Cover guys

26 July 2010 | By Robert Thickett

he internet has revolutionised the way financial services are transacted. Everything from consumers searching for an adviser to brokers finding financial products can now be done online.

But the main problem with this system is that when consumers type, for example, ’adviser, buildings and contents, insurance’ into Google they are immediately bombarded with direct product offerings and tempted by a wide range of comparison websites.

A poll conducted by Mortgage Strategy earlier this year found that when brokers were asked to rank the biggest threats to their businesses they placed the internet and comparison websites in second place, right behind the economic downturn.

“Competing with internet prices is a problem, despite convincing clients of the quality of the products we offer,” commented one broker on Mortgage Strategy Online at the time.

Others were worried that as more clients buy cheap products on the internet without advice they could lose faith in the insurance sector as claims are declined or limited.

It was this problem that prompted Safe&Secure Insurance Services to expand its buildings and contents panel at the beginning of last week from two providers to 12, with two more on the way.

The firm’s managing director Chris Griffin and sales and marketing director Jason Berry, who joined the company six months ago after leaving his position as head of sales at Platform, see combating the threat that comparison websites pose to intermediaries as paramount.

But since the firm was set up by Griffin nine years ago it has been forced to deal with adversity, particularly with regard to adapting to the changing regulatory environment which hit the company hard.

Griffin started his career working in a NatWest branch in Nottingham. Having only recently left his local polytechnic at the time he was charged with looking after students from Nottingham University.

These days, the name Chris Griffin immediately brings to mind Peter Griffin’s son from the US cartoon series Family Guy. But back in the 1980s the biggest gag Griffin had to endure from students was the fact that he wasn’t working at Midland Bank, which before its takeover by HSBC had a griffin as its logo.

“You can imagine that every time I spoke to a student they’d say I was working for the wrong bank,” he says, clearly having heard the quip one too many times.

He admits that he hated branch life and after two and a half years, at the age of 22, he decided to get out and become a trainee negotiator at an estate agency.

But with estate agencies being somewhat stuffy institutions, getting in was easier said than done. After hundreds of interviews he joined an estate agency owned by Prudential Property Services where he finally began working as a trainee negotiator.

Griffin eventually went to work for Credit Suisse-owned Winterthur Life in Basingstoke for 10 years, ensuring that estate agents converted house sales into mortgage leads.

He then moved to estate agency Cornerstone Abbey National for a further two and a half years before realising at 35 that he was staring at an opportunity to build his own business in the form of Safe&Secure.

“At the time Winterthur Life owned Churchill Insurance, which everyone thought was British because of its bulldog logo,” he says. “But it was Swiss-owned before it was sold to the Royal Bank of Scotland.” Winterthur was looking at launching the Churchill brand to mort-gage brokers because up to that point it had only been available direct, Griffin recalls.

“I thought it was a fantastic idea as before most brokers sent B&C cases to Abbey or Halifax for a £70 to £100 referral fee but none got renewal commission,” he says.

“So I went out into the market and approached firms such as Paymentshield and Centrepoint Insurance Services - which was subsequently bought by Assurant Group in 2007 - to get them to provide a bedroom-rated product.”

The problem at that point was that if a client was getting a mortgage they would have to wait for the property to be valued before they got sum-assured insurance.

“But I wanted to be able to do it at point-of-sale, so if I was your mortgage adviser I’d arrange your mortgage and B&C insurance but I wouldn’t be able to do it sum-assured,” says Griffin.

“So we needed a quote system that could do this at point-of-sale because brokers wouldn’t bother to go back for the B&C cover for an additional £50 to £70 - it wasn’t worth their while as they were getting £500 on the endowment and £300 on the mortgage.”

So Griffin was involved in bringing to market the first bedroom-rated policy in the UK with Centrepoint. The firm was clearly tapping into a ready market as he says it was soon distributing a thousand policies a month.

But obviously that all changed when Financial Services Authority regulation came in and advisers were given the choice of either being directly authorised with the FSA or gaining authorisation under a network.

“Because we were a master packager there was no space for us,” he says. “We became a white elephant and didn’t fit in, so we had to go niche to survive.”

With the likes of Legal & General stipulating that advisers authorised with it use its B&C insurance product, this spelt disaster for the business Griffin had set up.

“Eight of my top 10 producers were L&G people so it destroyed our business overnight,” he says.

Instead, the decision was taken to capitalise on the apathy among brokers with regard to selling B&C insurance. With the market nearing the top of the boom, for most brokers the argument for pursuing an additional £50 was a tough sell when it increased the mortgage interview time and they had a queue of individuals looking to get mortgages.

Fast forward six years and firms offering general insurance and protection deals argue that they’re still fighting against this broker apathy despite the fact that the market has been radically transformed by the downturn.

So for firms like Safe&Secure there is still an opportunity, and Griffin argues that this continues to be one of the company’s key selling points - lack of hassle for brokers and no additional professional indemnity or administration costs.

“We do the compliance and the sale,” he says. “It takes everything away from brokers, and we deal with renewals as well.”

But even taking away the hassle factor it’s a basic principle that when times are hard one makes the most of what’s available. This principle applies to any business in any sector but especially to mortgage brokers.

