In February this year Direct Line launched a high profile television campaign to promote the fact that it had entered the direct commercial market, the first time a major insurer had spent millions targeting small businesses in such a public way. Jonathan Swift speaks to Direct Line for Business head Kate Syred about the thoughts behind the move, the competition and early progress
Direct commercial has been spoken about for years as a potential threat to the broking market in the small to medium-sized enterprise space. Among the many launches to fall under this banner are Premier Line, which was acquired by Allianz in 2006; Axa Business Solutions, which white labels policies on behalf of BGL and Lloyds Bank; and Xbridge, which only two weeks ago sold a 38% stake to Brit Insurance.
This month start-up Coverzones opened for business - targeting the SME sector with a model akin to the personal lines aggregators - while insurers as diverse as Hiscox to Norwich Union all have direct offerings. However, outside the micro-commercial segment, commercial direct does not appear to have made too much of an impact on broker's traditional grasp of the SME market, although the number of players jostling for the sector shows no sign of abating.
Against this backdrop of increased competition the most iconic of all the direct brands decided to get in on the act last year with Direct Line for Business fronted by former Privilege marketing and commercial director Kate Syred.
Bucking the trend of mail shots and print campaigns, Direct Line has spent significantly on TV advertising to raise awareness of its diversification into commercial but will it succeed as well as it had done in the personal lines space?
One thing for certain is that, in Ms Syred, it has someone at its helm with the appetite for a challenge given that, on qualifying as a trained accountant, she decided to work in Vladivostok, Russia, for a couple of winters auditing local banks and shipping companies.
Speaking about her time there she reflects that her Russian progressed little further than ordering a large beer, "because I working such unsociable hours I never got to go to my language classes."
As for her day-to-day life in the Russian port city she reflects: "One of my clients was blown up, while another sat me down and said, 'you know the mafia, they are nice family people really. They only kill each other.' So that was definitely an experience."
Ms Syred went travelling before settling for work in the more stable environment of Calvin Klein as an accountant, before she joined Direct Line as a performance analyst on the breakdown business. Having now been at Royal Bank of Scotland for seven years, she has also worked for Green Flag and Privilege, and comments: "It has been good experience in terms of seeing all aspects of the business. Finance is a good background to give you an understanding but then as soon as you get into general business management you get a better understanding of the technical aspects."
What do you do?
Although she admits the freebies were better at Calvin Klein, Ms Syred comments that her current employer Direct Line is far from a conversation stopper at parties and social gatherings: "It may not be Calvin Klein, but it is a brand people know, and it is a brand that people have an opinion of. It elicits different talking points, but it is still a talking point."
Once seconded to head up the Direct Line for Business project team in February 2007, Ms Syred admits that it did not take long - five months - for them to move from agreeing the proposal was a goer to having a fully fledged proposition. "In my insurance career to date I have now moved around fairly regularly and built up a lot of experience of household and motor customers, and have been able to take my understanding of the marketing and the underwriting sides there and applied them to a new space, which is a big new space for us as a group.
"And personally for me (Direct Line for Business) has been a good opportunity to learn about a new product set, and delve into a different customer group. It has been a fantastic opportunity for me to set up a business from scratch with tens to a hundred of people involved in one way or another."
As part of the process to finalise the Direct Line for Business proposition, Ms Syred and her team tried to fully understand its prospective customers' needs and demands: "One of the real joys for me with this business is that we knew we had to have the customer at the heart of our proposition, from the way we set up the contact centre, to the way we developed our training and created the marketing. So we had to start with who our customers were and what their business worries were.
"And not just their insurance worries, you have to find out what their journey is like? What do they do as part of their working life? And then take that and decide how it relates to insurance, and what do they think of going direct, and what are their thoughts on Direct Line as a brand. So it is a bottom-up approach of really getting into the space."
When Direct Line was originally launched it was very much seen as the nemesis of the broker, which had up until then held sway in the personal lines space. Ms Syred concedes that in the commercial arena it may be more difficult to wrestle market share away - as it previously did in household and motor - but has found encouragement in the acceptance of the brand.
