As its rivals abandon their traditional high street networks in favour of the web, Swinton has spotted a business opportunity.
While other brokers are set to scrap their branch networks in the belief that all personal lines business will soon come through the internet, Swinton has bucked the trend. The broker is eager to snatch up the cast-off branches and maintain its position as leader of the high street.
Swinton released record results for 2007 last week with profits up by 27% to £48.3m. It also announced its multi-million pound acquisition of Moneyway that will see 13 of the company’s 19 existing branches rebranded as Swinton. The deal sealed Swinton’s reign over the high street with 476 branches – placing it almost 400 branches ahead of closest competitor Equity.
Ironically, the acquisition coincided with rival broker Endsleigh’s announcement that it plans to close 119 of its branches in favour of an extended focus on the internet and call centres, bringing the contrasting strategies into sharp focus.
There are two opposing points of view. Endsleigh managing director Mike Alcock says 80% of the company’s business originates from the internet, 30% of new business sales are transacted entirely online, and the business must adapt to reflect this.
But according to Swinton chief executive Patrick Smith, those who fail to see the value in customer-facing shops are passing up a lucrative opportunity, and with Swinton so far ahead in the game, rivals are unlikely to catch up.
For the past 15 years, traditional broker branches have been pummeled with competition from call centres and, more recently, the internet. Those companies that see value in keeping the branches open, such as A-Plan Insurance and Swinton, have realised success comes from a multi-pronged approach to distribution.
“When our customers buy products through the internet we follow up with a phone call to see if they have other insurance needs,” says Smith.
The company plans to continue buying up the discarded branches or portfolios of other companies and has goals to see the number of its shops double to almost 1,000.
Already in 2008, Swinton has launched five cold shops – start-up shops rather than established businesses that have been acquired – and is testing them on a pilot basis. “The early signs are quite promising,” says Smith.
Swinton says its branches and call centres continue to be the most profitable means of personal lines distribution, as internet customers look for the lowest possible price, squeezing profit margins. “In April Swinton received more motor quotes offline than ever before,” says Smith.
“When our customers buy products through the internet we follow up with a phone call to see if they have other insurance needs.
Patrick Smith, Swinton
Although Swinton uses the internet, mainly to feed business into its shops, Smith is critical of what it is doing to the industry. “It’s eating up profit,” he says. “The solution to this is the market reaction. It must hold back a bit instead of just trying to get business. This hasn’t happened yet because the industry hasn’t suffered enough pain.”
Smith says there won’t be a natural self-correction of pricing online until the industry has decided it has had enough of sacrificing profit for volume.
Because many companies are relying on the internet to supply the weight of their business, Smith claims Swinton has an advantage. “We are in a better position to ride out a painful several-year phase.” His rivals would disagree.
Aside from Endsleigh, other brokers such as BGL have recently closed down shops in favour of internet platforms and haven’t looked back.
BGL group director Matthew Donaldson says: “We sold our high street branches in 2006, having watched footfall drop 50% over 24 months. We recognised then that the speed of online growth would dwarf any previous trend – and the introduction of aggregators would accelerate this even further.”
He adds: “For personal lines insurance, high street intermediaries don’t have a chance – the model just doesn’t work any more. Policies simply cannot be acquired cost-effectively and, considering the heavy fixed cost base of a high street presence, achieving critical mass is impossible. And it won’t stop here. Customers are already researching more complex insurance products online and, although sales remain fairly low outside personal lines at present, a further revolution will undoubtedly follow.”
It’s not the first time branch networks have come under attack. About 15 years ago, the future of shops was called into question with the onslaught of call centres. And five years ago, a new threat emerged in the personal lines market in the form of online insurance sales.
Colin Gleeson, assistant director at Deloitte, says there is no doubt the internet has transformed the distribution of personal lines insurance. But he says that doesn’t mean branches can’t still be profitable.
He warns that there won’t be room for too many winners: “I would be surprised if it got down to one player, but I doubt there will room for a lot of player.”
With their very different strategies, Swinton and Endsleigh should provide spectators with an interesting game.