Brokers pack a punch

Are brokers winning the fight against banks and supermarkets in the personal lines ring?

Royal Bank of Scotland (RBS) - the second largest general insurer in the UK - is to tap further into its "multi-brand and multi-channels" to increase its market share.

The move poses a real threat to brokers because of the powerful consumer brands involved. RBS has already captured 28% of the motor insurance market through its ownership of Direct Line, UKI and Churchill. Its partnerships with Prudential, Nationwide Building Society, Lloyds TSB and Standard Life Bank have also put it in prime position to target householders.

Customer loyalty is key. Fortis Insurance distribution and development director Chris Dobson says customers generally stay with one bank or building society and it's logical to combine insurance on one single payment with a mortgage, car insurance or loan.

"They also have capability to underwrite their own policies, giving them a very powerful base."

The good news for brokers is that banks have a long way to go. They have to improve their direct platform capabilities if they are to be successful at selling stand-alone insurance products and at competing with the alternative distribution channels in these sectors, says Datamonitor.

But AXA personal lines intermediary director Mike Keating says the most immediate threat to brokers is supermarkets. Brokers may have survived the direct onslaught but "supermarkets have a successful model and are very good at harnessing their distribution customer base".

For brokers the threat is all the same. Behind every powerful supermarket brand lies an equally powerful general insurer.

Take RBS. Its UKI arm has partnered superstore giant Tesco, giving it access to 15 million loyal shoppers.

"We are the fastest growing new entrant into the market," says Tesco Personal Finance head of insurance Allan Burns. "We are going to take on the rival players."

Tesco is spending millions on consumer leaflets, posters and TV advertising to increase its share of motor insurance. From the spring, it will be going after householders.

Halifax Bank of Scotland (HBOS) is also embarking on an aggressive strategy to secure a larger share of the personal lines market.

HBOS, with its partner Esure, plans to increase its motor insurance capacity by 10% in the next 10 years and has formed a partnership with Hiscox to sell a small range of household contents insurance policies to its wealthy client base.

Its partner, supermarket Sainsburys, is enhancing customer awareness of its banking arm and plans to go after a greater share of pet insurance.

Sainsbury's Bank Insurance division manager, Robert O'May says: "Less than 15% of pet owners take out pet insurance. There is a lot of market share to be had."

Aggressive stance

The supermarkets admit taking an aggressive stance will ultimately take market share away from the broker. But they say niche markets are where they will succeed.

This may be true, but what happens when the banks own a slice of the broker market, giving them the ability to offer niche markets? RBS for one is looking to "grow its position" through its 3,000-strong personal lines insurer, NIG.

The ABI remains optimistic. It says the broker market is levelling off.

The rate of decline, prevalent over 10 years, has slowed down.

In 2003, brokers maintained 41% of the market share for motor insurance and 32% of household, whereas direct insurers remain at 40% of motor and only 26% of household.

The news is good for brokers Swinton and A-Plan, which continue to increase their high street presence despite the decline of 'walk-in consumers'. Other brokers have adapted to the challenge by telebroking or affinity arrangements.

It is the resilience of the broker market that has prompted insurers to offer their support. AXA is to embark on a major advertising campaign, complete with back of the bus advertising, to help consumers realise the value of brokers.

Growth forecast

"Datamonitor research shows 50% of the personal lines market will be controlled by brokers and affinities by 2007 and we intend to support that," confirms AXA personal lines intermediary director Mike Keating.

Norwich Union (NU) has seen double-digit percentage growth in household accounts through brokers and is forecasting growth again this year.

NU director of intermediary business services Greg Gladwell says: "Brokers miss opportunities by not fully marketing themselves. They should take advantage of cross-selling and offer the customer a complete package."

Some brokers have done just that. Larger brokers have diversified with affinity arrangements, hiding behind powerful brands to offer consumers an alternative to the direct market. BDML sits behind eight financial service and retailer brands including the RAC.

Peace of mind

"We take the hassle out of customers having to phone around, and we offer respected products that give the brand names peace of mind. It's working very well," comments Sandy Dunn, BDML chief executive.

Budget, through its affinity arm Junction, also scooped the Marks & Spencer motor account. Its other partnerships include Bradford and Bingley, Clydesdale Bank, the Post Office and Homebase.

Budget head of group business development Matt Munro says: "We can compete with the direct channel because we can meet the needs of a diverse customer database at a competitive price."

However, although larger brokers have found a way to join the brands, the move could pose a further threat to the small and medium size players.

Biba technical services manager Graeme Trudgill says: "Brokers can no longer rely on word of mouth. They need to find ways to attract customers."

Grant Ellis, chief executive of The Broker Network adds: "Our niche is definitely the more complex insurance needs and there will always be the well-heeled customers who will need us."

Richard Mikula, director of Topaz Brokers, asks: "What happens when (supermarkets and banks) become so big in the world and wipe out the competition? I blame the insurance companies for dealing with them in the first place."

Whatever the emerging threats, the industry is clear on one thing.

As long as brokers continue to sit up and take notice of the competition and understand consumer choice, they will always find a way to compete in the personal lines market.

HOW BROKERS CAN COMPETE

In the home market the banks - perhaps not surprisingly since they have a vested interest in house insurance - appear to offer quite high levels of cover.

The supermarkets, on the other hand, offer policies which seem to follow their target customer base - M&S and Sainsbury's towards the top end, Asda towards the bottom, with Tesco somewhere in the middle of the market.

Motor policies, however, show a different picture. A number of major banks have policies which offer lower levels of benefits than the supermarkets. The benefits question may have been responsible for the late entry of banks into the motor market.