As hard-up businesses push to save money on premiums, schemes is increasingly establishing itself as an area where the broker can add real value
Commercial schemes are, arguably, the great growth area for insurers and brokers since the credit crunch depressed rates on more conventional policies.
Reading-based insurer MMA formed a dedicated schemes team last year after witnessing a 20% growth in schemes in 2010, while Biba recently confirmed that this is an increasingly popular line of business.
UK General is one of the most high-profile examples, having posted a 50% increase in new schemes gross written premium revenue and with an order book worth £260m in the 12 months to March 2012, but there are many others.
Specialisms of cover
Schemes allow brokers to develop specialisms of cover that can be as broad as dealing with retailers or as specific as, say, covering nightclubs. Brokers are far more involved in everything from the wording of the policy documents to, in some cases, even agreeing the premium.
This level of attention is attractive to policyholders, while also good for brokers and insurers, who see better rates as a result of there being less competition than in the crammed comprehensive insurance market.
Everyone is looking for a tranche of business that is performing better than the average”
Howard Lickens, Clear Insurance Management
“Schemes are very much flavour of the month,” says Clear Insurance Management chief executive Howard Lickens. “Everyone is looking for a tranche of business that is performing better than the average. It’s very difficult to grow business with non-differentiated stuff.”
Clear, for example, has developed a popular scheme for tree surgeons, which might seem unusual for a company based just on the edge of London, but is a result of purchasing a Lincolnshire company. Another strong scheme is one the broker has developed for market traders - “those guys who buy and sell fruit and veg”, less they be confused with demonised City bankers.
Schemes are defined very differently across the industry. A typical view is that they truly arrived as a developed package around the turn of the century, though Trident Insurance chairman Robert Marshall is a little dismissive of their origins.
“There have always been various guys who were experts in certain areas; they just weren’t called ‘schemes’,” he argues .
Lack of competition
While many brokers and insurers argue the benefits of an almost dedicated service, Marshall - who has developed a few specialist policies for couriers and vehicle fleet - wonders whether a lack of competition might hurt the policyholder.
“People go to schemes because they want a quick response, but if it takes 24 to 48 hours just to get a quote, they might as well go and get something more inclusive,” he says. “Should there be just one supplier [in a market]? I don’t think so. There can be a backlog if there are only so many suppliers to a particular area.”
As schemes grow ever popular, perhaps there will be some more competitive tension, but still enough focus to avoid over-saturation of players in any one specialism.
Talking points …
■ Why have commercial schemes become so popular?
■ Do schemes serve their clients as well as the advocates claim?
■ How can brokers find a niche market where they can really add value?
Scheme spotlight: travel and tour operators
Seventeen Group bought the Arnold Fisher tour operator and travel agents scheme in 2004, and today it remains one of the two market leaders in that sector. The other is Vantage Insurance Services, which started life 13 years ago as a service company for a Lloyd’s of London syndicate.
Arnold Fisher started life as a general insurance business in the early 1970s. In 1992, when new travel regulations were introduced, it helped tailor the insurance needs of existing clients, among them Club 18-30, and through the decade developed into a true sector specialist.
The scheme’s primary underwriter is RSA, and the product is not just taken directly to clients, but has also been distributed to “several hundred” other brokers, according to Seventeen managing director Paul Anscombe.
The scheme covers office insurance and the statutory liabilities that have grown to protect customers as tour operators struggled to fulfil their obligations in lean years.
Anscombe says that although it is still a specialism, the sector is sufficiently developed for a range of competitors to have emerged.
“The trouble is if we have a £10,000 premium and these other schemes compete on price, some carriers will still go for them,” he says.
Nevertheless, Arnold Fisher is now broker to the Association of British Travel Agents, which Anscombe feels “enforces” the scheme’s reputation for quality. He says the company also makes sure it is “continually reviewing the product”, which is important for the clients as they deal with the problem of fewer people going on holiday during the downturn.
Anscombe thinks that his company could increase the size of the business fairly rapidly, but that would hit the underwriters as there would be too much capacity in the market.
Paul Anscombe, Seventeen group
Anscombe says he became a schemes convert eight to 10 years ago, when he felt that the days of the general broker were coming to an end. Since then, Seventeen has seen its schemes business steadily grow to make up more than 50% of the company’s work. Anscombe wants the schemes business to eventually account for three-quarters of the business’s revenue, though this might take two to three years.