Creating a product that targets a group of people with similar needs can be beneficial for everybody. Insurance Times talks to industry leaders to find the secrets of what makes a good scheme, and looks at the benefits for companies and customers, and the pitfalls waiting to catch the unwary
Schemes are good news for brokers. It’s fairly clear that the niche target audience, as well as the ability to control the pen and earn enhanced commissions, are in a broker’s interest. But what’s in it for an insurer – and what makes a good scheme for all parties involved?
According to industry experts, a good scheme means everyone is a winner – with brokers earning more, insurers seeing better underwriting results, and customers benefiting from expert service and even cheaper cover. But, they warn: the scheme must be managed properly.
AXA Insurance’s managing director of personal lines intermediary, Mike Keating, says anybody looking at a scheme must be clear about their objectives.
“You need absolute transparency from the start,” he says. “Everyone needs a financial return, and innovation is vital because the market is littered with schemes that have gone stale, so you need agility.”
To avoid a scheme collapsing later, all parties need to disclose relevant information at the start. Keating says: “Without this it may become uncompetitive and fall flat on its face.”
Attention to detail
It is not just the start that matters. Zurich’s head of personal lines broker division, Mark Coffey, says it is important that brokers work with their insurers to closely monitor new schemes.
“We would keep close to it for at least the first three months; if it doesn’t work in six months, it doesn’t work at all,” he says. “We’ll have account executives who will call on a broker monthly. There will be a lot of initial dialogue on documentation. There will be a quarterly review and [if that is successful] an annual review when we look at pricing and what to do with rates.”
Coffey adds that schemes have to be a significant size in order to be successful and must also have the input of a knowledgeable broker.
“The underlying issue is profit. Some schemes don’t get scale and the scale has to be there. You also need the expertise of the broker, as we may give delegated authority to bind on our behalf, so the broker must have knowledge of the customer.”
Hiscox’s UK underwriting director, Gary Head, says insurers benefit from backing schemes because they work with a broker who understands customers’ needs as well as the risks.
He says the focus on schemes will mean that claims can be dealt with more quickly: “Our dedicated schemes team has the support of the claims department, so when the first claim comes through, all the ‘i’s have been dotted and the ‘t’s have been crossed.” Other plus-points can include services such as helplines for employment law advice, for example.
Best of both worlds
Towergate head of underwriting Peter Hollingdale says his company has schemes aimed at farmers, care homes and holiday homes. He says insurers benefit from being able to tap into knowledge they may lack, while the customer gains with a product “best suited” to their business.
Camberford Law managing director David Ottewill adds that schemes can give insurers a better underwriting result. Camberford offers schemes including liability packages for security firms, electrical contractors and tree surgeons.
Ottewill says: “Insurers are dealing with brokers who see the same issue day in, day out – they know the good and bad risks.”
There’s something in it for the customers too: Head adds that they benefit from economies of scale, because their specialist broker is administering policies for not one, but hundreds or thousands of customers. “They get the investment and time it takes for a product to be developed in a bespoke way,” he says.
In addition, customers can get a more comprehensive cover. Ottewill says: “Some websites might offer security firms liability cover but not loss of keys cover. Customers buying online are not always made aware of the extra cover available, but a good broker will do that.”
Schemes can also result in customers getting cheaper insurance cover, according to Coffey. He says: “Customers can benefit in terms of pricing. If you’ve got a [specialist] broker and the scheme is providing a good return, that will be reflected in the rates.” IT
How brokers and insurers can make a scheme successful
UK underwriting director at Hiscox Gary Head says “focus” is the key word to creating a successful scheme. He says: “You need to understand the needs of the buyer, and the product needs to differentiate itself.” A marketing plan is a good idea, says Head. “This could involve approaching customers via a trade body or advertising in an industry magazine.”
Key account developer at Allianz Retail Paul Wingrove says that successful schemes are those in which brokers and insurers communicate and trust each other. They also have accurate management information to monitor performance.
Head of underwriting at Towergate Peter Hollingdale says the broker and insurer must be committed to the long term. “You need longevity, as there is high front-end expenditure,” he says.