It has often been said that if organisations don’t look after their customers, someone else will, and never has this statement been truer than in the UK financial services market of today.
It is very true of the general insurance (GI) market, the profile of which was raised by the Financial Services Authority (FSA) when it published its Insurance Code Of Business (ICOB) rules in January 2005.
Cross-selling
When you consider the amount of direct mail we all receive offering a plethora of financial service products and the sheer variety of advertising techniques, it’s no wonder that we may be tempted to buy insurance services from large organisations.
Many of these organisations, such as utility companies and supermarkets, have prime products in other markets and are initially unrelated to financial services. This will not, however, stop them from poaching your customer and sellling them a range of financial services products given half the chance.
These organisations are using cross-sales once they get a foot in the door, as they have realised the impressive earnings potential from selling more and more ‘ancillary’ products. They also follow the belief that the more products they sell to each customer, the more they will tie that customer in for future sales, strengthen customer relationships, and increase customer loyalty and income generation opportunities. The expansion of supermarkets is just one example of this growth.
Threat to intermediaries?
For the UK mortgage intermediary these organisations can pose a serious threat to future earnings potential. Mortgage intermediaries need to ensure they embrace the many opportunities available to them at the interview stage with each customer, not just in product sales but also establishing themselves as a service provider.
Since regulation of the mortgage market, it has been said that intermediaries have been spending more time at each financial interview and on the subsequent administration. At the same time, income has reduced from some lenders and there is more competition on the high street. Intermediaries are, therefore, looking at additional ways of earning income to keep their businesses growing.
Duty of care
In addition, intermediaries must remember that for each of their customers they have a duty of care under the FSA’s ‘Treating Customers Fairly’ (TCF) principles. Intermediaries need to ensure their clients have sufficient cover in place to protect them should they suffer an accident, get ill or become unemployed as well as adequate home insurance at the very least.
Remember that borrowers with a new loan after 1 October 1995 are deemed to have ‘new housing costs’ and they do not receive income support for their mortgage interest during the first 39 weeks from the date when they might need to claim. The full entitlement is now paid from week 40, leaving almost a year of having to find income from other areas such as savings.
Mortgage interest rates have just risen and are now at their highest rate for several years and people are becoming more stretched to meet their commitments. This rise will add even more strain onto the escalating levels of consumer debt which could result in more customers having difficulty with their repayments.
Selling GI
Selling GI products is profitable. Just remember – if you don’t sell your client GI, someone else will. So it’s not just about offering a great service but also protecting your other business income streams.
To estimate how lucrative insurance sales can be, intermediaries should work out how many mortgages they arrange each month and calculate the average earnings per case from procuration fees. For example, if the yearly premium (excluding IPT) for buildings and contents is assumed at £300, then the intermediary can expect to earn around £75 in commission per case each year for the life of the policy.
Commissions by provider can vary, but you can expect to receive 15-30 per cent of the annual premium. Then make a reasoned judgement how many buildings and contents and MPPI products could be arranged to run alongside each mortgage and the average commission that is paid on the sale of those products. So for example, an intermediary selling 12 mortgages per month could reasonably expect to sell nine buildings and contents policies and so earn £675 additional monthly commission. On top of this will also be income from selling MPPI policies.
Renewals
Not only will the commission be paid when the insurance is completed but also on renewal each year the policy is in force. Many insurance providers put commission calculators on their websites that show how this renewal income can build up to be a very substantial amount of money over the lifetime of the policies and can certainly enhance the profitability of the intermediaries business.
This also gives the intermediary an opportunity to call their client each year, providing the chance to get to know them and increase customer loyalty. It will also provide a greater chance of cross-sales over and over again.
When you consider the mortgage procuration fee is normally a one-off payment, over time the ongoing income to be generated from insurance sales can often outweigh the mortgage fees.
Sales process
Selling buildings insurance at the same time as the mortgage should be relatively easy given that it is a requirement of lenders to have this cover in place before the mortgage starts. The intermediary can use this opportunity to discuss other needs such as life insurance, contents insurance and MPPI at the same interview.
The insurance market has come on in leaps and bounds in the past few years and technology has revolutionised the way business is done. Insurer’s systems are now very efficient and can allow instant quotations at point-of-sale, input of client data and transmission of the case details without signatures and direct debits. The insurer then deals with all case administration so the intermediary has no further involvement in the administrative process after the sale has been made.
Some products also have customer incentives such as the first three months’ premiums free, which allows the intermediary the opportunity to offer more competitive premiums than existing providers. On this point, some brokers in the past may have simply ticked a box on application forms to allow the lender to sell GI to the intermediary’s customers. This practise may end up with the customer having a buildings policy put in place from the lender but it will almost certainly mean no commission is paid to the intermediary. There is also the risk of the cross-selling of other products by the lender.
Over time, this may result in the lender building even stronger customer loyalty and so the intermediary stands a great chance of losing that customer for all products and services. Not talking about the full range of needs for a customer could mean a reduction in income or another organisation taking care of the client.
Technology not only assists in the quotation process but also helps the intermediary in managing their customer database, links to established mortgage sourcing systems and client management tools. Here, two-way pre-population of data between systems save considerable time and allows GI advice to be built into the sales process for all customers. Quotations and submission of GI business can take minutes to complete and so the earnings per hour per case are impressive.
Insurance providers tend to incorporate all of their GI products in one convenient system and are continually looking for ways to allow their products to be sold more easily. The UK mortgage intermediary should not therefore be apprehensive in becoming involved in selling GI products as it is a painless process.
For example, many brokers are actively involved in the buy-to-let market. This type of mortgage business creates a great opportunity to earn extra income from the sale of buildings and contents insurance to landlords and tenants.
Referrals
For those intermediaries that do not wish to get involved in the sale of GI, some organisations have set up customer referral processes. This tends to pay a reduced commission but the mortgage intermediary simply passes the customers contact details to them, and they will then take care of the advice and recommendation process.
If they want to go down this route, the mortgage intermediary should ensure that there are comprehensive ‘no cross-sale agreements’ in place to protect against their customer being sold other products. The potential loss of the customer relationship also needs to be considered wherever a client is posted on to a third party to complete the sales process.
Next steps
To become involved in selling insurance, the intermediary should firstly make sure they are regulated by the FSA before looking around the market at all their opportunities before deciding on a product provider. Care should be given to the quality of the cover provided so as to meet TCF guidelines as well as the provider having good quotation and sales systems, commission levels and overall reputation.
If the intermediary is an AR of a network, then clearly they should follow the instructions of their principal, who will have chosen suppliers and probably registered the mortgage intermediary to conduct business.
The DA broker could seek guidance from the mortgage distribution company they use for mortgage and other products and often take out an agency with the insurance provider on preferential terms.
Marketing
Once the mortgage intermediary has an insurance agency set up, then every opportunity should be taken to advertise the fact that clients can arrange their GI through the adviser. For example, the broker firm’s website should show relevant details and links where possible to quote engines, all stationery and business cards should show the full range of products and services that are available. Many clients have been with their existing providers for some time and may be paying uncompetitive premiums for poor cover. Simply asking the questions about buildings and contents and MPPI can save the client money, increase their cover and generate additional income for the mortgage intermediary.
In addition, the mortgage intermediary should have a well rehearsed sales process so that the right questions are gathered at the factfind stage at every interview to identify the relevant products to be covered to meet customer needs.
By taking all the steps listed above, UK mortgage intermediaries will be very well placed to offer a range of insurance products to not only meet their existing customers’ needs but also to obtain every chance to win and retain more customers.
