Aggregating factors

According to research nearly 9 million people in Britain used aggregators' comparison websites to purchase over 13 million financial services products in the last year. So, today's brokers have reason to be concerned about losing out in the battle for personal lines insurance.

Sixty per cent of you clearly feel that you can't beat them and that you'd better join them. I'm with the other 40% - I beg to differ.

The internet is a rapidly growing marketplace for insurance. Mintel estimates that in 2005 around 21% of consumers preferred to arrange their insurance over the internet, up from 15% in 2004 and 8% in 2003. With the number of people purchasing insurance over the internet growing at over 60% a year they estimate that, by the end of the decade, around 50% of consumers could be buying insurance online.

Another major body blow to the conventional broker - the popularity of doing business online. Now, this isn't going to go away but online doesn't necessarily imply competing on price.

The first aggregator started only four years ago so it is too soon to know what will happen in the future. In a perfectly rational market they would probably win hands down. Like all types of intermediaries they thrive on price differences and a market in which consumers believe that a better deal is hiding just round the corner is their ideal environment.

Adding value
The early direct insurers created this environment of uncertainty by competing mostly on price. But not any more. You could say they've seen the light and worked out the future of pricing. Brokers must do the same and work out how else they can add value.

But consumers buy basic products on price alone, you cry. OK, then you explain to me how the largest seller of baked beans - a commodity product - achieves a premium of up to 300%. It's because they're a better product and people are prepared to pay for them.

But before we get on to my favourite subject - how brokers can prosper - let's briefly remind ourselves of some of the more obvious difficulties facing the poor aggregator.

According to some recent research, British consumers pursuing a deal online will spend an average of 35 minutes looking for motor insurance and 29 minutes for home insurance. Surely the great British people have better things to do with their time - I know I have.

Aggregators can impose longer delays with their 'screen scraping' technology and, even then, they often fail to deliver true like-for-like quotes, price advantages disappear on comparing terms, the eventual quote seldom equals the advertised cost and the hand over to the insurer can be difficult. Finally, consumers like to stop and reflect when they have their quote and then continue later. This can be difficult if you go through an aggregator.

These may be fundamental flaws in the model; or, they may be merely the teething troubles of a young industry. Either way, brokers cannot afford to hang around to find out.

Let's go back to the direct insurers. The other great threat is to the personal lines

brokers. Most of them have conspicuously stopped relying solely on price and have started on segmentation and service differentiators. And I have to say they are doing a pretty good job. I phoned in a claim the other day; it was accepted on the spot, a courtesy car arrived in three working days and my own car came back, well repaired, in two weeks. The directs' business model has moved from price to value-and-service. Why and what can brokers learn from this move?

The 'why' is easy. The cost of customer acquisition has reached a level above the cost of customer retention. They want to retain their customers not replace them. They want to build a relationship with their customers not just sell them a commodity. They want to sell those customers more products, enjoying a massive growth in profitability by increasing the number of products they sell to each customer by two or three.

Relationship value
And what can brokers learn from this? That relationships have great value, that building a brand which customers can trust and rely on is excellent business and that smaller businesses - which are better at building relationships and trust - have a huge advantage if they organise to grasp it. And guess what? The aggregators' business model does not encourage loyalty.

A broker with a particular specialisation, or a regional expertise, or a service attribute, will succeed by making sure it gets known for that. A broker that can see the internet as a restricted mould to which customers are forced to conform should say so. They will be heard.

A broker that wants to do more than sell commodities and gets passionate about the clients' real needs will prosper before the rest. They will be known for being different and better. They will have a superior brand.

Many people believe that online insurers and intermediaries are the best. Why would you want to spend half an hour peering at even one impossibly complicated proposal form, let alone two or three, to get a product that may or may not be the best around?

Wouldn't you rather call someone who knows about you? Who can take the distress out of the purchase, who actively seeks out the best deal just for you, who can explain what they recommend and why, if necessary, it is worth a little extra money. Wouldn't you want a broker who offers more than one channel for communication - via email or an easy online offer, or through a specialist office or with someone you know on the phone?

If you are a broker, ask yourself what you want your customers to believe about your service. Find at least one thing that is different and better for them which will keep them coming back, once they have learned to believe in it. Now, how can you dramatise that?

Consider the design of the service itself, the process that underpins it, the staff and technology that deliver that service. It may all seem obvious to those who do it every day, but find ways of bringing it to life for customers.

Don't try to reach the world, focus instead on your target, local or specialist, group. Make it the best for them and them alone. Then, and only then, communicate it clearly, consistently and dramatically.

After all, that is exactly what the aggregators and direct insurers have done.

In my opinion, a smaller broker has a better business model. They just haven't convinced anyone else of that yet. Perhaps the place to start is with themselves.

This is exactly the conversation I have had with brokers, large and small, over the years. Carry on building relationships but make them easy to replicate or institutionalise. Provide a different and better level of service, sell more products to your customer base. And, do you know, the best are doing it.

We call it branding. IT

' Jonathan Hynes is senior partner at The Smiths Partnership