Direct Line, Kwik-Fit, Boots, and now Marks & Spencer: the growing list of broker enemies gathers pace. Industry leaders now say it is imperative that brokers establish a concerted strategy to ensure their business is minimally affected by these new entrants.
This autumn, for instance, some 15 years since the launch of Marks & Spencer Financial Services, the group will introduce a new competitor in the general insurance arena, one that will target a client base of six million M&S account card holding customers, in addition to those who do not yet have a financial relationship with the group. A home and contents policy will be the first product to be rolled out by the insurance outfit, which will be available by both phone and the internet including an online quotation service. Customer bases of this scale in receipt of an offer of relatively low cost direct insurance products, send shivers through the traditional broker market.
Marks & Spencer Financial Services spokesman Richard Wheat, explains the marketing logic behind the venture, giving an insight into just how differently non-traditional players view participation in the insurance market: "M&S has had an impact on most people's homes. It makes sense we should offer a policy to protect what we've helped to create," he says. "M&S did extensive research which uncovered our customers' concept of insurance. We concluded that the insurance companies do not trust the customer and the customer does not trust the insurer. Yet this is far removed from the perception of how M&S would service insurance customers."
The insurance partner in the venture, to be launched in August this year, is CGU, but Wheat insists M&S Financial Services is selling itself on the fact that it will be the only retailer in this market to handle all contact with the customer in-house, from sales and service through to claims. "That ensures that we can be confident customers will receive the quality of service they have come to expect from Marks & Spencer."
He adds: "It maximises the brand and ensures we protect that brand. The key when comparing us with more traditional and arguably less competitive providers, is that we're entering this market on core values, primarily honesty in terms of no hidden charges; simplicity so the product is easier to understand; quality of service which is obviously a must for our own customers; and value in as much as the product is competitively priced."
M&S Financial Services is also looking into product service details along the lines of applying the chain's legendary money-back guarantee principle to support the M&S brand.
That may be fine in terms of healthy competition, but not necessarily in terms of what is good for the customer. Who is to say that the products will be any less restrictive than the other non-traditional players in this market?
M&S stores will not offer a physical presence of insurance staff and instead will direct its shoppers to a phone number if they want to make use of the chain's insurance services. However, brokers should be concentrating on developing their own business and marketing plans – to actively attract new business.
Wheat adds: "There's a future for any provider on the one simple premise of competing, offering the customer a strong product at good value and backed up by strong customer service."
IIB director-general, Andrew Paddick, says one of his jobs is to educate his members. He cites as a good starting point a book by Peter S Cohan entitled Eprofit. The book aims to guide managers through all the cultural and technical challenges of ecommerce, with ways to overcome organisational challenges, define the role of senior management, design ecommerce architecture and monitor contracts and implementation. It includes a section on analysing competitors, with five questions that are invaluable for brokers taken aback by the way competition has changed:
Paddick spells out the significance of Cohan's guide: "Firstly, I have existing clients. Who are these competitors targeting out of my entire portfolio? Secondly, obviously these new competitors think they can do something better than the traditional sector. Next you have to assume that they have a superior value proposition otherwise people aren't going to move to them. Fourthly, their advantage could be that they have a million customers with perhaps several hundred points of sale around the UK. And finally, business now requires military strategy."
Brokers have got to answer the questions Cohan poses, he says, and to do that they must study the competitors in some detail. For instance, Cohan suggests studying the competitor's financial statements, provided it is publicly listed, and studying the company's customers, strategy, management and sources of advantage to develop a counter-attack.
Paddick says: "Brokers have got to find out who their competitors really are. They can't just sit in their provincial offices, opening at nine and shutting at five and being oblivious to what's going on in both domestic and global markets.
"It's the stupid brokers who say there is no threat." The implication is that the deployment of what the traditional insurance market might refer to as ungentlemanly tactics must be employed in order to access the information required.
Biba's chief executive Mike Williams recommends six key approaches to form an effective strategy for survival as the traditional broker pitch is invaded:
Competition is not going to stop emerging and brokers won't stop disappearing. Global companies will continue to diversify and use their branding to cross sell insurance. Never mind that they don't arguably sell a particularly good product, they are winning over the wallets of the man on the street, who would once have walked in to his high street broker. As leaders in this sector say, it's up to our industry to fight back.