Sluggish mortgage sales – but borrowers still need to find home insurance
It’s important for lenders that mortgage borrowers have adequate insurance for their homes. Mark Holweger, broker and intermediary director at Legal & General’s general insurance business, outlines how GI can help to support brokers in a low mortgage sales environment
In recent months we’ve seen clear shifts in the trends around home ownership. In September last year, Legal & General’s Changing Face of British Homes report identified the growing trend of long-term renters who, in the face of ever-growing deposit targets, are foregoing their dreams of home ownership and putting down roots in their rental properties.
This shift in home ownership is resulting in continuing increase in demand for rental properties and as a result the buy-to-let market is remaining buoyant in 2012.
Our research also revealed that, among typical first-time buyers in the 25-34 year bracket 18 per cent said that they are thinking of getting on the property ladder in the next 12 months.
However, it is estimated that over half a million (531,000) home sales fell through between September and November 2011, compared with just close to 394,000 between December 2010 and February 2011. So it appears that there is a higher likelihood of a home sale falling through in 2012.
If this trend continues insurance such as homebuyers’ protection can provide a safety net to protect customers’ hard earned deposits.
There is certainly no shortage of commentary from economic experts looking to add equal doses of colour and woe both to the macro-economic picture and the mortgage debate, making their own predictions about the degrees of uncertainty ahead.
Legal & General’s view is that the mortgage market will be flat in 2012. Although there will be some activity from lenders, we predict that this will have a relatively minor impact with housing transactions remaining suppressed. There may be good news with the introduction of the mortgage indemnity guarantee which may see some uplift in new build in the second half of the year, but we believe that this will take some time to get going.
As we know, general insurance has not typically been regarded as a core part of a mortgage adviser’s product portfolio. However, during the last two to three years we have seen increasing evidence of intermediaries selling more GI - against a back drop of intense competition from non-intermediary channels such as aggregators.
We certainly believe that aggregators serve a purpose - but they aren't for everyone. Getting the best results for an individual relies on the consumer really understanding what they want, beyond the best price, and this is where advisers can really prove their worth to help protect their customers from underinsurance.
Opportunities for advisers
With mortgage lenders and homeowners remaining cautious there may appear to be fewer natural hooks for advisers for sales of general insurance - an acknowledged valuable additional income stream within an adviser’s portfolio.
Traditionally, sales of home and contents insurance are connected with house purchase when arranging the supportive mortgage lending. If house purchases are expected to be lower in 2012 then the worry is that this income stream of new business may dry-up.
However, as the home insurance cover needs to be renewed on an annual basis, this provides the opportunity for advisers to build an on-going relationship with their mortgage customers. In fact, retention levels for home insurance bought through an adviser are much stronger compared with insurance purchased online.
So the relationship customers have with their adviser is obviously greatly valued. Although traditional new business levels may be lower, home insurance renewal business can still provide a growing and sustainable income. Any investment made with a new customer during the early years of a relationship can continue to pay dividends year on year.
This client /adviser bond means that an adviser’s revenue from sales of general insurance still has the potential to increase significantly over time.
Recent Legal & General modelling shows that in year one, with commission of 25 per cent, based on selling two general insurance products per week at an average premium of £300, would generate income of £7,800 per year. Based on an 80 per cent renewal rate, by year five, this could mean that an adviser’s potential income could be over £26,000 per year.
Indeed, intermediaries who diversified their business three or four years ago, around the time the property bubble burst, to offer general insurance cover such as building and home contents to homeowners and renters, and landlord’s cover with the boom in the buy-to–let market, are now benefiting from three or four years’ worth of renewal commission.
General insurance, for them, has been a key factor in ensuring their businesses are sustainable as shown in the case study outlined. We believe it can certainly be an attractive option for the year ahead.
Communicating the added value
Advisers are able to differentiate themselves by adding value to any conversation they may have with their customers about their insurance requirements. For example, contacting customers at renewal to ensure they are adequately covered can also help to protect them from potential claim shortfalls.
Mintel research undertaken on October 2011 estimates that seven million British household are underinsured with an estimated £200 billion of home contents at risk and over two-fifths of policyholders fail to regularly review their cover.
In addition, the research showed that only 50 per cent of people said they are confident that they have sufficient home insurance in place. This reasserts the opportunity to provide much-needed advice in this area.
The same research illustrated that consumers are driven more by value than price - suggesting that they are becoming savvier with their insurances. Consumer perceptions of insurance appear to be strengthened by the uncertain economic conditions, with two-fifths agreeing that insurance is even more important when things are tough financially.
However, the product offerings can be very difficult for customers to evaluate and so advisers are able to help customers select the most suitable insurance products for them from all the haze.
The media headlines and TV clips showing the real life impact of the recent flood and storm conditions provide advisers with the opportunity to highlight the peace of mind insurance cover is able to offer in this situation.
Following a recent claim settlement, one customer told us that even if they hadn’t paid their insurance premiums since they got married 47 years ago and saved the money in a savings account, the amount still wouldn’t have been enough to cover the cost of the damage.
In times of uncertainty, insurance is able to offer a much-needed sense of reassurance and additional protection should unexpected events arise.
As well as explaining the benefit of sometimes paying slightly more for additional cover, advisers can talk through related issues and pose the right questions to the customer which may not be considered when obtaining cover online.
For example, does the customer need cover for items stored in a garage or shed? Are they protected if they work from home? Are their valuable heirlooms covered? These are aspects that can cause confusion and warrant further discussion before purchase is made.
Continuing support
We know that to make selling GI a viable business opportunity for advisers, it’s up to providers like us to work with them and to make policies easier to understand, buy and sell. We’re proud of the services we’ve implemented and are continuing to develop.
Using technology for example, is one way of equipping advisers with the ability to streamline the quote and purchase of insurance. Our offline GIology system, which has close to 5,000 users per quarter, generates a very quick indicative quote with just two pieces of information – postcode and date of birth. A subsequent full quote can then be compiled in a matter of minutes.
Legal & General like other providers understands that for those advisers selling general insurance products, regular support and updates on changes in the market are so valuable to continue to offer a quality service to their customers. For example, we are planning workshops for advisers to help them in the industry wide initiative to tackle fraud. And improve their understanding and expertise.
So, on a positive note, although advising on general insurance as part of advisers’ portfolios is not new, the current climate does mean that 2012 continues to offer advisers the potential for new and repeat general insurance business that can certainly help to future-proof their future income.
CASE STUDY
Adding value
Ben Riley, a director at Gateshead-based M&R Financial Management, has written over 130 general insurance cases with Legal & General along with his two adviser colleagues since June 2009.
Ben sees GI as an integral part of his business strategy. For M&R, it is key to maintaining contact with clients over a long-term period, rather than just undertaking one-off transactions. This is an area where Ben thinks other intermediaries may be missing a trick.
“Many companies see their client once, arrange their mortgage for them, and then that’s the end of that,” says Ben. “Once you’ve sold GI however, it’s a different story. Repeat business from GI sales has certainly contributed to helping us ride the storm of the past few years. It’s an income stream we definitely don’t underestimate.”
Ben admits that he can rarely beat online quotes on price alone but he is clear about where he knows he can add value for his clients.
“In some cases, we can also generate an initial quote just as quickly as they can themselves via an online aggregator, for example, using Legal & General’s GIology system.”
Most of Ben’s mortgage business comes via word-of-mouth from satisfied customers and he knows that the chances of this increasing are greater the more general insurance products he sells.
Ben adds: “When your business model is all about keeping in touch with people, it would be quite short-sighted not to make a concerted effort to build GI into that.”
