Affinities choose to access the insurance market in a variety of ways. Ralph Savage discovers that while schemes using a single insurer still have their place, the panel approach appears to be taking hold
Affinities and partnerships have been one of the most dynamic areas of personal lines insurance marketing in recent years. The scramble for distribution through the use of established brands that have an affinity with customers or members has encouraged significant competition in the insurance market.
As the sector has matured and consumers became used to organisations like Marks and Spencer, the Post Office, Sainsbury's or the RSPCA offering them insurance, the question for partnership brands has been whether to trust one insurer alone to service those valued customers' insurance needs, or whether a broad-based panel is required.
Clare Ryder, managing director at consulting firm Salient Solutions, suggests that the trend is very much one of moving towards using panels: "Traditionally, solus agreements worked well because insurers were more consistent in pricing and were achieving better underwriting returns but at that point affinities hadn't recognised the value of their customer base."
Deriving value from a partnership deal is about far more than commission today, as Geoff Carter, managing director of Outright, adds: "Profit share has always existed, but more lines of income have become available than just commission. If you went back a few years the affinity groups would want a share and they'd try and maximise that commission. Today there are revenue generation opportunities from instalments, uninsured loss recovery, claims referral fees, breakdown sales, among others."
Ms Ryder maintains that one insurer may not be the best route for either party: "You are a brave insurer indeed to be able to go into a solus arrangement with absolute confidence. There are a number that would argue the volume and prestige it provides makes it worthwhile, but this is increasingly rare."
And David Rudd, retail director for Heath Lambert Insurance Services, agrees: "No one underwriter can cater for all the customer segments within a database and so it was inevitable that solus underwriters should either start to operate alongside panels, establish them themselves or acquire them."
However, Mark Allan, sales and affinity director at RSA, declares the situation to be less cut and dried. The insurer operates solus deals with a number of significant brands, notably motor manufacturers, such as Ford, Kia and Toyota. He explains the typical situation will involve a 'hand-off' panel, where RSA acknowledges there are particular segments of the partner's book where it will be uncompetitive: "We do not have a current proposition where we will manage a panel on the partner's behalf. Our job is to protect the integrity of their brand. In the sole supplier offering, we can make sure that brand is replicated throughout the claims experience, whereas on a panel this is more difficult."
This approach is replicated elsewhere, as Norwich Union's hand-off agreement with Capita BDML for supermarket chain Asda's insurance offering illustrates. However, competition is fierce and there is constant speculation surrounding every deal, especially given the upheaval seen by changes like HSBC swapping BDML for BGL on its motor book in August.
One of the latest entrants is high-street retail group the John Lewis Partnership, with its Greenbee brand launching into the motor market with an offering backed by Fortis-owned Outright in July. John Brady, head of products at the company, explains that for household, travel and wedding insurance it is happy to operate a solus deal through Axa for the sense of control it retained over the "customer journey".
"When we were considering how much more price sensitive car insurance is and how much more inclusive you have to be, we had a look at panel provision and Outright seemed to strike the right balance between experience, product capabilities and service levels," says Mr Brady. "We felt the need was not to have a great number and so we have four or five panel insurers that cover us well enough at this stage. Then it will be a process of review - it's still early days."
Like most things within insurance, trends appear cyclical and while the balance of power will often switch between manufacturers and distributors, David Sweeney, household and commercial director of high net worth specialist Sterling, points out that there are some obvious signs of insurers trying to wrestle back control. "NU has promised on television that it will look at what everyone else is pricing compared to the insurer's. The next step is then to take a commission and sell somebody else's product using their own brand. Everything is getting so blurred between manufacturer, retailer and wholesaler."
Peter Thompson, managing director of BGL's affinity business Junction, agrees that given the significant marketing spend of direct insurers, consumers could conceivably see value in a NU or a Direct Line broking their cover. "It is a realistic prospect," he says. "The insurer would play the role of the lead on the panel, look after customers that you are bringing in, harness the marketing spend you have invested and use it wisely by making sure you support the risks you don't want. This will support the market and help build the brand - I think this is likely to be something that gathers momentum. There is a mindset change in today's consumer. They want to see choice."
However, Martin Membury, a partner at law firm Pinsent Masons, explains there are technical and structural issues that would need to be addressed: "If you are an insurance company rather than an intermediary, you are meant to restrict your business to underwriting and not broking. But that isn't really a problem to the large insurance groups because alongside their pure underwriting companies there will usually be other service companies to which this could be passed on."
At the time of going to press, NU had already started advertising its promise to aggregate other quotes against its own. Would the creation of an overt hand-off panel represent a move to create an affinity with consumers?
RSA's Mr Allan says it is all just about good customer service: "If you have gone to the trouble of attracting the customer then it is good customer service to offer a seamless hand-off to someone that can still exhibit all the brand values that the initial call had."
Quote me happy Churchill. Talk about blurring the lines.
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