Brand Aid

The battle for the brands is hotting up. The last two entrants to the general insurance sector, Virgin and Post Office, have shown there is now a clear choice on the route to market.

While Virgin went for the direct approach, sealing a sole supplier deal with UKI, Post Office opted for a panel of insurers broked by Budget's affinity arm Junction.

To the consumer the product looks almost identical, a white-labelled policy with small print detailing which insurer backs the scheme.

To the insurance industry the gulf could not be wider, representing the fundamental choice between a broked option offering choice or a sole supplier scheme tailored to the client.

With a number of big names looking to enter the market over the next 12 months the debate is set to continue. Here we present the argument from some of the biggest brands and their insurance partners.

The sole supplier solution

There's no arguing with success and, so far, that is exactly what Tesco Personal Finance (TPF) has enjoyed.

The supermarket offers motor, home, travel and pet insurance through Royal Bank of Scotland subsidiary UKI, a sole provider. The joint venture is arguably the biggest success story in general insurance since Direct Line stormed the market in the late 1980s.

The reasons given for the company's rapid expansion to around 1.2 million motor and 500,000 home policies are plentiful: a solid customer base linked together by the Tesco Clubcard, the high priority given to in-store advertising; and the wider success of the supermarket against its main rivals.

Tesco Personal Finance's general insurance offering is booming, and doing it on the back of a sole insurance deal.

Head of insurance Alan Burns says: "When we set up Tesco Personal Finance we wanted to deepen customer relations. People who hold TPF products are more likely to shop in Tesco. To offer our products through a panel would be difficult. We are partnered with RBSI so we are using all that experience in terms of costs and underwriting.

"Our goal is to offer the customer a competitive price. Through one supplier we can keep control of the delivery of both price and service."

The latest entrant to the market, Virgin Money (see page 6) also looked at the panel option before signing up with UKI on a sole provider basis.

For both companies the most important factors were protecting their brands and being price competitive. Virgin Money managing director of Mark Hodgkinson argues the control that working with just one provider offers is much greater than the panel route.

He said: "We discounted going to a panel pretty early and hence went to a sole provider who could meet our need of what we wanted to put into the market. UKI won through that process.

"The way we bring products to market means we have pretty exacting standards in terms of price and in terms of service.

"In reality the only way you can get that quality and depth of fulfilment is through a sole provider, rather than through a panel.

"We believe in providing a Virgin product that is fully Virgin branded so that the customer has the confidence that we have a really strong influence over every aspect of that service fulfilment."

The panel solution

Budget, BDML and Rubicon, though in competition, are developing the only reasonable model to challenge the domination of the sole insurance providers.

All have put together panels of between 10 and 20 insurers designed to offer affinity partners the widest possible footprint of risks covered.

Budget's affinity arm Junction boasts that it has yet to lose a competitive tender. Over the past 12 months it has picked up contracts for Post Office, Yorkshire Bank and Northern Bank among others. According to managing director Phil Zeidler, the only thing holding it back at the moment is capacity.

"We have a real challenge at the moment just to make sure we grow at a reasonable rate. We are very proud of the fact we have not lost a tender, but we are also very keen to make sure we get it right every time," he says.

The key, according Zeidler, is in offering brands the most complete package in terms of risks covered at competitive prices.

While a specialist player can afford to turn away risks, a big brand cannot. Supermarkets rarely refuse customers a can of beans and carry more than one brand to choose from. According to Zeidler the same philosophy applies to insurance.

He says: "There are some basic principles here. The reason why we have been so successful is that if you or I were looking for an insurance policy it is highly likely your profile will fit at least one insurer. However if you are buying insurance for a million people it is highly unlikely that one insurer will have the footprint that fits them all. We quote on 99% of all risks, more than any single insurer."

The point is reinforced by the panel insurers who sit behind the brokers.

Fortis is one of the more choosey underwriters, happy to specialise in the lower risk end of the market. The company is entirely at ease with the big panels.

Fortis distribution and development director Chris Dobson says: "I think that brands are moving towards panels. In the past few months we have seen Post Office, Bradford and Bingley and RAC all take that route.

"For us a panel complements the Fortis strategy as it allows us to concentrate on areas where we see our strengths lie. On most panels we will get 10% to 20% of the business and that is only writing stuff we feel comfortable with."

This is the beauty of the panel system according to BDML chief executive Sandy Dunn. A panel provider can adapt to changing risks, whether it be in the market or in an individual's circumstances.

He says: "If a customer's circumstances change we have the ability to offer a whole range of products and prices to match those changes. Hence our retention rate of up to 82%."

Conclusion

The success of Tesco Personal Finance presents a potentially persuasive argument for the sole provider panel. But one has to ask the extent to which the success is based on their choice of panel.

Tesco is an enormously powerful and successful brand name, with a solid customer base. It is also very trusted by its customers - more so than the insurance industry. On this basis it is not surprising that its insurance offerings have performed well.

The company argues that its decision to use a sole provider was because this model gave it greater control over the quality of the insurance product, in terms of both price and service. It perceived that this route would be the best one to protect its brand.

Similar arguments are used by Virgin, to justify its decision to use a sole provider on these lines.

Proponents of the panel route argue that it is just as good at protecting the ultimate brand. The quality control issues can be handled by the broker, and the range of insurers on the panel offer a more flexible approach to underwriting.

The panel model offers brands the ability to service the widest range of customers. The risk footprint of a single insurer is a lot smaller than the combined footprints of a panel of insurers. That is the greatest strength of the panel approach, argue its proponents.

But the panel approach is largely untested. The market will be looking at the performance of the likes of the Post Office and Bradford and Bingley with great interest. Tesco is going to be a tough act to follow.

What's your view?

Insurance Times is always keen to hear our readers' views. If you have an opinion on the panel versus 'sole provider debate contact us' on news@instimes.co.uk or call 020 7618 3494.