Back to the high street?

Last week, Hastings Direct announced it is investing in high street branches. With many well-known names including AA Insurance, Budget and Endsleigh shutting shops in recent years, Louise Meeson looks at whether the 'brand' brokers will ever reclaim the streets with extensive networks.

As reported last week, Hastings is piloting three high street branches in South-east England with plans in the pipeline for more premises, including franchises, if the move is successful (Post, 7 May 2009, p2).

Although currently unable to specify exactly where and when the pilot premises will open, Edward Fitzmaurice, chief executive officer of Hastings, told Post that they should be up and running within the next three months, adding: "A lot of customers feel more comfortable dealing with people face-to-face. We are currently telephone and internet-based and were aware we were excluding ourselves from that channel."

Mr Fitzmaurice added that Hastings is also keen to grow its product range beyond home, motor and travel insurance into the SME sector within 12 months and that the high street move would be essential to enable this.

"In our experience, SMEs prefer to deal face-to-face. Having high street branches will help us grow in this market in the future," he commented.

The pilot is due to last between 12 and 18 months. However, Mr Fitzmaurice said if it proves successful in the first six months, the programme will be accelerated with Hastings growing the network organically, through green field starts and franchises rather than acquisitions of existing businesses.

"The franchise model would be ideal in allowing us to accelerate the roll out across the country," he continues, stressing it would be well controlled to ensure a completely cohesive approach.

The move follows the decision by Insurance Australia Group, which owned Hastings prior to its management buyout earlier this year, to sell Equity Insurance Brokers' high street branches to Swinton.

Hastings chairman Neil Utley is also the UK CEO of IAG, and it is understood that as part of the MBO of Hastings and sister company Advantage, an unsuccessful proposal was included to buy the EIB branches too.

So, does the announcement by Hastings mark a U-turn in how high street branches are viewed, coming as it does on the back of Swinton opening more premises and A Plan's success in attracting private equity backing last year?

British Insurance Brokers' Association CEO Eric Galbraith said that as a former boss of high street broker Hill House Hammond, which was closed by Norwich Union in 2004, he supports the model. However, he admitted that as footfall can vary by site and season they should have the appropriate technology to allow them to also operate as call centres.

"Branches can help build a brand people become aware of and it allows customers to deal with someone face-to-face. They can also be very economical if done well. The turnover of staff in call centres can be very high. You are also employing people that live in the area which can be an advantage," he added.

Mr Galbraith said there are benefits in covering all channels but that cost can be an issue.

Required footfall

Similarly, Barbara Bradshaw, chief executive of the Institute of Insurance Brokers, commented that one concern is that some high streets lack the required footfall but that there are niche areas that do attract a lot of business.

"It's interesting; Hastings is a lot better known than Equity and can trade on that brand recognition. They have worked long and hard and spent a lot of money on the brand," she added.

Mike Smith, Provident sales director, voiced his support for the move adding that the MBO has "breathed life into this business".

He said aggregator distribution has given intermediaries a significant boost, allowing brokers to be "compared 'shoulder to shoulder' with direct writers" but points out that this has come at a price and a loss of brand loyalty.

"Hastings' move to the high street is, therefore, welcomed by Provident Insurance," he added. "Going back to building face-to-face relationships with clients can only mean better renewal retention and improved loss ratios.

"High street brokers also tend to help with front line underwriting where they perform important tasks like checking a no claims bonus. They also sometimes check the Cue database for claims experience for new customers, take copy licences, ask more questions at quotation stage and actively deter clients who they feel are poor risks. Very few of these practices can be done effectively through the aggregators."

However, others are more wary of the model and its potential.

Peter Winslow, group CEO of BGL, which sold its branches to Swinton in 2006 and owns price comparison site Compare the Market, said: "I think it depends what you use (branches) for. If you are talking about footfall I don't see any footfall at all in the high street, as many are becoming like ghost towns. So, I would have thought that it is a non-starter now."

However, echoing Mr Galbraith, he said that the Swinton model, which uses the branches as a default call centre, may work but added that its headcount of 5000 was a significant costbase.

"That is a huge number of people, and they have a completely different business dynamic to us," he said. "They have just posted some good figures, but I wonder how durable the model is. Only Swinton knows the answer to that question. All I would say is that I would rather be sitting here with an aggregator and no high street branches, but I would say that."

Mike Holliday-Williams, RSA managing director of personal, said that if the success of high street branches depended on casual passing trade, then that "seems a bit dated".

"I doubt it is all about footfall," he added. "It's probably about adding value to the customers it already has in an area, whether that is cross-selling, offering advice or providing that personal service."

Mr Holliday-Williams believes the success of Hastings - or any firm trying to build up a high street presence - will ultimately be dependent on employing the correct people and investing in the appropriate technology.

"You can't rely simply on footfall, I'm not sure that would work," he commented. "You have to think about the processes. Also, with regard to franchises, you have to ensure you maintain complete control to get added value."

Hasting admitted its move "flies in the face of current trends". The next 12 months will offer a significant pointer as to whether the plan has wings.