We’ve got it covered

25 January 2010 | By Christine Toner

A few years ago Kevin Paterson and Nigel Payne were two of the biggest names in the mortgage market.

Payne was heading up BM Solutions, having previously been in charge of fellow HBOS specialist subsidiary The Mortgage Business. Paterson on the other hand had been sales director at Park Row before becoming group marketing director at Enterprise.

But the past three years has seen drastic change across the market and now these two stalwarts of the mortgage industry are fast becoming two of the biggest names in the insurance world, as a result of them both moving, within a month of each other, to Assurant Intermediary.

Paterson joined Assurant Intermediary as sales and marketing director in December 2008 ,with Payne taking the helm as managing director in January 2009.

Despite being in the insurance market for little over a year, they have already witnessed changes in the sector, such as the ban on single premium payment protection insurance in March last year, with providers prohibited from selling it from October 2010.

“Not all of these have been because of the credit crunch,” explains Payne. “The desire for intermediaries to sell insurance has increased.

“One of the main products sold last year, which accounted for a substantial part of our business, was single premium payment protection insurance.

“That obviously came to a grinding halt around March time. We stopped it probably earlier than some others.

It was started in 1950 by a guy who sold his stamp collection - that must have been one hell of a stamp collection

“We’ve also seen a significant reduction in the number of intermediaries out there and a shift in terms of consolidation. So looking at the landscape from October 2008 to October 2009, I don’t think you could have expected a greater degree of change than what we’ve seen.”

Assurant was originally called the American Bankers Association. It was launched in the US in 1950 by an American with a rather unusual source of funding.

“It was started in 1950 by a guy who sold his stamp collection - that must have been one hell of a stamp collection,” laughs Payne.

At the outset ABA focussed on traditional general insurance, payment protection warranty products, buildings and contents and general property related insurances and healthcare insurance.

In 1999, it was bought by a division of Dutch finance bank Fortis. In 2003, the decision was made to float the division in an initial public offering to become the publicly traded company Assurant.

The company, in one shape or form, has had a presence in the UK since the early 1970s, but primarily offering products to businesses and corporations rather than the retail sector.

“It would have arrangements with some of the major high street retailers and catalogue companies and some of the main credit card providers, primarily focussing on payment protection,” says Payne.

Then, two years ago, the strategy changed and the company decided it wanted a presence in the UK intermediary market, both the IFA sector and mortgage broker sector.

“To enter that market Assurant decided to acquire a number of companies that were already operating the model in that market,” says Payne.

“There were firms called D & D Homecare, Centrepoint, Adminicle and Swansure. These were consolidated and rebranded as Assurant Intermediary Limited.

“That was concluded around January 2009. Hence part of the reason why it brought in a new management team - three of the four directors are brand new.”

Assurant Intermediary is part of Assurant Solutions, which is one of four main companies within the global group Assurant Worldwide. The others are Assurant Speciality Property, Assurant Health and Assurant Employee Benefits.

There has been a disconnect with some brokers and insurance because there has been a lack of confidence in the product

“Assurant Worldwide now employs about 15,000 people in 13 countries,” says Paterson. “It operates in Europe, not only in the UK but in Italy, Spain and Germany. But its core markets are North America and Latin America.”

“Assurant Intermediary is unique within the whole of Assurant Worldwide,” adds Payne. “It does not offer an intermediary business like us anywhere else.”

Assurant Intermediary is a specialist general insurance and protection provider. It only deals with intermediaries and does not deal direct to consumers. Its products include mortgage and payment protection insurance, income protection, residential buildings and contents insurance, landlord property insurance and home emergency cover.

But with the Assurant Intermediary brand only set up two years ago, the company’s childhood has hardly been plain sailing. Born into the credit crunch, its first 18 months can’t have been easy. But Payne says the firm has fared well.

“We haven’t had to make any redundancies as a result of the credit crunch,” he says.

“We’re tracking about the same number of policies sold as last year in a market that’s collapsed by maybe 60%. At the moment we are actually doing some level of recruitment for some specialist roles.”

But Payne says the profile of business the company writes has changed, as have its clients.

“We’ve gone from typically being focussed on small, directly authorised brokers in the North and the Midlands to a wider spread,” he says. “We still cater for those small DA firms, but now also deal with big networks, big mortgage clubs, debt management companies and so on. We’ve spread the client base, so we deal with a wider base than it was 12 months ago.”

Of those networks Assurant Intermediary is now working with the one, Paterson says, that has impressed most is Personal Touch Financial Services.

“The system integration and work we’ve done has been very good,” he says. “It seems to have a big appetite for new business relationships.”

