When the mortgage market went into freefall in 2008, the buzzword bandied around was diversification. Article after article within the pages of Mortgage Strategy implored brokers to look beyond advising on mortgages and branch out to ancillary products in areas that most advisers had previously ignored – general insurance and protection.
But while a number of networks and larger brokerages have worked hard to broaden the products their advisers offer, it would be fair to say that the idea of brokers pushing GI and protection has fallen on deaf ears.
Is this because they feel unable to compete against the comparative deals online or is there something in particular that is stopping them from offering these types of products?
To debate these issues and more we gathered the great and the good of the industry for a round table discussion in association with Assurant Intermediary.
CONSIDERING THE LACK OF MORTGAGES SOLD IN RECENT YEARS, IS IT SURPRISING THAT BROKERS HAVE NOT SOLD MORE GI PRODUCTS?
Kevin Paterson: There are a number of reasons why brokers are not selling as much as they could be. First, our research shows there is a lack of confidence in understanding the products, even though they are not complicated. There are between six and 12 key points that differentiate products and if you are aware of them it is the same as any other protection product.
Secondly, there is a perception that advisers cannot compete with online aggregators, but that is flawed. Mintel’s 2011 research shows 41% of all GI business was sold via intermediaries. It’s about getting past the issues of not being able to compete.
And finally, advisers have to ask for the business because customers aren’t going to volunteer it. These issues explain why there hasn’t been a bigger increase in sales over the past three years. But there has been a rise as we’ve been pushing at an open door and lots of firms and many principals have embraced it.
Gary Little: What is always a surprise to me are the varying levels of success with different distribution models. With an employed or controlled distribution the appetite levels are higher than ARs or the directly authorised sector, where there is not the same level of control. It is interesting how many mortgage brokers simply don’t buy into GI sales.
Paul Shearman: Part of that is down to remuneration for individual advisers. If I’m a practising principal I am looking at the embedded value GI produces because it’s up to £400 a case. It is a different perspective from individual advisers being paid £50 upfront and that’s it. But the mortgage market is looking tough this year so GI is coming into its own to provide ongoing income streams for businesses. It’s a crucial tool for surviving in this environment.
Simon Hendy: We’ve changed our stance on GI and set up a specialist call centre to deal with sales. It’s a price-driven product but it’s also confidence based so when we have call centre girls talking non-stop about GI, buyers trust them more than those who do the odd product without a firm grasp of the details.
Andrew Perryman: It is easy to sell with more product knowledge. The perception, rather than the statistics, is that all GI is sold cheaper online. The reality is that not all GI products are the same. The tactics some aggregators use to show the importance of price is poor practice. Customers believe policies will cover them but they may not and the small print is so lengthy no-one is going to read it. People think they are getting the same product cheaper online but they’re not as it doesn’t have the same level of cover. We can get help from insurers about educating brokers on these issues so they can inform the customer.
Shearman: There was some research about aggregators last year showing 69% of application questions were pre-completed. The answers might not be accurate so there could be lots of people at the claims stage finding they cannot claim. This is where advisers should come in and advise on some of these risks. If we are going to win this war we are not going to win it on price. We should be finding solutions to fit customers’ specific needs and circumstances.
HOW MUCH KNOWLEDGE OF GI SHOULD BROKERS HAVE?
Paterson: When I came into this industry I was a general practitioner but you can’t do it like that today. Advisers can’t be experts on pensions, investments, mortgages and GI because then they become mediocre. If you only do one or two sales a month the Financial Services Authority doesn’t like it because it views you as a dabbler and high risk.
Shearman: We are rolling out the Defaqto Engage system, which enables us to put our panel on a spreadsheet. It has four or five insurers with details of the cover levels and benefits of each product. You can then click on the sixth or seventh column and populate it with comparisons from other insurers. It gives you an immediate comparison of your products versus what others offer. We are hoping it will help.
HOW CAN BROKERS COMPETE AGAINST BANKS?
Dev Malle: There is a difference between what banks can do and what brokers can do as banks are going to be single-tied. The benefit from brokers is clients get a policy designed for their needs rather than one off the shelf. Depending on your business and commissions brokers can look at the holistic needs of clients and work out whether one insurance product is all that is required.
Clients could be referred to another area of the business if they require more cover and develop a multi-product relationship. There are also logistical issues at banks such as where the sale takes place – in branch, over the phone, at home – or when – weekends, work hours. All these are the usual things brokers can bring to the table.
Jason Berry: I don’t think the payment protection insurance scandal has helped banks’ cause at all, so that has played into brokers’ hands.
Perryman: It depends on what banks offer. If they offer loaded products it may have an impact on the pricing of some insurance to encourage sales of more expensive products. But generally the quality of advice at banks is not as high as brokers’.
