Affinity into infinity

It’s pretty clear what insurers want from affinity partners: access to distribution. But what do affinity partners get from the relationship?

At the first Insurance Times Affinity Partnerships Round Table, held last month at Le Pont de la Tour in London and sponsored by Norwich Union [soon to be Aviva], affinity partners had the chance to say why they value such partnerships, and what works and what doesn’t.

Benefits of partnership

First and foremost, participants agreed that partnerships are important for generating revenue. But they also provide banks, supermarkets, the motor industry and other partners with a variety of other benefits.

Tony Beckwith, chief operating officer of Santander Insurance UK, set up by Spain’s biggest bank, Banco Santander, said the bank offered insurance products through its branches “because it can”.

“We do not want to become an insurer; it is not a core business for us, so it’s about finding an affinity partner that can bring more products to the table, but at the same time having access to our brand and our reputation is very important,” he said. “Yes, it is a revenue generator, but it is contributing to the fixed cost of running our business.”

Meanwhile, Eleanor Field, insurance product manager for Greenbee – the white-label insurance products offered via the John Lewis Partnership – saw affinity partnerships as a way to offer customers something extra.

“If you go into any retailer or supermarket these days, many of them are selling insurance,” she said. “There is an element of protecting our core business. We do not want our customers purchasing insurance from Marks & Spencer, for example. It could mean we then we lose our retail and supermarket sales.”

Some also see linking with an insurer as a way to educate customers or members by explaining how they should cover their liabilities.“Education is a great part of this for us and therefore the right kinds of partner and products are important to back that up,” said Sarah Reddy, commercial director of the Institute of Directors (IoD).

And for the motor industry, partnering with an insurer also supports repair networks.

Meanwhile, non-profit organisations are increasingly looking for partnership opportunities. People are less willing to donate to good causes simply out of the kindness of their hearts. To survive and generate sustainable income, non-profits have to take a different approach.

For Motability, which runs a scheme enabling disabled people to use their government-funded mobility allowances to acquire a new car, powered wheelchair or scooter, partnership with an insurer “was seen as quite a fundraising step change”, said Hazel Gotfraind, fundraising and marketing director.

“For the affinity partner we were looking to work with, it is important that we have shared values so that our stakeholders were satisfied. Reputational risk, in entering something new, was very high on the agenda. However, the initial thought was in terms of how we can stretch the brand, make a step change, and give sustainable revenue back to the charity.”

Mark Gettinby, director of financial services for Intune, a non-profit organisation that provides financial services for the over-60s, agreed: “We need to make a profit back to our shareholders in the respect that [the partnership] is a diversification strategy for funds coming in.”

But he added: “The critical thing from our point of view is that we have to ‘walk the walk’, not just ‘talk the talk’. None of our insurance products, for example, has an upper age limit. That is something which most insurers avoid . . . We try to make sure that people are genuinely doing something different for us.”

The other participants agreed that they wouldn’t enter a partnership with just any insurer – they wanted to work with a provider that shared their values.

Gerry Ardley, brand insurance manager for General Motors, said partnering with an insurer provided an extension of customer service – but it had to be done properly to be effective. “[The partner has to have] a similar sort of customer service ethos to General Motors,” he said.

Scott Blyth, managing director for Daimler Insurance Services, added: “From a Mercedes-Benz perspective, it is all about the quality of the product matching the quality of our brand. Therefore, it is about very high quality service. These are the primary things that we look for, before a price.”

White labelling

Telling customers who’s behind an insurance policy can be an advantage if the brand is powerful and trusted. But the consensus is that affinity partners tend to prefer “white labelling” – that is, putting their own name on a product underwritten by an insurance partner.

“I am quite happy for colleagues from Aviva ‘to stand behind their motor insurance product but I do not use that anywhere in the marketing message to the customer,” Daimler’s Blyth said. “It is all about [our] brand. It is really about having a reputable insurer with a solid claims process and a high service at the back end.”