"The market at the moment is obviously broker dominated and always has been," she adds. "But what really has been pleasing is that people are open to Direct Line as a trusted brand.
"It is a different market, because in the personal space customers are of an opinion that household insurance is household insurance and motor insurance is still motor insurance. Therefore, it is commoditised and consumers may not give that much thought to cover. Although Direct Line has tried to change this with its recent campaigns.
"But business people are much more concerned about making sure they get the right cover, because it is their business on the line if something goes wrong."
As such, Ms Syred accepts that Direct Line for Business will not connect with everyone because of its contact centre and online model, but she believes there is a large enough space for a business likes hers to make a mark.
"For me there are business customers who are comfortable about what insurance they need and are comfortable about going through the process themselves to source it, and those customers will come to us.
"It is a natural space for us in terms of our target market. Individuals who are making personal decisions about their personal business and do not need to consult a board or a finance director, and so for them coming from a direct personal space into a commercial one is a natural step," she explains.
"And as long as we can take all the steps to make sure they get the necessary and appropriate cover at a good price - which is obviously one of our key advantages - then that is the market we are looking to target."
That is not to say that Direct Line for Business will not offer prospective customers support having opened a 100-strong contact centre in Bristol to handle enquiries.
She says: "I am perfectly happy for people to come and look at the website, get a quote, and then phone us up, and perhaps go back online again. And that is slightly different to personal lines because you really do have to make sure that they understand what they are buying, and that they may want to read about it online and phone up and ask questions. So we have deliberately made it as easy for the customer as possible to buy using any channel they wish to reach a conclusion."
Given the different specialisms required for a commercial contact centre compared to a personal lines one, Ms Syred believes that Direct Line for Business has benefited from starting its base up from scratch.
"We had to make sure that the people the consumers were phoning obviously knew what they were talking about, because if they do not have a clue what they are doing it does not give any confidence in the brand. So we did have a different approach in recruiting people with a different attitude - and that is in no way disrespectful in terms of our personal lines contact centres - it is just a slightly different skills set. There are different products and you have to deal with customers in a different way."
Despite the possibility for some interaction between the insurer and potential customers, Ms Syred agrees that the joined up contact centre and website approach can only go so far: "If you are a large business, and have got complicated requirements and feel the need for specific advice - including someone visiting your premises - that is not going to be the space we will focus on. That is the space that brokers are best placed to meet."
As for how much of the SME space Direct Line for Business is looking to target and how much market share it would be happy with, Ms Syred is understandably less forthcoming given the amount of time and money RBSI has invested in the business.
"If you believe the likes of Datamonitor the SME space overall is worth around £10bn in premium and obviously internally we have a view about where we can get to, but that is very much an internal view."
"We are obviously looking at the small to small-medium space within SME because we are offering package products rather than bespoke complex combined ones. Therefore, it means we are looking at specific sub-sets of the overall sector but it is nevertheless a substantial number when you think of how many self-employed people there are."
Since launching its first product in September 2007, Direct Line for Business has been very active in building a portfolio including shop, commercial property, tradesman and home workers, and Ms Syred admits it may now be time to take stock.
"We will always review areas we can move into. We are still very young and my view is that we will have to keep reviewing the products because we have to keep on top of consumer needs," she comments. "We have launched eight products, plus van insurance - which we have had for a while - in a short space of time, so in the immediate future we will have to consolidate that."
While Direct Line has obviously never sold products through brokers, ruling out any possible conflicts of interest within that particular brand, parent Royal Bank of Scotland acquired broker-only insurer NIG in 2003 as part of the Churchill deal. How has this relationship been impacted by the advent of Direct Line for Business and has there been any cross fertilisation?
"As Direct Line has no heritage of dealing with third parties it has helped make it easier to commit to this market. But at the moment the way we are structured is that RBSI is no longer in a brand/product world, so we have lots of shared functions", Ms Syred explains.
"So, naturally we have spoken to the people within the commercial underwriting space. We don't have that demarcation that you are an NIG person, or a Direct Line person. It is different from a customer facing role but we are sharing back-office expertise."
As such, Ms Syred insists that from a pricing point of view she has no inside track on how competitive it is vis-a-vis NIG, because the only pricing information she has on all her rival insurers comes from market sources on the outside.