Peter Brodnicki: We’re competing all the time against the internet, comparison sites and the likes of Tesco. If you secure the mortgage as a broker then you must sell protection. The only thing banks can do better is organisation for systems and communications to existing clients which lots of individual brokers probably can’t. If banks speak to enough customers they may get some conversions, but they are not as good at it as brokers.
IS THERE A LOT OF CROSS-SELLING OF INSURANCE PRODUCTS TO BROKERS’ CLIENTS?
Malle: There are definite examples. Despite re-assurance it happens because banks run call centres. The key point is that brokers must look after their clients or someone else will do it for them. If they do not keep their customers up-to-date and informed somebody else will.
Perryman: There needs to be greater help from networks to allow brokers to manage their client base. It’s labour intensive and sometimes the technology isn’t up-to-speed.
Brodnicki: We’re more focussed on point-of-sale and compliance rather than communication. It’s not easy for brokers to do it.
Kevin Duffy: One virtue from the recession is the way many businesses have improved their GI sales. The challenge for businesses is that now the genie is out of the bottle and they are hitting targets they don’t get complacent. The foot needs to be kept on the accelerator.
HAS THE BROKER MODEL CHANGED FROM being TRANSACTIONAL to ONE FOCUSSING ON EMBEDDED VALUE IN BUSINESSES SUCH AS TRAIL COMMISSION?
Duffy: What has changed is the centralisation of execution from individual brokers to firms. The necessity of plugging the gaps in income from a lack of proc fees has created a eureka moment. It is ridiculous because it should not have been needed. It would be interesting to look at how much business firms and individual brokers write now compared to three years ago. It wouldn’t surprise me if in some firms it has changed by up to 60%.
Perryman: When many of us joined the industry you had to have good sales techniques to survive. Sales ability has declined in the past 10 years as the process became more transactional. We need to go back to the core skills of asking better questions and the disturbance factor. One of the reasons we are not doing as much GI as we would like is because we don’t paint a picture for clients that disturbs them in such a way that they realise they need help and advice.
Brodnicki: Traditionally the relationship has been between broker and client but now it is between broker, client and firm. It’s a team effort rather than one trying to take it from the other. At least they can earn money, retain the client and have a communication strategy while owning the client and ring-fencing it. That has changed and it’s a valuable new ingredient.
Hendy: For brokers who write GI we give them 100% of their cut, but for those who refer it to our specialist call centre we give them 50% of their cut because it’s important they tee it up. If brokers are talking about it to clients and letting them know they are being referred to a specialist call centre it can help sales.
Duffy: You have to wonder why we all didn’t get to this stage earlier.
Malle: There is an emphasis on change in the industry from survival to business owners thinking about what they own and their exit strategies. They are looking at their client banks and wondering whether there is any worth in it. I would say there is a health warning to businesses selling protection because while they will build embedded value from renewals they are also building liabilities from indemnity commissions.
It could be a discounting factor on any exit strategy. The big health warning is whether you are selling lots of products with loaded premiums because it would be easy for someone else to re-write them. Also, are you taking life commissions on the drip now and then adding renewal income rather than liabilities? While it is the right route to go regarding clients’ needs, with any specialism there are some significant health warnings for people looking to protection as a way to survive.
WHAT DO YOU MAKE OF SOME BROKERS HAVING 100% SALES TARGETS FOR INSURANCE SALES?
Brodnicki: I think you have to consider what definition those sales targets may have. Lots of people want 100% policy penetration, which might not affect every case and includes other products such as GI.
Perryman: Brokers should be having a discussion with every client to make them aware of what they can protect and how. There are certain areas such as critical illness where we could do better and you wonder whether it is because our systems aren’t good enough to ensure there is a discussion with every client. Some brokers have stopped even discussing some areas that have low penetration but we have to give clients the opportunity to say no.
Duffy: With GI I have no issue with firms having a 100% coverage aspiration because it is the only insurance that is mandatory. It is not the same as shoving PPI or critical illness down every punters’ throat. There is nothing wrong with a 100% objective but the interesting thing is what percentage of force-feeding takes place once the client agrees to the policy. How intensive or robust does the salesman get at that point? In terms of complaints, I can’t think of a single one we have had on GI.
Malle: There are responsibilities around remuneration packages so all firms should be careful how they pay sales staff. About four years ago we were concerned that many members were becoming mortgage order takers so we made it a compliance requirement to go through the advice process for protection. If clients walked away without protection being discussed that could be construed as irresponsible. If it could be irresponsible it could be an avenue for complaint so we made it compulsory to go through an advice cycle.
