High street or high tech?

Listen to the pundits and it would seem online is the only business strategy worth pursuing in the personal lines market. But broker Swinton takes a different view.

The business, which recently acquired rival Budget, remains firmly entrenched in the UK's high street, operating from some 442 branches.

The deal has intensified its rivalry with the AA, although the latter remains the

UK's largest personal lines intermediary in terms of premium income at some £550m, compared to Swinton's £440m. Even so, Swinton's policyholder headcount at over two million just tops the AA's.

It is Swinton's avowed decision to remain in the high street that continues to raise eyebrows. Some six years ago, the AA decided to close its branch network and last summer announced it would make around 100 redundancies from its Newcastle and Cardiff call centres - although it did reject offshoring, which it claimed would adversely affect customer service.

The AA has increasingly moved towards a more streamlined business model and now reports that some 50% of business is transacted online. This is in stark contrast to Swinton, which says it sees its branches as a major selling point.

Swinton chief executive Patrick Smith says he totally refutes the argument that online is the only way forward. "The ideal company is a multi-channel company. We will keep all our shops open and will not make any of the people who work in them redundant."

He explains that online business is growing through intermediary Its4me, which is owned by insurer MMA, as is Swinton. "We believe the people may obtain a quote and buy online, but will then want to build up a relationship offline. We will be enabling this by passing on details of internet customers to local branches, so that people know they can contact someone nearby," says Smith.

He also argues Swinton will continue to concentrate on "straightforward 'widget' insurance", although it will cover non-standard risks if required. It also has an expanding book of commercial lines worth around £13m, although has no plans to make this the focus of the business.

Smith is also chief executive of Its4me but says the two businesses will remain complementary. "Having shops is not just about counting the number of people who walk in, although it means we are within easy reach of almost everyone in the UK.

We win business just by having a presence.

I believe personal contact is important to many.

"Our model has great capacity for expansion and we intend to take on the giants of our industry and show that, by caring more for our customers, we can become the leading player in personal lines distribution."

And Mark Winlow, former managing director of Zurich's personal lines business and now a director with consultant LECG, agrees. "There is a future for the traditional broker because some customers want face to face, which is why banks are returning to the high street. You still find that on the internet it's not possible to price non-standard risks, such as more than six points on licence, which is not uncommon."

He says there is not room for many big recognisable brands in convenient locations and so Swinton is well placed.

But, there are plenty who take an opposing view. Andrew Blowers, chief executive of online-only insurer Swiftcover, says cost pressures make his company's method of distribution most viable. "With the FSA and the Financial Ombudsman Service (FOS) you have to meet certain levels of service and so far as easy personal lines goes, we have a level playing field. I would love to say what we are offering is vastly different in terms of the actual product, but it isn't and so it's essential to find other ways of cutting costs.

All that matters to most customers is the cheapest price. Other insurers who look at trimming expenses through repair networks, for example, are just tinkering around the edges."

Blowers formerly worked at Churchill, which employs some 8,000 staff, while Swiftcover has a total team of 70. "Churchill had over 2,500 people who dealt with customer services, outside of sales. Instead we find customers want to do their own servicing - ours can even claim online. With the amount of expenses and hidden government taxes, you need to look at de-skilling to bring about the necessary savings."

He comments that his father, who is 74, successfully managed to purchase a Swiftcover policy. "People want to be able to buy even if it's late at night and they're in their pyjamas. As far as personal lines goes,

I think only rich people who want surveys at home will need a broker in the future."

Direct Line, owned like Churchill by the Royal Bank of Scotland, was one of the first insurers to develop a major online brand alongside its telephone business.

Dave Catterall, its head of e-business, says online sales now account for around 50% of new business. He says the upward trend is unstoppable. "It's because of a number of factors, which include the growth of broadband - it's cheaper, as are PCs. Insurers now have more stable and robust infrastructures. People are more confident about buying online, with fewer fears over security."

But, he says he believes there will always be call centres to provide back up support. "Our sister company, Churchill, has pioneered 'live chat', where you can communicate with an operator via instant messaging. We're looking at introducing this for Direct Line and the next big thing will be able to see the person you're in contact with. It's about enhanced customer service."

He adds wireless technology will bring further growth. "You can forget about big boxes and monitors. People will be in their living rooms with a laptop and be able to buy cover without moving."

Time will tell if Swinton's decision to retain its far-more-costly chain of high street shops will prove the right model. IT

Analyst argues the case for online
Datamonitor recently conducted research that found insurance is the type of financial product consumers are most likely to arrange online.

It said several insurers were reporting strong growth in online sales and several new players have entered the online market. Its report - Online UK Insurance - stated figures from Esure, Lloyds TSB, Royal & SunAlliance and Norwich Union Direct showed booming online sales. The attraction of lower acquisition costs, lower expense ratios and, ultimately, lower combined ratios has seen these insurers push their web offerings.

Datamonitor also stated high numbers of people were using the internet - several million a month - for information on insurance and, while sales in motor were highest, household is catching up.

But it claimed that some general insurance products, such as private medical cover, were unlikely ever to take off online because of complexity.

As far as drawbacks go, Datamonitor claims consumers who arrange their cover online are primarily concerned about cost - some 93% compared to 71% - and so may pose a challenge to retention rates and underwriting margins. But, while it said many only use the web to find information, it believes a web presence is a good method of driving sales.

Datamonitor predicts the internet's share of motor insurance distribution will rise by 21% over the next five years and that there will be a similar surge in household.