General Motors’ Ardley added that of the insurers he’d dealt with, those using basically the same rates on the GM-labelled products as on their own-labelled products can get up to a 50% better conversion rate using the GM brand.

“One of the advantages of using the brand is that, if there is a close association, then you do get a better conversion rate and you do get a better retention rate,” he said.

But not all take this approach. IoD’s Reddy said: “We have made an absolute decision not to make [a partner’s product] look like an extension of us, not to ever ‘white label’ [a product], but to act as an ‘educated introducer’ . . . We have found that it is better to show that we have done our research and negotiated a price for our customer. This puts us in a position of authority and trust. We then hand over the relationship, while obviously closely monitoring it.”

Meanwhile, Andrew Felice, head of trading for Norwich Union, said he understood why white labelling was sometimes preferred But he added that it was the affinity partner’s staff – not necessarily the customer’s – who gained confidence from knowing who the insurer was behind the brand.

For example, he said, Norwich Union worked with a large mobile phone company. The phone company had its own insurance company in Dublin but wasn’t able to sell much insurance. After NU came on board, sales blossomed.

“The staff immediately picked up on [the association with NU] and they found it much easier to sell the insurance to the customers, and penetration went through the roof . . . it’s actually about giving confidence to your staff in the product.”

Santander’s Beckwith said he had seen examples where the insurer brand was the preferred brand because of its good reputation. But it depended on the distribution and product.

“Life insurance would be a good example, where Norwich Union Life is a well known and respected brand.

“Many distributors would prefer to use the Norwich Union brand than their own, even in bancassurance.

“You can then have other products, such as motor insurance or some banking products such as home insurance, where customers go directly to the brand they trust.”

Courting affinities

When it comes to scrutinising affinity partners, insurers will have to bring a lot to the table – Greenbee’s Field said [potential partners] looked at “absolutely everything”. This meant a tender process considering underwriting, pricing, ethos and outlook.

“If they had let us, we would have gone to see their repair network,” Field said.

“The idea is to get a good grasp of how important the customer is to that organisation and how they put them at the heart of everything they do.”

Blyth said Daimler always invited a number of insurers to tender, even if it was considering renewing with a current partner – a common practice among many affinity partners.

This could mean not only looking at insurers, but also their suppliers.

The Royal Society for the Prevention of Cruelty to Animals (RSPCA) is developing a tougher ethical framework for rooting out unsuitable insurers.

“Obviously, being a welfare charity, we have to be very careful about who we publicly align ourselves with,” said Samantha Horvath, head of corporate partnerships for the society.

“We look into their background to see, for example, whether they have treated animals badly, and it is very hard to find anybody who has not.”

Insurers should also expect encounters with mystery shoppers – after all, their affinity partner’s reputation was on the line.

On the technical side, partners wanted insurers to have appropriate teams set up for dealing with partnerships.

These days, insurers were more likely to have the relevant expertise. But the round table agreed that the problem sometimes remained when it came to niche products.

“Some organisations do not have the in-house marketing and promotion capabilities so even in the case of a bank such as Santander, we rely very heavily on our partners for expert opinion,” Beckwith said.

“We worked extremely closely with Norwich Union around how we responded to the recent Competition Commission inquiry . . . when you outsource the supply of products, you are also looking for that supplier to provide the technical and even regulatory competence that goes with it.”

Geography was also important, said Daniel Hughes, marketing manager for Visa Europe. “There are 36 territories within the Visa Europe region, and I think there is really only a handful of truly pan-European or international insurance companies that we can talk to and work with.”

An insurer’s financial strength was also cited as vital, especially in the current climate, as was offering a product that would still be sustainable in terms of sales after the first year. This could mean the insurer and the partner building something “very special” involving an exclusive rate or revenue terms.

Insurer perspective

Affinity partners are a good addition to the insurer’s distribution roster, particularly because commission rates are far lower than those a broker would expect (because brokers provide advice, whereas affinity partners do not).

Commission levels vary widely. If the affinity partner is big and has more distribution power, its commission will be higher.

