Last week saw brokers pouring scorn on a new home and contents insurance policy from Marks & Spencer Financial Services (M&S). This was probably to be expected. After all, brokers must be getting worried at the inexorable rise of direct selling. But they are all adamant that their concerns centre on the actual policy's terms and conditions. So what is all the fuss about, and do brokers have a point?
Broadly speaking the M&S policy aims to break the home and contents mode by offering no sum insured, only one inner limit on personal money, a flexible claims settlement, zero excess – unless the customer elects for one in return for a cheaper premium – and a protected no claims discount.
Potential policyholders will be asked to specify any items they own worth more than £4,000 but, beyond that, they will not have to estimate the value of their possessions. Instead, M&S will set the premium using a variety of tools such as postcode information, security systems, the age of the occupier and their status as an owner-occupier or a tenant.
M&S says research shows that many people are uncomfortable estimating the value of their possessions and often think they have underestimated the true amount.
As such, it feels the new policy will reassure customers because they will not have to put a figure on their possessions and can rest easy, knowing that in the event of a fire or theft, there is no insured limit and, therefore, they can not be underinsured.
Harbingers of doom
The problem is that this is exactly why brokers are concerned. The no sum insured clause, they say, is nothing new and that when it has been done before it has failed.
Jennifer Weller, a spokeswoman for the British Insurance Brokers' Association (Biba) explained the problem: “I think the policy has a lot of style but very little substance. They are aiming to simplify a policy which can't really be simplified.”
She explains: “Valuing the contents of a house is a complicated and time-consuming process but it is worth getting a figure, even if it is just a rough estimate, because then you have a record of the value and a list of valuable individual items.”
Weller adds: “Asking customers to single out items over £4,000 is all very well, but what if a customer has an extensive book or CD collection which they don't realise is worth that much? And what if they have loads of possessions that are just under the £4,000 mark? It is quite possible for a £50,000 home to have £250,000-worth of possessions in it. If M&S has no record of these, what happens when they are stolen? Will it be a case of M&S's word against the policyholder's? I think it's good for people to think about what they have in their house. People's possessions are precious to them and they should put in some effort and get them properly valued.”
Paul Dickson, managing director of Dickson's Insurance Brokers, echoes Biba's concerns, while raising the issue of advice and service. “The one-size-fits-all approach will not work because everybody has different home insurance needs. People need advice based on their individual circumstances and that is where brokers come in.
“M&S does not have insurance expertise and I doubt it will be able to give proper advice. What happens when someone starts to work from home and assumes they are covered when actually they are not. I doubt M&S staff will have explained this to the customer or that they have the expertise to be able to explain it. Perhaps they will just exclude customers with complicated needs,” he says.
In response, M&S says it has spent a year developing the pricing system with Norwich Union (NU), the underwriters of the policy – and have taken these concerns into account. M&S staff have been trained by NU and the management team has been recruited from the insurance industry. The aim, it says, is to make a profit across the whole book of business and it feels confident the system will produce this.
Furthermore, M&S says the £4,000 requirement has been put in to alert customers to the need to value individual items. The company also says that fire and theft rarely results in the loss of a household's entire contents, so the problem of the customer's word against M&S's should not arise.
Peter Longstaff, head of personal lines at M&S says: “Other insurers ask for rough estimates of a household's worth just so they can price the product. They do not do it so that they have a record of the contents in the event of a loss. Our system is no different, it just makes the process easier for the customer. We will, of course, review our pricing system over time to make sure it is set at the correct level. But we feel confident the system will make things easier for the customer at no greater risk.”
Ultimately, however, it seems M&S is banking on the product succeeding on the back of its brand strength. Research shows that the public is willing to buy insurance from M&S because they trust the company more than insurers with all their exclusions and small print. Lorraine Brannan, head of product marketing, says: “The M&S Financial Services home and contents cover aims to create greater transparency in the insurance market by cutting out the small print, while at the same time offering great value for money.”
Brand loyalty may bring in the customers, but brokers remain sceptical about long-term success. “Let's wait and see what kind of losses M&S and NU post a year from now,” one said.