established players, Hiscox, to cry foul of any pretenders to its throne.
Meanwhile, a number of fairly high profile strategic partnerships have been announced during 2010 between brands, distributors and insurers, apparently indicating a confidence among some players that HNW remains an opportunity for profitable growth.
Chief among the deal makers this year has been Home & Legacy, which saw its name added to the panel of Cobra Network's expanding HNW cohort, while later in the year it sealed a deal giving Lloyds Banking Group's wealthiest clientele the choice to cover their assets through H&L's own panel.
The latter arrangement is with Lloyds' private bank, known as Mayfair, for which the criteria of customer entry is to earn in excess of £250 000 per annum or have savings and investments of at least £1m. The bank's other provider is Sterling Insurance, which manages the mid net worth and HNW customer segments of the high street brands Lloyds TSB, Halifax Bank of Scotland and Sainsbury's Bank.
"I would definitely describe it as a strategic partnership," says Mark Woodridge, sales director at H&L. "We can offer our own policy wordings with three levels of cover and a panel of insurers that sit behind the wording. They effectively compete for each case and I suppose we are almost a HNW aggregator. But, unlike a normal aggregator, where you look at obtaining the best price and then wonder what your cover is, our approach is to provide the best possible cover in all instances."
Joan Sell, private clients' team manager at broker Clear Insurance Management, argues that cover arranged by a broker through a strategic partnership can no longer be offering independent advice.
Fitting the policy
"When reviewing the client's needs a broker must take into consideration the client's lifestyle, but when tied to one insurer there is the risk the client's needs could be manipulated to fit the policy rather than the other way around," she says. "A private banking customer could be misled into believing they are getting the best advice or cover, but that's not possible if the bank has arrangements with only one insurer."
One of the other notable new distribution arrangements announced this year was the addition of Oak Underwriting to the panel of broker network Westinsure. More in keeping with the broker-only approach espoused by many pundits in the market, to Bob Trott, managing director at Oak Underwriting, affinity tie-ups and strategic partnerships are one and the same thing. He says his company will not change tack and go direct through one of them. "We know who the HNW brokers of any consequence are and we might do affinity business on the back of the broker leading the fray, but we certainly wouldn't at this moment in time go direct to a bank for affinity business. We'd do that through a broker."
Mr Trott may be waiting a long time for such an opportunity, according to David Sweeney, director of personal and commercial insurance at Sterling Insurance. "Brokers may act as introducers to these sorts of relationships but most wouldn't have the capability to administer them," he says. "We've got a contact centre, which means that clients can use a turnkey arrangement and get going relatively quickly."
White labelling issues
To their detractors, Sterling and H&L have encountered the problem most commonly associated with conventional personal lines — conflict between broker and direct channels. For the time being, many of their strategic partnerships are not even white labelled, with call centre phones being answered under the provider brand. "We've talked to a number of bigger partners that initially think they want white label but very often, when you really get into the detail, they realise this can cause them more of a problem," adds Mr Woodridge. "They'll be expected to be the provider of advice using their own brand and most people come to us because we are — so why muddy those waters?"
Mr Sweeney adds: "With every affinity or strategic partnership that we have, we make reference to the introducer. It's important for the customer to understand that we are Sterling on behalf of Legal & General or Saga — often this is also for compliance reasons. Let's face it, these brands have chosen us for a reason — to look after their clients properly."
But training is vital to get right. "We just took on four new graduate trainees and they are very good prospects but they still say things like 'cool' on the phone," continues Mr Sweeney. "Who do they think they're talking to? You have to train people to speak more appropriately and this is our responsibility."
The battle to differentiate one's offering in HNW is continuous and Clare Pardy, fine art underwriting manager at Ecclesiastical, says that the insurer's preference has been to sit outside affinities and panel arrangements completely. "We're not seeking to become part of panel arrangements per se," she says. "We have noticed that most of the larger brokers and networks do seem to have, or are moving towards, HNW deals and facilities that appear to work pretty well for them and their members.
"However, the anecdotal feedback we have had on our residential heritage product, for instance, indicates the product fits well outside of these arrangements, as we can cover the unique properties that other markets may not have the expertise to do. So, rather than treading on the toes of these facilities, we complement them instead."
