Brokers could be forgiven for thinking they are being marginalised by insurance companies these days. Potential customers are spoilt for choice, with insurers giving them the option of buying by phone ...
Brokers could be forgiven for thinking they are being marginalised by insurance companies these days. Potential customers are spoilt for choice, with insurers giving them the option of buying by phone or via the internet, of perusing products on digital television and getting quotes on their WAP phones.
But, as some companies are beginning to find to their cost, you can lead customers to technology but you can't make them buy. The internet is liked for browsing and research, but when it comes down to parting with cash, people still prefer to deal with other people. Even the cyberbabes introduced by some sites just aren't generating the business.
Research by Datamonitor shows only 1% of insurance is currently sold online and this figure is expected to rise to only 6% by 2005. Changing customer behaviour looks like it is going to be a slow process, so companies need to examine carefully whether the existence of a channel necessarily means the existence of any customers at the other end of it.
Norwich Union's (NU) director of product development, John Kitson, says products have to be available on all the channels people are prepared to purchase from.
But he does acknowledge that customer behaviour can be engrained and points out sales of home insurance are still very much linked to mortgage sales, so it has not been as successful a direct product as motor insurance. And while some people now are happy to buy over the phone, some will still want to buy insurance from a knowledgeable broker.
Kitson says commercial insurance is a good example of this, as customers want the level of advice and experience on offer from brokers. The risk management services on offer are also attractive.
He believes brokers are in a strong position. "Over the last ten years, there has obviously been a change in the dynamics of the market, but the broker market has held its own after the original explosion."
Adapting to change
Datamonitor lead analyst Simon Ronaldson says that reports of the death of the brokers are premature. Telephone insurance was supposedly going to kill the broker, he says, but in 1995, independent intermediaries sold 62% of general insurance and this has only fallen to 56% by 1999.
"They haven't been decimated," Ronaldson says. This is because they have adapted to telesales and will have to adapt to sales over the internet, but this time round the change will not be as difficult. "Telesales was the insurance companies going direct for the first time. The internet is just another way of going direct," he adds.
The Screentrade case, though, is a salutary lesson about how things have not gone to plan for internet providers. Screentrade was an established name. It had been around for four years and was adept at promoting itself, but it still was only managing to convince around 6,000 people a month to give it any money for policies.
In the year before Screentrade's closure, Misys's consumer financial services arm - of which Screentrade was the major part - lost £19m. It will cost Misys a further £10m to close the operation down. A spokesman for Screentrade, talking at the time of the closure, said Screentrade's demise was "a shot across the bows for anyone in business-to-consumer that firms need a lot of cash to survive".
"Screentrade had everything going for it - it had first-mover advantage, it was backed by Misys. But at the end of the day, it wasn't selling enough policies," says Andrew Keeley, another analyst with Datamonitor. "There has been a lot of talk about the impact of the internet on general insurance but actual sales are not that great." Even Direct Line, well established as a direct insurer, only managed to sell 100,000 policies in its first year online.
Also not going as well as was hoped is digital or interactive television (iTV). Screentrade got its fingers burnt in this area as well. It offered insurance through Telewest and NTL. But Misys decided iTV wasn't working about six weeks before it decided that Screentrade itself wasn't working.
Screentrade was the second intermediary to launch on ITV behind First Quote, the trading name of MRB Insurance Brokers. First Quote will not comment on the success of the venture. But a spokesman for Screentrade says iTV was a waste of time. He says buying insurance is a fairly complicated business and a lot of people do not have keyboards. "People are only buying things like pizza," he says.
Pizza companies are in fact benefiting from the medium. Domino's Pizza gets 4% of all its sales through the internet and digital television, making sales of around £300,000 a month. But couch potatoes still prefer the internet to iTV.
Keeley says iTV, the internet and WAP phones attract impulse buyers, but only travel insurance really fits into this category. Royal & Sunalliance (R&SA) is about to offer travel insurance on iTV and WAP, but potential purchasers on WAP phones will still need to put in an old-fashioned call to buy a policy.
Don't believe the hype
Sales of WAP phones have been disappointing. The phones are hampered by slow connections to the net and the problems of scalability - making what looks good on the web intelligible on a screen a fraction of the size. "With WAP, the reality didn't match the hype," Keeley says.
Ronaldson of Datamonitor adds that the key for brokers is to get the internet and other technology to work in their favour. He says: "A more effective business model has to be found to reduce premiums through the broker channel." He says 35p in the pound currently goes on frictional costs and this is a prime opportunity for cost reduction by eliminating things such as double keying by brokers and insurers.
Brokers also need to work at added value to the customer and Ronaldson says by offering services like risk management advice, something the cyberbabes can't compete with.
Brokers grouping together is another option. Ronaldson gives the Willis broker network as an example. Cornish broker Rowett offers another solution. It is developing a site that will let other brokers come in on schemes it offers. Proprietor Glyn Rowett says products are currently being trialled and brokers will be able to use the site in about six months' time. He says being a sub-agent is likely to appeal to smaller intermediaries. "A broker will be able to come into our site and play around with it and see if it is right for him," he says.
Kitson admits it is easy to get overexcited by technology and think it is the next latest thing, but he says NU's most significant investment is in the broker channel, investing in web enabling its mainframe computer and the I2i-link (the portal that will allow insurers and brokers to exchange information).
And Keeley reckons that brokers will continue to be the dominant distribution channel for a number of years to come.
To cement this leading position, brokers would be wise to make use of technology, but not by throwing piles of money at websites that may only be seen by a handful of people and cost far more money than they bring in.