Joining together

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Guy Anker asks whether cover add-ons, devised by insurers, will actually boost sales in this competitive market

AIG upped the stakes in the office risks market in March by launching its combined office policy and disaster recovery service through an exclusive venture with First Recovery. The insurer is offering companies help in re-starting their business after a catastrophic event at no extra cost, through relocation to serviced offices with data access, in addition to the typical cover for property and possessions.

The policy is being sold as the ideal solution for SMEs, which account for a large percentage of the office risks market. AIG claims that around 85% of small companies go under 18 months after a disaster, as they often have property insurance but not the logistics to re-build their business and ensure continuity.

But this move to spice up a static market is being greeted with a mixed response from underwriters and brokers.

To some in the industry, incorporating disaster recovery is seen as a good idea, especially if it is free. Insurance, after all, cannot retrieve client data, which will be critical to a business surviving.

"Disaster recovery is a key area that we are looking at," says MMA commercial manager Ian Page. Likewise, NIG product manager Garry Jump is giving it the thumbs up: "It makes sense to us and is something we are considering in the future. As a broker-only business we need to offer add-ons to stand out."

However, AIG's move to differentiate itself from other office risks providers, is being treated with caution by other brokers and underwriters. Over the past few years this market has created various add-ons in response to external factors, such as the terrorism threat and emerging compensation culture. The inclusion or option of legal costs and terrorism cover are now seen as valuable.

Top priorities

But there are those who believe business continuity services will not be added to that list long term, either as an add-on or as part of a policy. "In our research, that was not something we saw as a top priority," explains Norwich Union product manager Matt Frost.

Neil Mercier, property manager at Axa, also gives the idea a cold reception: "If a company has a business continuity plan and it is up to date you will not need disaster recovery."

Like AIG, other insurance companies are attempting to differentiate themselves in this competitive sector by offering add-ons to existing policies and specialist services to attract customers.

Norwich Union, which estimates the property protection side of the office risks market to be worth around £800m, offers legal expenses, employee's dishonesty protection and business travel as add-ons to its office and surgery policy, in what the company describes as a "cost-effective package" aimed at SMEs.

In response to the terrorist attacks of September 2001, NU also considered adding terrorism cover as standard but has since provided it simply as an optional extra because the threat was only perceived to be an issue in the major cities.

Axa has a similar view on terrorism, citing the threat as low other than in large, built-up areas. It believes that businesses are generally more interested in the protection of their assets from less catastrophic but nonetheless major events, such as flooding. Employers' liability is a top priority for Axa, which also provides clients with advice on how to deal with VDU issues and repetitive strain injuries.

But not everyone agrees that providing such add-ons to differentiate policies is a good idea. Broker Keith Blackett, commercial account handler at Stenning Insurance Services, believes that insurance companies that do so are wasting their time, certainly at the lower end of the market, as SMEs are more concerned with price than product differentiation.

"From our point of view, as long as the basics are insured then price is the top priority and our clients will look at value for money," he says.

This view is shared by Dennis Veinguard, commercial insurance manager at Churchill Insurance Consultants. He believes that "as most contracts in the office risks markets are similar, the majority of brokers still look to provide a policy on the basis of cost".

While opinions vary as to whether price or product differentiation is the crucial selling point, there can be little doubt that improved distribution is helping make the purchase of office insurance a relatively hassle-free process.

Norwich Union says it can offer customers a quote within seven minutes online or over the phone. Elsewhere, NIG claims brokers can call and get a quote by the end of the conversation, while 83% of MMA's total insurance sales in February were conducted online, according to Mr Page.

Mr Blackett confirms that efficiency of service is something most of his clients look for, adding: "It is a competitive market at the moment. We have seen that there are more insurers operating and they are competitive across the board.

Customer-friendly climate

"Now it is just a case of picking up the phone or logging onto the internet and getting a quick quote. The current climate is a lot more customer-friendly and most companies have standard practices."

The result is a greater variety of available policies because getting a quote is quick, leaving more time to shop around. "It is easier to get the quote from companies these days. There is more choice for customers as there are fewer restrictions and you can, therefore, obtain a greater number of quotes," adds Mr Blackett.

The views of such brokers highlight that, for an office risks policy to be successful, it must be readily available and competitively-priced.

Insurance companies, who put many resources into developing add-ons, such as AIG's disaster recovery, may not like the sound of that but would be advised to take note.

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