The online challenge

15 March 2010 | By Christine Toner

While the mortgage sector was one of the worst hit by the credit crunch no area of financial services emerged unscathed, including the insurance sector. Funding issues, consumer apathy and tighter criteria have added up to tough times for brokers and lenders in the insurance industry.

Mortgage Strategy teamed up with Assurant Intermediary to survey mortgage brokers selling insurance to assess the mood and find out what they are most concerned about.

Unsurprisingly, the economic crisis figured highly when respondents were asked to name their biggest worry about the sector going forward.
The lack of mortgage business - which is linked with insurance products - was stated several times, with one broker saying that “Economic and market conditions are the biggest challenge. Business is all mortgage-related and trying to sell more products when consumers are cutting back is difficult”.

But interestingly, the second biggest threat to brokers turned out to be the internet. The past few years have seen a surge in the number of comparison websites operating in the sector.

You’re doing well these days if you can sit through a television programme without an advertisement for the latest price comparison website popping up. And it’s these sites that are making brokers fearful for their livelihoods.

“The internet is the biggest threat,” says one. “As more clients buy cheap on the internet without advice they will lose faith in the insurance sector when their claims are declined or limited.”

“Competing with internet prices is a problem, despite convincing clients of the quality of the products we offer,” says another.

“Internet comparison sites offer customers the opportunity to arrange their own insurance and cut brokers out of the equation,” says a third.
But what do providers make of these findings? Is the internet really as big a threat as brokers suggest?

“Comparison sites and the internet are only a threat to those advisers who recommend on price alone,” says Kevin Stevens, head of sales at Bright Grey.

“When recommending a protection policy a host of other factors need to be considered. Chief among these are claims paying ability along with claims paying statistics. After all, that’s the reason consumers buy these policies.”

And Stevens adds that somebody needs to advise consumers on how much cover they need.

“Covering a mortgage debt is easy enough but what about more fundamental family needs such as income protection?” he adds.

“The biggest threat isn’t the internet or comparison sites, it’s the mindset. Most consumers want advice and reassurance. They want to feel safe in the knowledge that what they have in place to protect their family and mortgage will do what it’s supposed to should the worst happen.”

William Watling, business development director at Capita Financial Software, agrees with our finding that the recession is a significant threat to broker business but disputes the claim that advisers are preoccupied with worrying about the rise in prominence of consumer comparison sites.

“We have found that many advisers aren’t worried about comparison sites but are instead embracing them, in many cases building them into the client proposition on their own websites,” he says.

“Our experience shows that brokers can still provide personal service that goes beyond what consumers want if they’re only shopping for the cheapest option. Financial advice is much more than that. It comes down to what clients want, what services brokers want to offer and the fee they want to charge.”

Ian Wilson, head of sales Halifax Intermediaries, says the threat comparison sites pose depends on the type of customers involved and the products they are seeking.

“These sites are certainly a competitor for brokers and for us in the market working with brokers,” he says. “But if the first port of call for consumers is brokers they have the opportunity to make sure sites do not dominate the scene. Brokers must make sure customers are aware of the quality of the products on offer. There’s a lot more to buying insurance than logging on to a website, entering a few details and finding a deal.

“If a customer is looking for a single product - for example, buildings and contents - they may just respond to a TV advertisement but with a wider transaction a broker should normally be involved at an early stage.

“So brokers have to make sure clients check with them first and this can only come from building strong relationships with customers,” he adds.

Of course, brokers can’t help but be concerned. The past two years have been rough and it would take a pretty optimistic professional to look on the bright side. Any perceived threat to business levels is likely to be a sensitive subject.

But Tim Johnson, chief executive officer of Paymentshield, says brokers should be realistic.

“Consumers still value expert advice and that is by definition missing from a self-service model,” he says. “In addition, the mortgage process is complicated and allows brokers to build relationships with customers which the internet can’t replicate.

“Of course, the web has already taken some market share and it would be unrealistic to pretend that some consumers won’t continue to buy in that way. But like all markets, each distribution channel will find its level and I am confident that mortgage brokers, intrinsically linked into the house purchasing process, will remain well placed to influence the sale of household and related protection products.”

Susan Barclay, head of marketing at Scottish Provident, also believes that the service offered by online price comparison sites is not comprehensive enough to oust brokers from the market.

“When dealing with complicated products such as IP and critical illness cover it is vital that consumers fully understand what they are buying and are sure their product provides the level of cover they require,” she says.

“The internet alone cannot offer this in-depth, personalised service as there are a host of factors which need to be considered and advised on to ensure consumers have the most appropriate cover for their circumstances.

“For example, the advantage of a multi-benefit protection product is its flexibility but without the expertise of an independent adviser consumers are unlikely to fully understand this and gain maximum benefit from the deal,” she adds.