One of the biggest challenges facing the company this year, of course, was the FSA’s decision to remove single premium PPI policies from the marketplace.

Single premium PPI made up a considerable amount of business for insurance providers across the UK, so removing it was bound to have a serious impact.

But Paterson is sangfroid about the situation, especially against the backdrop of the credit crunch.

“Equally, with one of the businesses we acquired, 60% of its business came from one broker and that broker is no longer in business,” says Paterson.

“The work we’ve been doing this year has been centred around building new relationships. Single premium policies have not been removed from the market yet. It doesn’t go until November 2010, but we took the decision to stop earlier as we thought it was a morally bankrupt product and we needed to get it out.

“A big chunk of our business went there and a big chunk went when one of the large brokers we worked with went out of business. So Nigel and I have been focussing on talking to networks, clubs and big DA businesses and establishing relationships. We’ve picked up the slack of any business lost,” he adds.

Brokers have long been known as an adaptable breed. But when times are tough the temptation may have been to batten down the hatches and knuckle down. Indeed, cultivating relationships with firms you know little about and selling an unfamiliar product may have been low on their agenda.

Payne says the biggest challenge Assurant Intermediary faced in building relationships in the sector involved the brand.

“It didn’t have any substantial presence in the market we’re in, even though it had been in the UK as a brand for a number of years and is huge in America,” says Payne.

“In the intermediary sector there was little by way of recognition. So we had to get the brand out there, get it recognised, get it associated with what we do and who we are. And that is probably where, in the early days, Kevin and I had the biggest impact, by us being so well known in the marketplace.

“Probably from the word go, when it was announced where we were going, everyone said ‘Who? Where?’ They started to ask questions about what Assurant Intermediary was. I think we’ve got over that hurdle now. Most people have heard of Assurant Intermediary in one guise or another. So that was the most immediate challenge, getting the brand out there.”

Of course, getting the brand in the public domain can be easier said than done. Paterson says the company used a variety of methods to get the brand noticed.

“There was a whole range of things used, from getting that initial brand awareness, lots of PR, advertising, conferences, getting out there and meeting people,” he says. “Plus the business roadshows we did. We spent a fair amount of money on brand awareness so we could get the business up and running quickly and we’ll continue to do that to some extent in 2010, but I think we’ll be much more targeted.

“We’ve got a range of developments coming in that we’re currently working on that will give us the necessary leverage to kickstart all those relationships properly.”

While both Payne and Paterson are adamant that Assurant Intermediary has fared well through the crisis, it’s no secret that even the insurance sector has been hit hard.

Payne says one of the biggest challenges facing the industry right now surrounds how products are constructed.

“There’s also a challenge around maximising the opportunities that intermediaries get to sell insurance,” he says. “We suspect there are still a number who could take the opportunities they get for investment advice or mortgage advice and sell more than they currently do.”

Payne says providers also need to help brokers expand the range of products people sell. He says brokers may want to sell products that don’t actually warrant advice and the challenge is figuring out how brokers can sell such products on a non-advice basis.

“Producing a wider product range and maximising more of the opportunities brokers get is important,” he says. “And there needs to be a change in some of the products that have been around for a long time to a more sensible structure, based around the Treating Customers Fairly initiative, compared to how it’s been in the past”.

Diversification may have been the buzzword since the credit crunch began, but that does not automatically mean brokers will be receptive to it. Payne says most brokers are, but that was not the case two years ago.

“The good ones did it, but not everybody. They’ve now woken up to the fact that it is a good source of income, which can build over a period of time and ultimately adds value to their business in repeat commission,” he says. “The big firms out there will be starting every financial year knowing they’ve got a substantial income coming in from the insurance products they’ve sold over the last few years.”

After talking to a number of firms Paterson says it’s clear that a couple of years ago insurance income was the icing on the cake, but today it’s the cornerstone of their businesses.

“There are many firms that have got significant books and are pleased they took the route they originally did because it has managed to keep them solvent,” he says. “But the real win is in building a book that they can sell. So, not only does the broker get commission on every premium the client pays, but when they’re ready to leave the industry and they want to sell their back book, we’ll buy it off them. So it might be relatively small sums of money but that soon builds up and we’ve done something like 13 acquisitions of back books in 2009.”

But how easy is it for brokers to get involved in insurance? A broker may have a depth of knowledge when it comes to selling mortgages, but is selling insurance a whole different ball game?

