Shirley Kumar reports on how direct insurers are threatening broker business by targeting the low-end SME market
Brokers are facing further challenges with leading insurers vying for a slice of the small-medium-enterprise business portfolio by going direct with simplified products.
Royal & SunAlliance (R&SA), Norwich Union (NU), Zurich and Allianz Cornhill to name a few are racing to activate lower-end SME products on their websites - a move that some fear could take a huge slice of the market from the broker channel.
"We are still testing the water," confirms NU marketing manager for new ventures Paul Jackson.
"We want to offer the consumer a choice of routes to market," he says. "We plan to offer a less rich policy at a cheaper price. We are targeting the consumer who has already chosen to come direct to NU rather than going through a broker."NU sees huge growth opportunity in the self employed, landlords, small shop or surgery policy arena.
Currently offering the self employed, office or surgery policy online or via its Scottish call centre, it plans to expand its range via its website within six months.
"Sometimes a broker won't put a consumer of a particular trade forward because they feel we don't like their trade. This way we can offer a solid process and ensure the customer feels they are being fairly treated," he confirms.
Jackson admits brokers are nervous about the plans but assures them they would still hold the lion's share of the SME market.
R&SA, which currently offers the lower-end SME products via a telephone service, is also planning to expand its SME portfolio via the web in the next few months, but also insists this will not affect the broker market.
Simon Cooter, RS&A director of small business and e-business, says: "Brokers will still do 20 times more SME business than us. We are targeting consumers via our More Th>n brand, those who don't want to go through the traditional route and who don't need advice.
"The total proportion of customers who want to go direct is very small. If we can get 20% of the whole SME business it's viable," he says.
He says the majority of brokers do not target the smaller SME business because it is too expensive to deal with.
He argues that brokers will concentrate on the medium-sized or more complex risks which R&SA has no plans to go direct with.
"We have invested heavily in our brokers, under our Enterprise banner, offering brokers new products such as professional indemnity, directors and officers, small hotels and personal accident - those that won't be available direct.
"If a customer needs advice they will be referred to a broker," he says.
But how well can web-based SME quotes work? AXA has had the facility for shops and self employed online since April 2005 and claims it is going well.
When Insurance Times tested the facility for shops, it found the majority of attempts to purchase policies were rejected. Problems also arose when trying to determine the correct definition of a type of business. There was no selection for a convenience store or newsagent, the nearest definition was a confectionery retailer.
Mhairi Courtney, director of AXA SME Solutions, defends the service, saying: "We are pleased with the results so far but we are obviously looking to evolve the site and add more appropriate products.
"Customers can also ring our telesales service or, if they wish to talk face-to-face, can go to our corporate partners on the direct side or a broker. This way we can offer business-to-
business and business-to-consumer solutions."
She adds: "Another benefit of the site is customers can complete the full cycle; find quotes, view their portfolio online and manage the whole insurance solution and we are the first insurers to offer this service."
Biba chief executive Eric Galbraith believes insurers are on very shaky ground by launching SME direct products.
"Insurers will have to use a great deal of
sensitivity and not alienate their suppliers. It is not easy to commoditise commercial business and if they get it wrong it will be a dreadful reflection of the industry," he argues.
Galbraith says one approach could be for insurers to negotiate a team of brokers it can refer customers who need extra advice to. This way both parties can win.
Duncan Macbeth, director of Macbeth Scott & Co, agrees: "Insurers know there is power in getting business direct. More people are using the web but it's something that sticks in my throat totally.
"Six out of 10 customers are sold the wrong product, because they are not getting an advised sale due to limits on the quotation engine or lack of knowledge from call centre staff. I can't believe the FSA allows them to do business the way they do it."
Macbeth, whose business is made up of 60% SME customers, hopes when clients get stung they will return to the broker market. The question is whether brokers can hold out that long.
Stuart Reid, managing director of Stuart Alexander, adds: "Joe Public does not understand insurance speak. Insurers think they can simplify the process but to date they don't seem to be doing it very well. If they pick up quotes it's because of their branding.
"Does that one-size-fits-all shop insurance include a post office and cover for stamps and cash?" he asks.
Reid says Imarket, the e-commerce portal for transacting commercial line business, is one way brokers can compete, but he adds: "It's been a long time coming and there are still not enough products on it. I hope it's up and running in time for my grandchildren to use it.
"Don't get me wrong. Insurers going direct are a threat to brokers. We can't underestimate them, but they won't touch the more complex commercial insurance because it's too difficult."
Giles Ford, managing director of RG Ford Insurance, disagrees: "Anyone who thinks insurers going direct will not affect the broker market is burying their head in the sand. Eighty per cent of my business is in the small-end SME market.
"We thought 10-15 years ago insurers would not be able to handle motor and household insurance direct and look how well they managed to simplify it.
"They have the rating structures and data. In the short term they will make mistakes but they will get it right."
Ford says: "I disagree that the broker will survive by offering added value - that is only true of larger commercial insurance. In small business if the package is right then what kind of added value can a broker offer?
"It's not rocket science. If insurers already have 30%-40% personal lines market they will grab 30%-40% of the SME commercial business," he confirms.
Terry Stanley, broker services and marketing director of Broker Direct, says sticking together will help the broker market. The company is launching an SME venture this month , working with 1,100 broker sites which can access a panel of insurers and get a quote in a few minutes.
He says the service online is quick, and they can print out the policy documents straight away while at the same time giving the consumer advice from a broker.
"Trials we have run with brokers have been positive," says Stanley. "We are looking to pick up substantial business of £5m-£10m in 12-18 months for businesses under £2m turnover." IT
How can brokers compete against the direct insurers?
Nick Dumonde, general manager of consultancy Impact Plus, says brokers must become more technology savvy to compete.
"It's challenging times for the broker," he says. "I believe they will eventually be forced to concentrate on the 'M' side of the SME business portfolio, offering advice and providing more complex policies above a certain size."
Another option is to join Imarket. This, he believes, will be invaluable when more insurers join and more policies are added.
"Insurers may look at the bottom end of the medium-size business but that is as far as they can go for now," he explains.
In the meantime, Dumonde says brokers will have to demonstrate added-value and offer more bespoke products.
"We are going to see similar change as we saw in personal lines insurance. Look at Hill House Hammond, it closed down because it was not going to be profitable in the longer term.
"I think there is an opportunity nobody has exploited yet and that is to set-up a similar brokering brand for SMEs in the same way as The AA and Confused.com have done for personal lines. At present, brokers do not have a strong brand to fall back on."
Duncan Macbeth, director of Macbeth Scott & Co, says: "Being part of a strong community or entering a niche market, putting all policies of a particular trade with one insurer to get the best deals, are possible ways of ensuring survival." He warns insurers that if brokers do take the latter option, to make sure that they can give leeway to match more competitive quotes.
Gile Ford, managing director of RG Ford Insurance, argues his survival will be enhanced by his ability to streamline systems and by introducing his own internet site. "We plan to cut admin and compete online," he says.