SPECIAL FEATURE: Brokers passing up thousands of pounds
Brokers are passing up thousands of pounds of general insurance income says Gary Little, head of key accounts, Assurant Intermediary.
"Back in 2009 when the credit crunch had taken its toll on the UK mortgage market and the recession was in full swing, we asked mortgage brokers and intermediaries about their views towards selling general insurance.
In response to the question: "How important is the sale of general insurance products to your business?" 58% said it was very important, while 34% said it was quite important and 8% said it wasn't important at all.
When asked whether the sale of general insurance products would likely to be less or more important in the future, 60% responded "more" while 38% said it would remain the same and 2% thought it would become less important.
We've just completed a similar survey in conjunction with Mortgage Introducer and, at the time of writing, are eagerly waiting for the results to be published. However, given recent conversations at a number of broker road shows over the past couple of months, I'm not sure that the result concerning the overall attitude as to the importance of selling general insurance products is going to be encouraging.
I've been amazed at how many brokers continue to ignore the opportunity to drive additional revenue for their business. I understand that there is still a confidence issue amongst many intermediaries. Despite the free training that is available, selling general insurance takes many outside their comfort zone. However, some brokers have told me that they don't see a meaningful return on the time and effort in selling protection or household, and actively point their clients toward the price comparison sites or supermarkets who, in their view, offer better value.
I find this quite astounding on two fronts.
Firstly I would argue that price comparison sites don't actually offer any real product guidance. To deliver an insurance policy, whether covering buildings and contents or mortgage repayments, you need to understand the client's individual circumstances and budget. Left to their own devices many consumers are going to buy on price alone and could well find themselves under-insured and exposed should they have to make a claim.
Secondly these intermediaries are losing a valuable income opportunity even if they don't have the appetite to undertake the actual sale themselves.
The networks and major brokers get the value of developing a book of general insurance business and all the opportunities for cross-selling and generating commission income it represents. The majority of networks have set up their own internal teams or in-house call centres to manage general insurance leads from their members, taking over the whole process. If you aren't comfortable selling household or protection or if you prefer not to spend the time on selling general insurance, it is likely that there is still a home for this business in your network. I would encourage intermediaries to speak to their networks and find out what in-house referral support is available.
Alternatively, some of the general insurance providers (including the provider I work for) will often offer to buy a book of business or allow the intermediary to move to an introducer status by transferring a book of business to the provider. This ensures that the intermediary will continue to receive renewal commissions. It is definitely worth checking out the various providers to see what they offer.
The industry estimates that the average life of a general insurance policy is around seven years. This arguably positions general insurance as providing the best income return per hours it takes to sell and also provides a tangible renewal income stream. Renewal commission is where the real value lies in selling general insurance products. Let me give you an example to demonstrate how you can create a passive income stream and build some very real value into your business.
Let's assume that an intermediary is selling two new buildings and contents policies a week with an average premium of £300 per annum with a commission rate of 27.5% API, and – based on our own experience at Assurant Intermediary over recent years – the average renewal rate is 85%.
End of year 1: £31,200 average premium and £8,580 commission
End of year 2: £57,600 average premium and £15,840 commission
End of year 3: £79,800 average premium and £21,945 commission
End of year 4: £98,400 average premium and £27,060 commission
End of year 5: £114,000 average premium and £31,350 commission
So after 5 years, the commission earned is in excess of £31,000 – and, of course, if your renewal rate is better than 85% then this will positively impact your renewal income.
The days of being able to ignore valuable income generating opportunities are long gone. There is a tremendous amount of support available to help you sell general insurance yourself and a variety of avenues available if you want to pass the lead on. Either way, you can earn some valuable commission as well as help your clients to access sound advice and quality cover.
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