Breaking the habit

With the British public’s enormous fondness for spending and getting into debt (figures from 2005 show that the combined amount owed by families rose by 10.2 per cent to £1,158 billion) and the fact that over a half of families have less than £600 in savings, the need for protection is greater now that it has ever been. Many households are extremely vulnerable to any downturn in the economy and, with unemployment slowly but inexorably rising, the situation can only get worse. Against that, only a sixth of households actually have mortgage payment protection insurance (MPPI), partly because of the mistaken belief that the government will pick up the tab should the unfortunate happen or that this important cover is a luxury and not necessary.

The gap between ‘have’ and ‘need’ is substantial and it’s a gap that brokers are perfectly placed to fill. Now more than ever, consumers need guidance and advice when purchasing general insurance (GI) solutions and with the plethora of high-street and online offerings, the intermediary advice-led purchase of GI will remain a valuable and important customer service.

Huge opportunities

There’s little doubt there are huge opportunities, with the GI market becoming increasingly competitive and important. However, for brokers to be successful, they need to break some old habits.

First and foremost, brokers need to review their attitudes to general insurance and truly understand the benefits it presents not only the consumer, but themselves as a valuable income stream. Intermediaries contribute a massive 70 per cent of new mortgage business, yet submit just 25 per cent of associated MPPI sales. It is clear intermediaries are not being as active as they might be, and in some cases, some have given up selling GI altogether. Given what has happened in the insurance industry recently, however, perhaps that’s not entirely surprising.

Lots of brokers were put off by the new Financial Services Authority (FSA) rules. When regulation came into effect and brokers had to make a choice between direct authorisation (DA) or appointed representative (AR) status, many brokers decided they wanted to do neither and so moved out of GI, leaving a gaping hole in both the market and their customers needs.

However, the introduction of new rules has had a positive affect on the GI market. Regulation means that the sale of home insurance and MPPI is no longer an afterthought at the end of a client meeting, but should be integrated into the customer conversation from the outset. At a time when many are predicting the mortgage market to remain relatively static, MPPI sales not only enable brokers to provide their clients with valuable protection, but also increase the income they generate from each mortgage sale.

Advice, not price

Brokers also need to review their sales process and the products they are selling. There is a reason that consumers turn to intermediaries for GI solutions and it’s not price, it’s advice. However, many brokers that have been selling insurance for a number of years have fallen into the habit of (a) using just one GI provider, (b) selling the same product because it’s the one they’ve always sold, and, most importantly, (c) selling policies based simply on price or commission levels.

Take the ‘three months free cover’ products for example. These are becoming more popular all the time. A quick Google search for ‘three months free insurance’, for example, will reveal millions of results.

These types of deals are attractive to consumers because they get something for nothing and to brokers, because it’s a good sales aid. They can sell such deals effortlessly and without breaking sweat or in some cases establishing suitability.

But are they the right products? Problems arise when the policy is sold simply because it offers an introductory deal rather than being the best policy for the customer, a policy that actually meets the customer’s individual needs and circumstances. In the short-term the consumer will go away happy thinking a few pounds have been saved. But what happens when it comes to making a claim and policy falls short of the customer’s expectations and doesn’t offer the right level of cover?

Short-term gain

Policies such as these, which usually offer ‘one-size fits all’ cover, do the industry no favours at all. They suck in the unwary who are seduced by short-term gain but take no account of the long-term.

For intermediaries to be successful, they need to think beyond the ‘pile it high, sell it cheap’ mentality and offer products that actually fit the consumer’s needs and not just their wallet.

Products need to fit the consumer. Everyone’s an individual, everyones needs are different and an inferior insurance product that lets the client down when they need it most – i.e. when they come to claim – is worse than useless.

Without a doubt there is still significant business to be written in the GI market and the potential is growing and growing. Not only is there now a greater choice of policies in the market, but policies that also represent far better value for money and brokers don’t need to look far to find them. It’s a simple case of brokers differentiating themselves from their competitors, and the one of the ways to do this is to break old habits and sell a service proposition, not just a price solution.