“We have commissions in the travel space as low as 4% to 5 %; in the payment protection insurance space they’re as much as 70% because claims ratios are only 10%,” said Norwich Union’s Felice. “. . . Typically, an affinity partner will get 20% and a broker will probably get nearer 40%.

When it comes to deciding whether to use an affinity partner, Norwich Union makes sure the sale of insurance is during a “moment of truth” – that is, when the customer is getting something from the affinity partner that they naturally need or want insurance for.

“Timing is critical, so whether it’s a mortgage, personal lending or personal lines, it’s really important to us. Banks are the biggest proportion of our [affinity] business because they bring bigger volume,” said Felice.

He added that in the past, insurers probably undersold the value they brought to partnerships, meaning distributors had benefited massively. But this had changed.

“Perhaps we used to chase everything and everybody; it did not always work. It is about the chemistry, flexibility, and so on. Through many years of experience, we have learned only to go after things that will truly add value to the partnership. This is how we can now build longer relationships; it would cost a fortune otherwise.”

So far, Felice didn’t see much opportunity for selling commercial insurance through partnerships. But that could change. “We’ve got two, possibly three partners selling small commercial business. Everyone’s testing the commercial small business market but no one seems to have cracked it,” he said.

Affinities in the future

The table agreed that affinity partnerships would grow in significance. This, they said, would be accelerated by the economic climate, which they believed was making everyone look more carefully at who they did business with.

“From a lender’s perspective, a customer may look at the products we have, and may take a quote, but will look elsewhere as well because it is much more accessible to them,” Clare Framrose, marketing manager for Northern Rock, said.

Meanwhile, the RSPCA’s Horvath admitted product sales had been affected by the credit crunch. But there were still opportunities.

“People are commenting that they still want to take out insurance, but they want a budget product. We have more pressure to look at what we are offering and how we can adapt to the market. There is growth, but it is growth in a different type of product.”

Parliament Hill works with institutes and associations in the UK to help them arrange benefits and professional indemnity schemes for their members. These institutes and associations charge membership fees, which can be a deterrent in a bad economy.

But director Andrew Holden said Parliament Hill’s affinity partnerships could enable organisations to justify their fees by helping them offer their members preferential terms on products and services.

“We can help the membership organisation illustrate to its members that they can actually save the cost of membership. In the current climate there will be a certain proportion of members of these institutes and associations who may be considering whether they still need their membership . . . Anything that can help them with their strategy to retain members will be a good thing.”

Hughes of Visa Europe also saw affinity partners as a bargaining tool. “We have noticed, particularly in Eastern and Central Europe, that people are asking us what our affinity relationship is with our insurer, what we can do for them and whether we can get them a product that is of comparable quality and competitively priced. There is a kind of security in using the Visa organisation as opposed to having to support their own relationships.”

The “affinity effect” was also discussed, with reference to how people aligned themselves with brands according to market conditions.

In easier times, people tended to align themselves towards charities or gifting. Now that the economy was struggling, a swing in the other direction was probable.

But a shift in either direction was still good for business. “When you have a new rush on market activity you get a very good penetration, a very good uptake, when everyone is behind it,” said Alan Sanderson, director of trading for Norwich Union.

But he warned that maintaining that increase – and penetrating further – was the tough part.

IoD’s Reddy, however, said launching a partnership could take at least three years because it was a gradual education process. But this would depend on the product.

Insurer claims handling was also questioned, with some affinities worrying that the customer experience was sometimes not what it should be. Areas of concern included claims software and handling skills.

“As soon as your partnership deal goes live, the first people to call for a quote or a claim to test the system are the chairman and the chairman’s wife,” Norwich Union’s Sanderson said. “It has to be able to stand the first two weeks of difficult quotes, such as ‘I could not get a quote for a Maserati’.”

When customers were buying an insurance product through a distributor, they might never know it – until they made a claim. Therefore claims was the area where the true benefit of a partnership came to light for a distributor.

But in the end, the table agreed what made a truly successful affinity partnership was, like any other partnership, a matter of chemisty. IT