Identifying an under-served segment of the market and developing a scheme to serve it. Brokers and insurers working together to better deliver the products customers want 

For many brokers scheme business is the icing on the cake. For some, it is their core business. Whether it is a personal or commercial lines product, produced in partnership with an affinity group or membership organisation, generating £5m-plus of premium a year, or £500,000, schemes are – on the whole – a profitable and stable business. Currently worth £8bn GWP and growing, according to Hiscox, schemes allow the broker to carve out and service their own particular niche. 

For this reason, brokers around the UK are keen to grow their scheme books of business, to come up with new ideas and to find new ways of expanding and cross-selling within their existing client base. According to UK General, 62% of brokers expect their schemes business to grow over the next five years, with some brokers attributing over 60% of their total GWP to schemes.

In addition to profitability, schemes can help brokers maintain their market share within personal lines and SME business segments while enjoying high levels of customer retention. If a scheme is properly serviced, retention rates are in excess of 90% at renewal, explains Graham Whyatt, group head of affinity & SME, James Hallam. “A lot of that is to do with the fact that we are offering a market leading product and it would be difficult to find better coverage elsewhere. The price is competitive but more than anything we’re still human… we are still talking to our customers.”

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The key is in offering multiple channels of communication, without losing the human touch. “We’re on the web, we’re communicating with customers by email and we’re in the middle of creating a portal so we’re going to make it even more secure, but there’s the personal contact as well,” says Whyatt. “Clients still want that.”

“We’ve seen this phase where direct writers have been competing with brokers more and more, even coming into commercial insurance,” he continues. “But the biggest problem with the direct side to a customer is they are unable to offer truly independent and impartial advice. Whereas a broker doing his or her job and adding value can.”

“We only really lose scheme customers if there is a significant price difference,” he adds. “However price is not always the key factor, service and advice matter, the majority of our win-backs are people who have gone direct and then come back to us.”

It’s all about the quality

The ability to identify an under-served segment of the market and develop a product - in partnership with insurers - that best fits the risk profile is one way brokers can grow their schemes business. In an increasingly homogeneous and competitive insurance market, an effective scheme that targets niche and specialist markets that are not covered or poorly served by traditional insurance solutions can differentiate a broker’s business.

“The niche or specialist areas of insurance are good routes to pursue to secure new business,” says Nicki Crabb, schemes development manager at Covéa Insurance. “If you can find a group of businesses that are not being catered to in the open market and find the commonalities in them, there is a great opportunity for the broker and insurer to work together to develop a suitable scheme product. The insurer will, of course, want to see how the business is performing and what kind of claims they’re getting.

“Schemes allow a similar group of people or businesses to be able to get the best quality product and wording for them,” she continues, “and it allows the broker to demonstrate their knowledge, to be able to give something extra to the end client and show that they understand what that particular sector needs and then, as an insurer, we can make sure the broker has the best product to sell to the end client.”

From microbreweries and solar panel installers to cosmetic medical malpractice and drone operators’ insurance, new risks and changing business models give brokers a chance to innovate and win new business. “In the personal line space we look at insurtech solutions for schemes like pedal cycle insurance,” says John Price, chief operations officer at SchemeServe. “Typically the bike was insured as part of your household contents and you would tick a box to say, ‘Yes I’ve got a pedal cycle up to £1,000’. But that wouldn’t cover it if it was left out in the open, for example.”

“Where is that pedal cycle insurance for people who do triathlons? It’s a different type of policy that would include the fact that you’re going to be leaving your bike in the middle of a field for some time. It usually then means you can charge a higher premium for that more focused product… but it’s a product that the customer needs as opposed to just general bike insurance that wouldn’t pay out in the scenarios that count.”

There are plenty of opportunities to work with membership bodies to create something new or to offer an improvement if an existing scheme is no longer fit for purpose. Scheme products that have not changed in 10 to 20 years are often ripe for disruption.

“Some scheme providers may not be as proficient, so there may be an opportunity where you can offer better service standards or a value-added product that includes wider cover relevant to that niche or affinity group,” says Damian Walsh, managing director at specialist motor intermediary TFP Schemes.

“For example with our taxi product we include public liability cover as part of the product,” he said. “Because we know taxi drivers require wider cover than that provided by the motor only, for instance, the potential liability whilst escorting elderly customers up to their door. It’s about understanding your target market/group and making sure you provide a contract that’s appropriate and then supporting it effectively.”

MGAs: the perfect partners

While a niche product often benefits customers, brokers and carriers alike, a new scheme idea is not always an easy sell, particularly when approaching the larger insurers, according to Whyatt. “We find that when you go to the mainstream carriers you’ve got quite a lot more hoops to jump through. They have a lot more departments and a lot more people who have to get involved.”

“Within our group we have our MGA Touchstone Underwriting and that’s often a much easier route to market when it comes to a niche scheme,” he continues, “because they’re not the size of a major insurer they can quickly get the right people involved and deliver products or facilities much faster than mainstream insurers.”

Specialist MGAs and reinsurers are often in a better position handle a scheme idea that may only generate a modest premium as it gets established. “A lot of the time you don’t have to come up with something that’s absolutely unique – a product that no one’s ever thought of before – you just have to find a really quick and easy way to get it to a customer group,” says Pat Brice, distribution director at CFC Underwriting.  

“So whether it’s a technology platform or actually just a really efficient way of quoting and binding insurance business doesn’t really matter. If you can stick with the right kind of marketing wraparound so the customer sees it as unique and something they identify with, then an MGA is normally a really good route for that.

“MGAs have got the technology, they’ve got the efficiency of processing and they’ve got the products already,” he adds. “And they’re more likely to be comfortable in telling brokers they can white-label a product and brand it accordingly, and then our processes and systems will make it really easy for them to sell to their customer. And that’s why it’s important to be really clear who does what in the chain.”

To justify the overheads in designing and launching a new scheme product, mainstream insurers typically require a certain size book of business in order for brokers to get it through the door. Not so with specialist underwriters, explains Scott Brown, managing director, Accelerate Underwriting. “A lot of the larger insurers are getting more stringent and if a scheme has got £300,000-£400,000 of premium they’re looking at their costs of running that scheme and putting the necessary governance around and they’re saying, ‘We’re not sure it’s worth it’.

“But companies like us can do it because we’ve built a system that is cost efficient,” he continues. “When it comes to a broker who’s got a £400,000 scheme, it’s a good scheme and it runs well, we’re very interested. In fact, we find the schemes that are around £400,000 or £500,000 in premium turn out to be profitable and well run, so why wouldn’t we be interested in them?”