Affinity groups offer a potentially rich source of business for brokers and intermediaries. This style of marketing – which provides additional products and services to people who share a common interest or affiliation – has become increasingly popular. There is no reason why financial services providers, including general insurance practitioners, should not compete for a slice of the pie.
The heavy involvement in affinity business of organisations such as Aon, Marsh and Jardines gives an indication of the size and importance of this sector. But, it is not restricted to national brokers. There is no reason why any intermediary with imagination, commitment and the right underwriting partners cannot develop a useful income from its affinity account.
It is first important to distinguish between a true affinity group and a scheme. With the former, the primary interest is not insurance. For example, the group may be a charity, a trade union or a football club supporters' association. Accordingly, there is an opportunity to cement a genuine relationship with the customer that reflects the emotional ties already in place.
With a scheme, there is often little true affinity, which means there is only limited scope to build a relationship with the policyholder beyond the mere transaction of selling insurance. An example might be contents insurance for council house dwellers, or extended warranty cover on electrical goods. The policy is just an adjunct to another product. It has been designed to serve the purpose of insurance, not reinforce any affinity.
It is a subtle distinction, and some might argue that it does not matter – if policies are being sold and underwriting profits being made, why worry?
The problem is that the insurance sold on a scheme basis tends to be a commodity. As soon as someone comes along with something cheaper or has more bells and whistles attached, the business may be transferred.
With a genuine affinity group, the insurance product is tailored to meet particular needs. The policy may have been developed specifically to suit the people to whom it will be sold. It will probably carry only a discreet mention of the intermediary and/or insurer, with the affinity group's branding to the fore.
In marketing speak, an affinity group demands a move away from a product proposition to a customer proposition. It is not a question of "who can we sell this product to?" but "what does this organisation want to offer?", and "what do its members want to buy?"
With a scheme, you might approach the retailer and immediately enter into a discussion about pricing and margins and volume discounts. The product details would be in your briefcase and it would take a few minor adjustments to the literature before you start selling.
With an affinity group, you must develop an understanding of its members. It is necessary to collaborate on the development of a product. The broker or intermediary can play important part in this process.
Affinity group business is also more of a challenge in terms of administration than a straightforward scheme. Service standards have to be just as high, but there may be issues regarding the way the membership's details are handled and the way communication is carried out. A charity, for example, will not want to be regarded as a brash commercial organisation. At the same time, it will want to be seen as financially scrupulous and efficient.
So certain questions will need to be addressed. Who is to be seen as selling the product? Who controls the client data? What involvement will the group have in the day-to-day running of the account? Does it want to run its own administration systems? What will be its attitude to claims?
Many of the answers will arise from the particular circumstances of each group. The important issue is that the intermediary and the insurer are conscious of the need to accommodate the desires of the group. This lays the foundations for a strong and enduring relationship.
This brings us to persistence. A properly-arranged affinity group product should enjoy better retention rates than business which is not underpinned with such strong links. But in order to protect those involved, the contract should be written under a long-term agreement. This will protect the investment made in researching the group and designing the product.
Intermediaries and brokers keen to develop their presence in this market will need to choose underwriting partners. The field has contracted in recent years, thanks to merger and acquisition activity. There is a clear need for alternative suppliers outside the top handful of mega-composites, so due consideration should be given to emerging companies.
It is also likely to be the case that such firms will be less brand-conscious than their high-profile rivals.
Affinity group business is certainly worth pursuing. It has long been acknowledged that customers tend to remain loyal to organisations with which they either have an emotional attachment or regular, enjoyable or effective communication.
Brokers and intermediaries who do not at least consider whether opportunities exist for them in the affinity group market could be missing out on an important means of generating revenue.