Brokers have broken ranks and complained to the FSA that banks are playing dirty and poaching their clients in a bid to sell their own insurance services. Seems pretty clear-cut. Or is it?
To lose one client may be regarded as a misfortune; to lose two in two days suggests that other forces are at work.
Or so KGJ Commercial Insurance Services believed when two clients followed each other out the door at the end of last year. The furious Wolverhampton-based broker reckoned that it was the latest victim of a vicious new High Street trend: banks playing dirty to poach clients from brokers in a bid to sell their own insurance services.
The company is so angry that it has broken the industry silence on this issue and filed a complaint with the FSA (Insurance Times, 6 January).
The financial watchdog has yet to respond, but KGJ’s bold action has already encouraged other brokers to tell their stories to Insurance Times. Biba has also acknowledged the tactic, and called on other brokers to follow KGJ’s example. If the industry can gather enough evidence, surely the regulators must take action?
The list of exhibits
Exhibit one: KGJ’s case. Managing director Richard Cox told the regulator that one High Street bank had threatened to withdraw its facilities from his client unless the client allowed it to review its commercial insurance.
Exhibit two: Another broker, Sutcliffe & Co, says that it recently lost a trusted client of 20 years’ standing to a high street bank. The Leicestershire-based client, who worked in the distribution industry, placed annual premiums of about £250,000 with Sutcliffe. It was perfectly happy with the broker, but said that it felt it had no choice but to swap its insurance.
“Without putting anything in writing, it was made clear to the client that it would be a bad idea not to go with the alternative quote. He wanted to tell the bank to clear off, but he had his hands tied,” Duncan Sutcliffe says.
Exhibit three: Mike Jeffery, owner of Edinburgh-based Jeffery Associates Insurance Brokers, believes that one of his clients felt threatened by a bank’s sales tactics in September last year. “It was a fairly shocking example of how the banks are not really looking at their core banking services,” he says.
Jeffery says that the client went to a standard annual review for his business banking, and was told that he was obliged to see three other staff, one of them an insurance adviser. Jeffery says the business banking review manager seemed unprepared, and had none of the client’s monthly business management accounts to hand at the meeting. He also says that he has no illusions that the meeting’s hidden agenda was really about cross-selling.
“The innuendo was ‘it would be of assistance if that was done’, but ultimately the client stood firm and the gun-to-the-head approach didn’t work.”
Kent-based Independent Insurance Services proprietor Ray Johnson says: “We know the banks are under pressure, but to get a stab in the back when we’ve helped bail them out is not very good. It should be a level, professional playing field.”
As the mutterings against the banks grow louder, a leading network boss reckons that they have ramped up their poaching campaign. He says: “In days gone by, it was a well-known tactic for a bank to infer that unless you went with its preferred insurance provider, be that internal or external, it would view your lending in a less favourable light. Fortunately that got stamped on as regulation came in, but it’s rearing its head again. You are seeing a lot more activity in this area.”
Little more than ‘over-enthusiasm’
Brokerbility was vocal when banks tried similar tactics in 2009, although it says that it has seen less evidence of the phenomenon recently.
Managing director Ian Stutz believes that it could be over-enthusiasm on the part of local managers, rather than systematic abuse. “The banks want to target people with sales and additional products … you could get the occasional overzealous chap trying to meet his target who oversteps the mark. It can be almost regional, localised, and not indicative of the whole bank’s policy.”
Meanwhile, Willis Networks managing director Phil Scarrett says that banks are just another competitor and that brokers’ strong client relationships will continue to give them the upper hand over many high street banks’ insurance providers.
“Banks have been selling commercial insurance products to their corporate clients for many years. We are not seeing regular feedback from our network members that there is any major increase in bank activity or penetration.”
There can be little doubt that the banks are powerful – and most brokers are themselves beholden to these High Street behemoths.
The banks’ hegemony was underlined in the Independent Commission on Banking’s recent issues report that showed that 91% of banking facilities for SMEs are concentrated in the hands of just four banks. The Cass Business School’s Peter Hahn says that in some local areas, only one or two banks will have the facilities for dealing with SMEs.
Nevertheless, after several members reported coming up against the aggressive campaigns by banks to win their clients, Biba has taken up the gauntlet.
Its 2011 manifesto states: “It is unfair for financial organisations or lenders to pressurise customers into purchasing insurance through their facility, restricting the customer’s freedom to choose and access independent advice.
“The practices of conditional lending, tying and bundling must be appropriately regulated and enforced to protect customers.”
The brokers’ body has also had talks with the British Bankers’ Association (BBA). However, firms’ reluctance to jeopardise their own and their clients’ relationships with their lenders by speaking openly about the issue means that Biba is short of hard evidence to present to the banks’ representatives.
Biba chief executive Eric Galbraith says that the brokers’ body is calling for detailed evidence to show to banks, the Lending Standards Board and the BBA.
He adds: “If we find breaches of the lending code or other inappropriate actions by banks we will take swift action to resolve these matters.”
The BBA says that it is prepared to investigate, but it needs evidence of any conditional lending, as the practice is called.
An association spokesman says: “These allegations recently came to our attention through Biba and we have offered to investigate them. We are still awaiting a response from Biba with specific instances and case studies.”
An easy route out?
It’s not always clear-cut. One anonymous broker suspects that some clients pretend that banks have strong-armed them as a way of smoothing their exit from their broker. “Clients aren’t always honest. If they’re deciding to sack their broker, sometimes they will take an easy route out rather than say ‘I don’t like what you’re doing for me’. Rather than it being a scurrilous campaign, they just lost out in competition.”
However, one thing is certain. With the economy facing a rough ride in 2011, brokers can ill afford to play with loaded odds. Expect more complaints about lenders’ sharp practice as competition becomes ever fiercer. IT