At the opposite end of the spectrum in terms of broker targeting is H&L which, despite trumpeting its wares in terms of strategic partnerships, still generates 80% of the company's income from brokers. "Lots of our competitors segmented their customer base a little while ago and decided they would deal with 200 brokers or only brokers that begin with an 'A'," comments Mr Woodridge, implying little thought went into this process. "We decided that we would not put any restrictions on the level of business a broker gives us; while we are a broker in our own right, the majority of what we do is wholesale.
"There are lots of smaller brokers that maybe have 12 to 15 HNW cases but would essentially fall outside the auspices of some of our competitors. We're offering them a home and, while we don't have restrictions on the size, we do ask for a relatively good conversion rate; we don't want to quote 20 cases and not write any. So we've spoken directly to brokers and they have responded well."
Other insurers that have pursued broker-only strategies are seeking to emphasise their commitment. Simon Mobey, Chubb Europe's personal lines manager, says: "Our sole distribution channel is through the broker market. We believe that this is absolutely the best channel for accessing our target of HNW and, particularly, ultra high net worth clients. Other firms have been pursuing alternative distribution strategies, such as going direct or through tie-ups with banks. In our opinion, this is more of an MNW play where demand is more commoditised and price driven."
Mr Mobey continues: "This is not an area in which we want to compete, and it does present conflict with the broker channel. Even where we have been working with other luxury brands that complement the Chubb brand, we have done it in association with a broker. We increasingly see a flight to quality in the HNW and Ultra-HNW space in these turbulent economic times."
David Smith, head of Chartis' private client group, appears to sing from the same song sheet. "We haven't been following that path [direct strategic partnerships] at all — we've maintained the same strategy since 2003 in the HNW market. At that time we decided our sole distribution method would be through intermediaries in a network dotted around the country and that remains the focus."
Mr Smith adds that Chartis is being increasingly selective in acknowledgement of the aggregator model's increased influence. "Particularly in the past year or two, we've had quite a few companies talk to us about how the bottom end of the market is moving more towards the aggregator model where it blurs into MNW. We frequently get people requesting business in the range between £1500 and £2000 premium and we would not want to take that business on typically going forward; that's really I think what the aggregator market is creeping towards."
Moving forward, Chartis is gazing upwards on the wealth ladder. "We are looking to do a little more in the fine art market next year, but from a distribution point of view that won't impact the strategy. In addition, yacht business is a little less congested in terms of the number of brokers operating and we feel we can bring a pretty good proposition to market and generate a bit more share."
As a niche within a niche, the fine art insurers may not welcome encroachment from Chartis, but Andy Cunis, Axa Art UK's head of sales and distribution, says its strategy remains on an even keel: "Axa Art's average premium is quite a bit higher than most of our competitors in the HNW market and we tend to find that the majority of our clients really need a broker to get the right coverage and be properly looked after."
One recent marketing project for Axa Art has been a joint sponsorship with broker Bluefin of a new breed in collectors' fairs. "This is something that is aimed at the emerging collector, which ties in nicely with our Artfirst proposition," says Mr Cunis. "We're willing to work with brokers on any marketing platform as long as the customers are being targeted in the right way. We tend to focus our marketing spend on events as we have a captive audience and can demonstrate a real return on investment."
In practical terms the applications of labels such as 'strategic partnership' or 'affinity' introduce little more than semantics to the debate on distribution. It appears that many HNW insurers will steadfastly defend their decision not to go direct and even those that have done so admit that, for partners like banks, the opportunities to profit from HNW insurance are slim. "At the moment the Lloyds deal we have done may encourage other banks to make similar arrangements and also perhaps other large independent financial advisor institutions may be interested to look at this," says Mr Woodridge. "The problem is insurance doesn't provide a massive amount of income."
In fact 95% of real HNW enquiries come by referral according to Ms Sell, who adds that most HNW clients would "not consider divulging their personal information to a complete stranger, unless that stranger was introduced by someone they know and trust". Surely their bank manager fits this profile?
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