Banking on local insurance

Seasoned insurance professionals reading the words of HSBC’s UK chief executive Dyfrig John last month might well have groaned. “It would be fair to say that HSBC has historically punched below its weight in insurance,” he pronounced.

“Of course it has,” might have come the reply. “It’s a bank.”

Such is the enthusiasm in the City for banc-assurance deals. They may have helped Norwich Union parent Aviva build European operations to a point where a majority of group sales now comes from outside the UK.

But joint ventures between high street banks and insurers are traditionally deeply unpopular in the Square Mile.

That may be unfair, given recent successes in the marketplace. But it was NatWest’s ill-conceived plan to take over Legal & General after all that saw the bank lose its independence to Royal Bank of Scotland (RBS) in a rare banking hostile bid.

Strangely, no bank has attempted a takeover of a major quoted insurer since, however attractive the likes of Friends Provident and Royal & SunAlliance may be.

Yet there’s no reason why banks can’t be successful players in insurance. RBS has powered itself to the front of the pack by backing Peter Wood to start Direct Line and later adding Churchill to its stable.

RBS has also teamed up with Tesco to assist the drive of Britain’s supermarket giants into insurance while rival HBOS has been highly successful in leveraging its capabilities and winning market share through its ownership of Clerical Medical and its esure joint venture.

Now the self-proclaimed world’s local bank apparently wants to be the nation's local insurer too.

The newly-formed HSBC Insurance aims to be a top ten player in UK general insurance. So should the rest of the UK industry be quaking in its boots?

Probably not. HSBC may have 10.2 million UK customers, who will shortly no doubt be receiving attractive car and house cover terms along with their bank statements, but reaching the top ten would involve it reaching annual premiums of about £600m and look at who it has chosen as its partner.

“I’ve yet to meet anyone who changed his general insurer after queuing to pay in a cheque at his local bank branch

Andrew Cave

Norwich Union (NU) is not only a current underwriting partner of HSBC for home, motor and travel insurance in any case but it is already Britain's leading general insurer.

It may be licking its lips at the prospect of quoting happily to HSBC’s 10.2 million UK customers but how many of them already have NU products?

And even if they fall for the attractive opening offers in the promiscuous worlds of motor and home cover and do switch to the new joint venture, how long will they stay?

I suspect HSBC is not too worried about that. General insurance customers are traditionally lured in by price offers and kept in the fold thereafter by simple inertia.

And the bank seems to have noticed that £1 of every £5 spent on UK consumer financial services goes on insurance products, while the general insurance industry generated £36bn of premiums in 2005.

There will no doubt be some cannibalisation of Norwich Union’s existing customers, but HSBC’s move is logical and overdue.

But it is also yet another demonstration of the conundrum bewitching the insurance industry right now: how to distribute.

The fight for distribution is on, whether that means underwriters buying brokers, banks forming joint ventures or internet insurers consolidating.

I’ve yet to meet anyone who changed his general insurer after queuing to pay in a cheque at his local bank branch, but 10.2 million is a lot of people to mailshot and it’s not the last we’re going to hear of this battle for insurance customers. IT

Andrew Cave is the former associate City editor of The Daily Telegraph