When I ask Griffin whether he’s seen any change in the mentality of brokers with regard to B&C cover he says he should have, considering market conditions, but admits he has not. However, he is sympathetic when it comes to what is holding them back. “Brokers realise that they should be offering B&C insurance to clients,” he says. “But when you want to get home to see your kids and you’ve already sat through two hours of choosing the right mortgage with a client, it’s a hard sale. To do something like B&C or accident, sickness and unemployment cover must be a battle in the broker’s mind.

“I sometimes think it’s nice for brokers to be able to say to clients that their mortgage has been done but they will get their B&C cover arranged by someone else. But I don’t think advisers have moved on to sell more B&C insurance. Generally, when markets quieten down and you’re doing fewer sales you try to optimise your income from that lower number of sales whether you are a retailer, mortgage broker or a lettings agent - I’m not sure that has happened.”

So why are brokers failing to make the switch and make the likes of B&C and protection more of a priority?

“Well, I supposed it’s hard to change a way of working that has become a habit,” he says.

Both Griffin and Berry say an ideal penetration rate would be 50% of mortgages packaged with a B&C policy, but both admit it’s a mountain to climb.

“As a norm, I’d say intermediaries should be able to convert between 28% and 30% but in reality it’s more like 10% or 15%,” says Griffin. “If we’ve got four leads we will convert three into commission or business for brokers, so 75% of our leads complete.

“Admittedly, the leads are warm because it’s a good time to buy B&C cover as the consumer is arranging the mortgage so there’s a change of circumstance. But that’s our niche - we don’t sell the mortgage or life insurance - just B&C and ASU cover so brokers can be sure they are dealing with a specialist.”

Safe&Secure has also had to adapt to the way the market has developed, with the expansion of its B&C cover provider panel.

Berry, who left his position as head of sales at Platform after 10 years to join Safe&Secure last December, is, like Griffin, fully aware of the virtue of being adaptable.

The former footballer - Berry played at York City FC from 1986 to 1989 - has been working to expand the firm’s proposition. He says its earlier panel of just two providers - Fortis Insurance and Lloyds TSB - wasn’t enough in terms of compliance or conversion. The new line-up includes Zurich Insurance, Axa Insurance, Lemma Europe, Brit Insurance, Catlin Insurance, Chaucer Insurance, DAS Insurance, Groupama, Jubilee Insurance and Lawshield UK. It is also in talks with two other companies that it hopes to add shortly.

“We wanted to ensure that we had a simple process but we also gave brokers the best conversion opportunities, so what we’ve got with our other providers are guarantees that are unique in the market,” says Berry.

“It’s a bold statement to make but we guarantee to undercut any insurance premium in the UK, including the comparison sites that are such a threat to the broker sector.”

It’s the latter point that the pair is trying to hammer home, and encourage brokers not to simply leave consumers to contact their mortgage provider for B&C cover but rather refer them to a specialist where they can access the benefits of cheap, tailor-made cover.

Griffin also argues that for all the benefits that comparison sites may extol, user experience is poor.

Anyone who’s ever used a comparison site will know of the confusing list of options that come up, with various products from the same provider all differently priced and no explanation as to why one is more expensive than another.

He says that he recently had just such an experience searching for pet insurance and in the end had to ring providers direct rather than rely on comparison sites’ sourcing facilities.

Also, with providers such as Churchill, Directline and Aviva opting out of comparison sites, the time-saving benefits that they once offered no longer exist.

“We’ve learnt in the past three years that the customer experience is key if you want to retain business,” he says. “Sometimes you go into a shop and feel good about the service that you’ve had - it could be John Lewis or a posh car showroom where you enjoy buying a product because it’s a soft sell. When you go away after the transaction you feel good. We’ve worked hard at developing the customer experience so 97% of those who buy a policy from us will keep it. We’ve not had a lot of clients wanting to cancel policies.”

Berry adds that an important part of their business is that they have no commission-only staff.

“Our employees have to have been in the industry for at least three years and they are salaried so they understand it’s got to be a soft sell,” he says. “That’s where you have to start because you need high calibre, salaried staff who make your company different from most others.”

Berry argues that tailoring products to suit the customers the firm is engaging with is also vital.

“If we’re talking to a consumer about the specifics of a policy we will ensure we’re comparing apples with apples,” he says. “For example, we will compare a £500 excess with a £500 excess if we’re discussing premiums.”

“So although we’ve got a price-beating guarantee as a USP we’re not going to automatically jump in with the lowest figure because we want to ensure the customer gets the best possible product. Having up to 20 products and 12 providers gives us a good chance of doing that.”

As well as having a strong originating price Berry says that having 12 providers on the panel ensures they remain accountable, so when policies come up for renewal there aren’t any big increases in premiums if there have been no claims.

“Because of our relationships with providers we are able to ensure there are guarantees in place regarding renewals because we think there’s a really low tipping point of about a pound a month,” he says.

“If a premium goes up by more than a pound at renewal we feel it’s enough to prompt the customer to start searching the internet again. If it’s below a pound we find there’s a level of apathy and comfort around the value they’re getting.”

With the mortgage market still suppressed excuses from brokers for failing to capitalise on ancillary sales are thin on the ground, but with consumers using the web to search for financial services, offering them a facility that is stress-free and reliable should be the priority.

Hopefully, distributors such as Safe&Secure will at last be able to convince brokers that B&C insurance is worth the hassle.