Fallout from the Covid-19 pandemic has pushed schemes for SMEs up the agenda, with ’brokers looking at this closer than ever’
Amid the ongoing hard market against the backdrop of the Covid-19 pandemic, the use of broker schemes has grown.
However, these tough market conditions often bring increased premiums and tightened wordings, in turn making risks harder to place. This is where schemes which is defined by insurer Ecclesiastical as “a tailored solution for customer groups with common needs” – can provide a beneficial opportunity for brokers due to their bespoke nature.
Sarah Parrett, schemes manager at Travelers, told Insurance Times: “Schemes benefit a broker in a hard market as when [risk] becomes harder to place, they have a logical home that has been pre-agreed.
“From an insurance point of view, it’s the balance between rates hardening and ascertaining if a scheme is profitable or not. I think schemes provide brokers with comfort because they have a home designed for the business, so they don’t have to shop around. It also gives a bit of tolerance.
“It does help us make sure that our portfolio is diversified. It gives us the chance to play around with trade as you are ringfencing it and creating a bespoke product.”
Scheme relationships can, in turn, free up brokers’ time to look at more complex tasks, protect their income and reduce administration, noted Parrett.
Insurance Times examines how schemes can benefit brokers operating in post-pandemic market conditions and how technology has brought greater efficiency.
Hard market opportunities
Discussing why these challenging economic conditions might be better suited for scheme products, Simon Medhurst, schemes development manager at Travelers, said: “One reason for that is schemes innovation from brokers, another is the market is hardening.
”Where we are in the market has generated a number of opportunities. There’s been a lot of cleansing in the market in terms of Delegated Underwriting Authority (DUA) arrangements with size and appetite.
“A scheme can harbour performance over time and you would like to think that you are in a better position as a broker because you would look at the overall position and trend. Retention would be better. But also, where we are with SMEs because of Covid has fuelled brokers looking at schemes - brokers are looking at this closer than ever.”
Meanwhile, SchemeServe’s Sean Neal, commercial director and chief commercial officer, said that schemes have seen big growth in recent years.
He continued: “With delegated authority, schemes brokers tend to do more of the work, keep more of the commission and retain more control, which if they can administer them efficiently using a platform like SchemeServe, is clearly attractive for them.
”With more control, they can make decisions faster, which is better for the end customer. It’s also more cost effective for the insurers involved, so there’s a clear benefit all round.”
Schemes tend to be run by brokers and MGAs that have an in-depth knowledge of the specific product, risks and customers’ needs, however Neal also highlighted that some of the best run schemes are ones where brokers also have a keen personal interest, such as classic cars.
Speaking about the benefits of schemes, Peter Goodman, chief executive of Aventus, said: “Whilst not representative of every business, fast growth brokers [that] have decided to focus on a niche or have evolved their business to focus on multiple niche markets typically achieve higher retention ratios, are more attuned to cross and upselling and maximising their customer lifetime value, are more marketing led and attract a higher proportion of new business to their portfolio.”
Furthermore, schemes can blend a range of insurance and risk management services to make offerings more sticky and resilient - in some cases, this can mean superior combined operating ratio (COR) results for insurers.
‘Profound impact’ of technology
Because technology is ever-evolving, this has also brought new opportunities to schemes, such as applying a pay-as-you-go model to motor insurance.
Technology can also reduce expenses between organisations to bring more efficiency - this can be key for growth. Technology has played an even bigger role within schemes during the Covid-19 lockdowns, due to enforced social distancing.
For Goodman, technology can support schemes in their aim to be customer centric as opposed to product centric.
This includes, for example, implementing an open application processing interface (API) which allows two applications to communicate, sending requests and responses. On the other hand, data enrichment can support risk selection and simplify the customer journey.
On data and technology use, Medhurst added: “I am seeing a lot of brokers identifying trends and looking at opportunities as well as using the internet to feed and harvest schemes [opportunities].
”Over the last 18 months, people have come out of their comfort zones and embraced technology. It’s streamlining, even in the SME market, which traditionally hasn’t gone down the e-commerce route - you can see improved customer journeys.”
There have been several insurtechs and software houses that have tapped schemes partnerships in recent years, such as Instanda and Acturis, which partnered with the RAC for breakdown cover in April 2021. Therefore, there are B2C schemes solutions developing.
Travelers believes technology is set to have a “profound impact” on the schemes marketplace.
In terms of schemes cover breadth, Parrett said that offering customers a ”one-stop-shop” for all their insurance needs – with one question set for as many lines as possible – is efficient. But this also speaks to diversification – running a book with different lines to balance each other out.
As for implementing schemes partnerships, Medhurst referred back to Travelers’s ’4D’ process, which includes discovery, design, delivery and development.
“We do get very close and under the bonnet of our customers in that design process, we bring in the experts early. That is one of our strengths as an organisation. In the distribution team, we are always looking at how we can widen that breadth for a particular scheme or broker,” he said.
Travelers Europe operates a number of delegated authority arrangements, from Lloyd’s specialist markets to the UK-based SME mid-market.
Most obscure schemes
There are schemes for just about everything – some of the more obscure covers include gravestones, funeral parlours, chauffeurs, timber growers, storm cover, model railways, drones, steam engines, horse boxes, fireworks manufacturers and vintage tractors.
Sarah Parrett, Travelers’s schemes manager, said: “The scope overall is endless and for all of those lines, there are multiple risks inherent and, therefore, multiple products attached to that.”
When asked whether there are certain lines that lend themselves more to a scheme, Parrett said that it comes down to trade, how much insider knowledge is needed to underwrite it and how ”vanilla” the risk is.
She pointed out that the more niche risks might not fit into an open market proposition, so these would therefore lend themselves better to a scheme.