FCA investigation highlights importance of advice

James Watson

December 24, 2018

James Watson is sales director at Paymentshield

At the end of October the FCA announced that it was conducting a market study into how general insurance firms charge their customers for home and motor insurance.

The regulator’s market study will focus on pricing practices and their impact on customer outcomes, fairness and competition. It follows a super-complaint that was lodged by Citizens Advice in September, suggesting loyal customers in five essential markets, including home insurance, mortgages and savings, were being penalised for remaining with their existing provider.

The outcome of this market study will not be known until next year, but the fact that the FCA is committing such focus would indicate it thinks that many customers are missing out on the best general insurance outcomes for their circumstances.

In research carried out by YouGov amongst 2088 adults on behalf of Paymentshield, worryingly more than three quarters of people said they choose to arrange home insurance themselves, even though more than 70% admitted to not thoroughly reading the terms and conditions on their buildings and/or contents insurance.

Given the number of customers selecting their own general insurance and the announcement of FCA market study, this would indicate a clear need for more people to understand the benefits of speaking to a professional and to receive advice to help them to achieve better outcomes for their circumstances.

And this clearly presents a significant opportunity for mortgage advisers.

The same research study on behalf of Paymentshield also found that nearly four out of 10 people who arranged their own general insurance, spent more than a day of their time to do the research, get a quote and complete their application.

So, at the same time as helping your clients to secure the right policy for their requirements, you could also save them a lot of time.

This isn’t to say that doing the research, getting a quote and completing the application for your clients will take more than a day. In fact, our research has found that a typical general insurance case can take just half an hour and tools like Paymentshield’s Quick Quote are making it quicker and easier for you to start a conversation about general insurance with your clients.

Technology is an important tool in helping you to establish richer conversations with your clients about their requirements and plans, but it shouldn’t replace those conversations, because it is by engaging with your clients that you can help them to achieve better outcomes.

We think that there is a big opportunity here for you to add value to your clients, whilst benefitting their business. The regulator’s concerns show that there is room for improvement in the way that your clients engage with general insurance and that they often don’t take the time to comprehensively understand what’s included in a policy. So, by opening up a conversation, you could help them realise a more positive experience and generate recurring revenue.

A typical general insurance case takes around half an hour and the average commission is just over £80 each year, which is recurring income as long as the policy stays in place.

This means that is can soon add up. Say, for example, that your business writes 12 mortgages a month. If your firm makes general insurance sales on around to a third of those customers, that would mean four policies a month, which would deliver around £4,500 in revenue in the first year and then each year the policies stay in place.

Assuming you make the same number of general insurance sales the following year, even factoring in some client attrition, you could expect to earn around £8,000 in year two, then £11,500 in year three and so on. The cumulative effect means that, over the course of five years, total earnings from doing just four cases a month could be more than £50,000.

By advising your clients on general insurance, you can not only help them to achieve the best outcome when they first take a policy but also help to ensure that they don’t have to lose out by remaining loyal to one provider.

Insurance providers that offer cover from a panel of insurers will sometimes offer a re-broke service that is designed to ensure your client’s renewal price remains competitive by automatically searching the panel for the lowest premium, should the cost of home insurance go up significantly at renewal.

This means that your clients don’t have to shop around at renewal, but also won’t be penalised for their loyalty as the provider will automatically provide them with a more competitive quote if it notices a significant increase in their premium.

By carrying out a market study on general insurance, the FCA has acknowledged that there are areas that could benefit from greater focus, and these are areas of opportunity on which you can focus the attention of your business.

By having more conversations about general insurance with your clients, you can help them to break some bad habits, make their lives easier and help them to achieve more positive long-term outcomes. And this approach will benefit you, with happy, loyal clients and a strong source of recurring income.

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