“For years there has been a slight disconnect with some brokers and insurance because there has been a lack of confidence in the product,” says Paterson. “It is a slightly different language and it took us a couple of months to get our heads around it. Once you understand, it’s painfully simple. A lot of brokers shy away from it because they don’t have the confidence. One of the things we did was to educate the market.”

Assurant Intermediary roadshows have gone some way in helping achieve this.

“There are a number of initiatives we’ve got lined up for 2010,” says Paterson. “We’ll not only build on awareness of the brand we’ll also, hopefully, get a lot more brokers more comfortable with the products and provide them with a regulatory framework that gives them confidence to sell.” Paterson is adamant that the key to becoming confident in selling insurance products is education.

“Brokers should aim to understand those contracts inside out like they do with life policies and mortgages,” he says. “I know brokers who can recite an entire mortgage range. That’s the kind of application they need to put towards everything else.”

“It all comes back to servicing their customers’ needs,” adds Payne. “Two or three years ago you’d have brokers who would just satisfy a mortgage need. Now it’s about thinking how can we look after our clients complete financial needs, because if we don’t look after them somebody else will. If you only sell them a mortgage someone else will provide advice on all the other products they need, so you might lose the whole lot.”

Of course, while some brokers have been actively seeking alternative income streams to weatherproof their businesses, several have fallen victim to the credit crunch. Many of these brokers will have battled against the tide for as long as possible, but Payne says it’s clear that some in the industry were not prepared for the recession and didn’t set themselves up effectively.

“The evidence is there,” says Payne. “For those who have gone out of business the answer has to be, yes, they weren’t prepared. I think there are many people who have gone through a big learning curve in the last 12 months and a lot of people have had to make hard decisions.

“I always believed the bubble was going to burst at some point - it was just a question of when and how fast. When was probably about right, it just went a lot quicker than anyone could have expected. And therefore the ability for people to react quickly was somewhat diminished because it happened so fast,” he adds.

The upside is, says Payne, that there are still a lot of good firms in the market and those still in business will come out with a far more cost-effective structure, more income streams and less competition than prior to the downturn.

“If we say the number of brokers has gone from 25,000 to 15,000, there were some brokers who maybe weren’t capable and the market was always going to have to have a shakeout,” he says.

But it’s not just diversifying into different sectors that will help brokers battle against the market downturn.

Paterson contends that many of the brokers who have survived are the ones who have experienced a recession before and know how to sell.

“Unfortunately, a lot of the guys and girls who came into the market in the last 10 years have never had to sell,” he says. “Business walked in through the door so now, faced with a situation like this, they just sit there waiting for the phone to ring and wonder why they’re going out of business and have to become a mini cab driver or something to top up their income. Because they’ve never had to sell, they don’t know how.”

Paterson says the brokers who have survived will have more experience, be more professional and will take marketing seriously.

For Assurant Intermediary, 2010 will be about innovation. In Q1 it will extend its product reach to include a panel of providers. There will also be changes to product offerings.

“With our accident, sickness and unemployment product we’re going to completely change the way the product is sold,” says Paterson. “Currently, it is archaic, dated and not fit for purpose. It needs to be changed.

“You only need to look at the FSA - it has a real problem with it. The Competition Commission has a problem with it. The government knows people need it. Brokers are worried about selling it and the Financial Ombudsman Service hates it. You’ve got this tsunami of feeling against a product that is desperately needed, but it’s so dated in the way it’s constructed and sold that it’s not fit for purpose.”

Paterson says the problem is that the current accident, sickness and unemployment products have a one size fits all mentality and the impact of the credit crunch has led to insurers exploiting any loophole to avoid paying out. With unemployment so high there has never been a bigger need for a suitable product.

“When everyone was making money in the mid to late 1990s insurers, to a large extent, didn’t care too much about the claims. But now they’re scrutinising every condition and every clause, and if there is a way they can get out of it they will,” he says.

“We think that’s fundamentally wrong. If you underwrite somebody for a product you should pay out. And there has been some suicidal pricing in the market on those products. It’s not sustainable. We want to bring back the integrity, make it TCF, make it broker centric and provide clients with a cast iron guarantee that says if we underwrite you, we’ll pay out.”

For the insurance sector as a whole Payne predicts there will be little change this year and says the next big news will be the Retail Distribution Review in 2012.
“I think we’ve got a challenge and it’s how we react and how we support our intermediaries though it,” says Payne.

Of course, those intermediaries working with Assurant Intermediary can rest assured they’re in safe hands.

“We all have an intermediary background, not an insurance background,” says Paterson. “We look at things from an inter-mediary perspective.

“We have an acute understanding of the needs of intermediaries and it is this that will be the most telling and important factor next year.”

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