“Products which offer these valuable but complicated benefits cannot be fully digested without professional advice so the internet is destined remain as just one strand in the marketplace rather than dominate it.”

Aside from the surge in price comparison sites and the pressures facing the economy, regulation is also cited as a concern by brokers surveyed, with one claiming the biggest challenge is “the increasing burden of regulation and the changes being foist upon us by the Financial Services Authority”.

The FSA announced last year that its Retail Distribution Review will cover the protection market by 2012, heralding several important changes in the sector.

Advisers will be banned from recommending products that automatically pay commission, while trail commission will only be allowed when there is an ongoing service to the client.

A Professional Standards Board will be set up to implement and oversee higher standards in areas such as qualifications and continuing professional development.

The minimum qualification for advisers will be QCF level 4. For existing advisers, an oral version of the examination will be allowed but this will have the same content.

Understandably, brokers are concerned about what impact these and other changes in the RDR will have on their business.

“The requirement for higher qualifications is bound to see some intermediaries failing to make the grade,” says one respondent to the survey.

Like the mortgage industry, the insurance sector is required to abide by the principles of the FSA’s Treating Customers Fairly initiative, and businesses across the financial services sector have found the added red tape difficult to deal with.

“Sometimes dealing with bureaucracy can eat into valuable time that could otherwise be spent with customers,” says Stevens.

“But the six principles of TCF are consumer-focussed and should be used to add credibility not only to the industry but also to individual advisers’ offerings.”

Johnson says brokers have nothing to fear.

“Regulation has been with us for over 10 years and the sector has arguably raised its standards during that time,” he says. “There will inevitably be amendments to the regulatory regime in the future but well-managed firms selling high quality products will always have a place in the market.” One way of ensuring this is the case is to make use of the help at hand. Most providers now offer guidance on regulation.

“The support available in terms of regulation shows we are trying to make it as simple as possible for brokers,” says Wilson. “Of course, regulation is always a consideration for brokers but it’s up to providers to make the process easier for them.”

One challenge facing the market that many of the providers we spoke to highlighted is indifference on the part of both consumers and brokers.

“I believe the biggest challenge is the apathy of some brokers and consumers,” says Wilson. “When a customer looks for a product such as protection online these days there’s always a chance they will come across other products too, including buildings and contents cover.

“Brokers who refuse to get involved in certain products such as buildings and contents should realise this attitude could endanger the whole sale, especially if consumers think they can go elsewhere and get everything they need in one place.”

Johnson says the biggest threat is that consumers might think of protection as an optional extra rather than an essential element of buying a home.

“The household insurance agreement is still one of the most complicated contracts a consumer will ever enter into and it’s there to protect most people’s single most valuable asset,” he says.

Products that offer complex benefits can’t be properly understood without the expertise of a professional

“I think that merits receiving appropriate advice from a trusted adviser.”

Our survey found only a small number of brokers - 4%- would not consider offering either ASU or IP.

“IP can be a complicated business and it’s still more expensive than other protection products, which is why it is often overlooked,” says Stevens.

“But in many cases it is the most important policy to consider. Nearly everything we do as consumers relies on having a regular income coming in.”

Similarly, some respondents said they would not consider offering building and contents cover.

Given the tough times everyone in financial services sector are having to endure the idea of shunning an extra income stream may seem odd but Wilson says some brokers do this because they think the work is more complicated than it is.

“Some think it takes a long time to organise and then worry about follow-up adminstration and customer queries,” says Wilson. “They’re reluctant to get involved in case something goes wrong. But we have a claims team that is there to tackle this sort of thing.

“For example, in Cockermouth and Carlisle after the flooding we had personal claims consultants on site within hours. Intermediaries should consider factors such as this when deciding where they place business.”

One of the questions in the survey asked brokers what matters most to them when it comes to selecting a provider. Top of the list was competitiveness.

“Competitiveness is an interesting word,” says Wilson. “If brokers mean competitive as in the cheapest price, that’s not a situation I’d want to get into.

“It should be about looking at quality in combination with price. This means more to customers than saving a fiver here or there, and we go to great lengths to explain this.”

Stevens argues that there’s enough competition in the market to satisfy brokers but adds that it’s where the emphasis of that competition lies that’s important.

“More attention needs to be given to products that can fulfil consumers’ needs and the respectful treatment of people at the point of claim,” he says.

“It concerns me that as an industry we sometimes get our priorities wrong and end up arguing the toss over factors such as the price of the policy and the number of medical conditions covered rather than putting a greater emphasis on, say, the percentage of claims that are paid.”

The past couple of years have seen the insurance sector battle against the credit crunch like the rest of the financial services industry. And with the popularity of price comparison sites, increased regulation and the ongoing struggle against apathy it seems the challenge is far from over.