Paterson: I don’t know why protection and GI get lumped together as they are completely different. Protection still has to be sold. Selling is almost seen as a dirty word by clients but it is necessary even though clients need to be made aware of the downside too.
WHAT DO YOU MAKE OF THE HARD-HITTING AVIVA ADVERTISING CAMPAIGN FOR PROTECTION?
Malle: It’s brilliant that companies such as Aviva are using disturbance tactics. Many of us can remember watching the black and white Scottish Widows video a few years back. When it was played in meetings you walked out thinking you weren’t selling it for your needs but to serve your customers. You wouldn’t want to leave them in such a bad position, which is all Aviva is doing in a modern way. For life insurance there is a £2.3trillion protection gap despite many people having huge financial commitments with no income protection or family protection. This type of campaign is good.
Brodnicki: Brokers can’t do it alone, there has to be an underlying awareness among the public. I think some advisers don’t want to draw a picture that disturbs clients.
Hendy: The last three times Aviva has presented to Linear it has started the meeting with the video of its advert and the room has gone quiet. Straight away everyone is thinking about their own situation rather than selling it. It reminds you what is at stake.
Paterson: No product is going to sell itself to a client who doesn’t understand the need for it.
Malle: Brokers should be piggy-backing on these high-profile campaigns. We produce a monthly newsletter for members to send to clients with their own logo on and when Aviva first launched its campaign we referred to it as most people recognised the advert.
Perryman: The value of advice in protection is higher than mortgages. The perception of the economy being doom and gloom can help advisers sell protection as consumers get cautious and ask what might happen in certain scenarios.
WILL WELFARE CUTS HELP BROKERS SELL PROTECTION?
Perryman: Advisers need to know more about what people won’t get once the changes have occurred.
Brodnicki: Advisers should have the statistics on welfare changes in front of their clients. The welfare cuts will mean nothing unless brokers find a way of presenting it.
Paterson: The customer needs to know what the cuts are and how they affect them.
Brodnicki: Most clients don’t know that kind of information and most brokers don’t either.
Hendy: If brokers relate welfare statistics to clients’ situations and inform them what they will and won’t receive after the changes then it is a powerful selling tool.
Perryman: Individuals’ disposable incomes are higher now than they have been for a long time because of low mortgage rates so they should be open to sales. The reason they are not spending is because we are not selling it properly
HOW BADLY HAS THE PPI SCANDAL AFFECTED THE REPUTATION OF PROTECTION PRODUCTS?
Malle: For brokers it is a massive opportunity because banks have been hard hit in the press from a reputation perspective.
Hendy: I think it has affected brokers more than it has customers they sold to because many of the claims are being made on products that were bolted on by banks. We have never bolted products on and I doubt many brokers have.
Duffy: One unintended positive consequence of the PPI scandal for brokers is that it proves to banks they can’t just bolt on a product and sell it through call centres. They can’t get away with it.
Shearman: The behaviour of certain insurers was appalling for mortgage payment protection insurance sales. But it is a product that still remains good value for money for clients ahead of credit card and loan protection. I suspect most businesses have suffered from a drop in MPPI penetration because it’s been pilloried in the press. There will be lots of people who will lose their homes because of that action. It is up to advisers to promote the benefits of MPPI again.
Berry: It’s good to make customers wary. There has never been a better time to make the case for protection.
Little: MPPI got caught up in the whole PPI scandal but fundamentally it is a needed product.
Malle: Brokers should not talk about products straight away but find out what the client needs and then find the right product to fit them.
Hendy: If their circumstances change further down the line at least it has been fully explained by brokers while it may not have been by banks.
Paterson: There were some toxic elements of PPI that needed to be changed. We position our products as short-term income protection and that is the way it should be sold. Anything covering clients for up to nine months makes the case for cover. In protection there have been 120,000 claims over the past decade with more than £1bn paid out and the average claim has been 6.2 months.
There is a need for short-term protection but it is making brokers aware of such products. It gives clients comfort that those toxic PPI elements have gone, it’s a simple process and it’s a complementary sale.
The first thing I learned in the insurance industry was that you protect the income first in a hierarchy of needs. Lots of insurers are trying to get away from all derivatives of PPI and they are getting involved in the short-term area.
Image: Seated from left: Kevin Duffy, managing director at Mortgageforce; Jason Berry, head of distribution and strategy at Safe & Secure; Gary Little, head of accounts at Assurant Intermediary. Standing from left: Simon Hendy, financial services director at Linear Financial Solutions; Paul Shearman, head of proposition at Openwork; Kevin Paterson, sales and marketing director at Assurant Intermediary; Dev Malle, sales and marketing director at Personal Touch Financial Services; Andrew Perryman, managing director at Bright Advice; Peter Brodnicki, chief executive officer of Mortgage Advice Bureau