It is now even being discussed in Parliament, but the recent flurry of publicity following examples of insurers dual-pricing between the direct and intermediary/broker channels has done nothing to convince me that selling on price is the way forward for our industry. Indeed, I believe that the general public's fascination with price, encouraged by the "direct dealers" in many different industries, not just insurance, is ultimately the slippery slope to oblivion.
Despite what insurers may think, most intermediaries and brokers I speak to don't have a problem with underwriters selling direct. Competition from the direct suppliers creates awareness and a healthy market and as long as both sectors are playing on a level pitch, then intermediaries and brokers have a lot to offer the general public in terms of service, experience and independence.
Most intermediaries and brokers are also not that concerned when there is a genuine, justifiable price differential between the channels, when, for example, the life of the policy is longer, or the acquisition costs are lower. What, then, is happening to our market that creates such a level of tension between the two distribution channels?
Recently, Norwich Union's Ian Burrell was publicly quoted as saying that in the provinces alone (excluding London) intermediaries and brokers account for 49% of Norwich Union's insurance business. That's half their total income. By the AIIB's estimate, if the London market is added in, that figure would be closer to 75%.
Interestingly, in the same announcement, Burrell also revealed that 88% of Norwich Union's life and pensions business comes from IFAs. So why, when 70% (recently released worldwide figures show that only 30% of general business is secured direct) of underwriter's business comes from intermediaries and brokers, do many insurers seem to be showing very little loyalty to those intermediaries and brokers who actually create their wealth?
Why are insurers trying to "steal" their own business away from intermediaries and brokers by making their products available at sometimes half the price that intermediaries and brokers are allowed to sell them for? We have seen a recent example whereby an AIIB member experienced a 150% differential between the intermediary/broker rate and the direct rate.
Why are insurers not transparent when it comes to divulging to their shareholders and to the public about how much it costs them to actually acquire direct business? Where is the calculation that proves that direct business is cheaper to secure than intermediary business? How much do insurers spend on direct advertising and how does this equate to the commission rates given to brokers and intermediaries? What is cross-selling worth?
How, when insurers still have to do the work of the broker or intermediary when selling direct to the public, do they justify undercutting the intermediary/broker rates? How can they afford to do this?
The market in general, and some insurers in particular, have encouraged a culture of price-conscious customers when everyone in business knows that you don't build customer loyalty on price. Customer loyalty is built on relationships, not on price. This self-defeating attitude is dangerous for the whole industry.
Every week we see examples of dual-pricing. With the vast volumes of mailshots and phone calls ricocheting around (the last report I saw suggests that "Mr Average" obtains five different quotes for his motor insurance), there are bound to be some errors. So why do insurers continue to claim that these examples are isolated incidents? The frequency of these cases suggests they are not one-offs they are happening all the time.
I believe that the general public is beginning to reconsider the policy of buying solely on price as many, myself included, have learned their lesson from being on the receiving end of shoddy products and bad service. I believe that the tide is turning and a more discerning public will demand the service and personal attention it deserves.
So is there a golden opportunity for the intermediary sector to further secure their place in the market? I believe there is. However, it is going to take a lot of work from all parties in the sector to reverse the propaganda that the "middle man" is an expensive, unnecessary luxury.
In other industries we have seen the success of small groups getting together to present a strong, public face to the rest of the world. One only has to look at the strength of ABTA – would you buy a holiday from a non-ABTA bonded travel agent? Look at CORGI – you wouldn't risk (and nor would your insurer) a gas appliance fitted by a non-CORGI registered fitter, would you?
We need, all of us, to re-educate the public at large that we offer the best service and expertise when it comes to buying insurance.
We need to identify and work with insurers who recognise the value of our distribution channel and want to put their energies and their resources into supporting that channel – and not into expensive direct marketing campaigns.