"All we do in terms of price comparison is with the external market, so we never compromise any internal confidences. We do practice those kinds of Chinese walls."
As with its prospective target market, Ms Syred is also guarded as to how much the bank has spent publicising Direct Line for Business, although she is a strong proponent of the decision to use television as well as traditional avenues for its direct commercial marketing spend.
"I think you have to look at how your marketing works, and an integrated campaign has a better chance of maximising its efficiency because it all works together," she explains. "So you see the ad in the paper, you see an ad on television, and even though it requires commitment, it gives us the best chance of pushing the brand out there.
"And as soon as you start talking about television you are talking about significant money. (But as for the spend) you have to look at the market we are targeting in sheer numbers, and it is clearly smaller in terms of individuals than the markets for home and motor, which are 25 million plus in both, and, therefore, your opportunities in terms of maximising big spend is going to be less."
Of course, with many rivals out there in the wider direct commercial space, there is the possibility that others may benefit from Direct Line for Business' spend because it is seeking to change commercial buyers' habits and so it may encourage them to look at the wider market and seek further quotes.
"Obviously because we are moving into a new space, we are trying to get people not just to come to us, but to come direct, so inevitably others may benefit", says Ms Syred. "But we feel comfortable that the power of our brand and the power of the pricing that we are offering is sufficient that we will ultimately be the net winners."
As such she admits not to have spent too much time analysing the competition, although she admits to having read about Coverzones and being aware of Xbridge, to name two. "I know of them but at the moment my focus since our campaign launched in mid-February is getting people to come to us. I am not spending too much time looking at the other direct players. I am more focused on making sure we have got a good product and competitive prices."
That is not to say that Ms Syred does not spend time Googling terms, phrases and words to make sure the Direct Line for Business brand is at the top of page when it comes to internet searches.
"(Do I look) every day? (A better question would be) how many times a day?" she jokes. "It did take us a while but obviously we have to make sure we find as many search terms as customers use to make sure we remain top.
"And it is different to personal lines. If you search for car insurance you can guess someone will put in 'car insurance', 'cheap car insurance' and that is probably about it. Our customers might put in 'business insurance', they might put in 'tradesman insurance', they might put in 'plumber', and that again is a different challenge."
And so the final question. Is Direct Line for Business hitting its early projections?
Ms Syred, unsurprisingly, is not willing to divulge too much other than to say she is "very happy" with progress and that although it is early days claims are "absolutely" running as expected.
However, she is not beyond putting in her own extra time to help sell the brand, outside her own working hours. "I have some people who have been doing up my house and I have been asking, 'who have you got your insurance with?' 'how much public liability cover do you have?' It can get very dull, very quickly. I am surprised that I am not handing out leaflets".
Timing of Direct Line for Business launch: "I think it was partly down to what is happening online, in terms of the personal lines market, and the way that has shifted over the last two to three years. There is now an acceptance of people buying insurance online and self serving and that has helped us shift what has traditionally been a brokered market."
The Direct Line for Business claims team in Liverpool: "It is quite small at the moment, as you'd expect. But they are a very experienced commercial claims team and they are really enjoying speaking directly to the customers, and there is a lot about the claims process that we will want to shout about (in the future). There is always some skepticism about what insurance companies do and how we are not really here to pay claims. But the claim is the moment of truth and you have to live up to your promise."
Possibility for white labelling commercial products: "From our research, and our understanding of the commercial customers, trust is probably even more important than in personal lines space, so if white labelling was ever going to take off it would depend highly on the brand. It would have to be a brand that small business people would trust and accept."
People buying commercial insurance outside business hours: "We sold a policy on Christmas day to a shopkeeper who was clearly not fussed about Christmas or who thought it was their only day off and they were going to buy their insurance. So clearly there are people who want to do their insurance in business hours because they are in business mode, and others who don't. So if you are a tradesman do you really want to be on your mobile sorting out your insurance when you are supposed to be doing a plastering job? Being available outside normal office hours is great, as well having the option of the website to get a quote and call back if you want too, means we are opening up the market beyond the usual nine to five."
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