General insurance: and another thing…

A couple of blogs ago, I wrote somewhat impolitely about the world of general insurance, saying there was nothing good to be said about a business whose profitability depends on ripping off its most loyal customers until they eventually leave in a disappointed fury.

There’s nothing good about it in another way too, and again – sorry about this – it’s a little personal anecdote that gets us into the subject.

Recently my car has been damaged on two separate occasions while parked in the street. Fixing the damage seemed like a straightforward insurance claim, so I went to an authorised repairer and got an estimate. Just over £4,000. Complications set in, and I decided to pay for the repairs myself. Four grand seemed a bit steep, so I asked my local mechanic to recommend an alternative body shop. Guess what I’m paying? £850.

There are probably some good and justifiable reasons for some of the difference, but nothing like enough to explain away £3150’s worth. The explanation for most of the difference is that in the world of insurance claims, no-one gives a shit about how much anything costs because no matter how much it is, they’ll just pass it on to policyholders in next year’s premium.

What results is, frankly, a whole system built on corruption, in which effectively repairers and insurance companies collude to rip off the end customer. Experts in game theory say that in any game with three players, invariably two will gang up to the detriment of the third, and I must say that the world of financial services is riddled with examples.

Of course I understand that there are plenty of other examples elsewhere. The problem is endemic among service providers whose service includes buying things on behalf of their customers. There has recently been a mini-scandal about how much the NHS pays for gluten-free bread, to take a particularly obscure example. And I know that I could easily buy PCs (that’s computers, not officers of the law) for about half the price that our IT service company gets them for.

But it’s doubly endemic in the world of general insurance. And – the reason I’m going on about it here – when you look beneath the thick veneer of hundreds of millions of pounds’ worth of not-too-disagreeable advertising, it’s another big demonstration of the fact that general insurance is a lot less “normal” and consumer-friendly than many people think. Oh yes.

A small but rewarding investment in your most valuable asset class

About 25 years ago, I worked on the Peugeot car account. In planning our campaigns – and, in fact, in planning the company’s entire business – nothing was more important than the syndicated industry-wide data, primarily on sales but also on all sorts of other metrics, that was provided by the industry’s trade body the SMMT (Society of Motor Manufacturers and Traders).

As I remember, in that distant pre-internet age, much of the SMMT data was available daily, and most of the rest weekly. If, say, Ford were suddenly showing an increase in the sales of Sierras fitted with sunroofs, we’d know about it the next morning, and could instruct the workforce at Ryton to take the extra-large tin-opener to the roofs of that day’s production of 309s. (You can get a flavour of the sort of data they’re still providing here, if you’re interested – https://www.smmt.co.uk/members-lounge/member-services/market-intelligence/vehicle-data/.)

When I switched from that world into financial services – and particularly investments – it was like flying into a fogbank from which, 25 years later, I’ve never really emerged. Good quality syndicated data scarcely exists, and for individual firms the cost of sourcing proprietary industry-wide data is prohibitive.

(I’m not even going to bother to talk about the role the IMA plays – or rather doesn’t play – in the proceedings. All I’ll say is that if the quality of the SMMT’s stuff is, say, 9 on a scale of one to ten, the IMA’s stuff is actually a minus number – it’s so incomplete, out of date, miscategorised and mis-presented that you’re actually better off without it.)

But what does rather mystify me is why quite a lot of retail fund managers don’t subscribe to the one really good – if limited – source of syndicated data that is available, and at astonishingly reasonable cost: Consensus Research’s legendary Investment Funds Survey.

OK, it’s true, I have two axes to grind here. Way back in the Stone Age, this veteran study was actually first conceived and designed by my lovely wife Judy (do the maths, and you’ll figure she must have been about ten years old at the time). And by spooky coincidence, the firm that has carried out the research ever since – financial specialists Consensus – is now part of the same marketing services group to which Lucian Camp Consulting is now (loosely) associated.

But I’ve never been much of a one for nepotism, and usually I’d rather have my fingernails torn out than recommend a service from elsewhere in the Group. So, honest, guv, you can trust me when I say that in my opinion, there is no better value to be had in the world of retail funds sales and marketing.

The study extends across three separate target groups, private investors, intermediaries and discretionaries, each buyable separately or together, and there are two waves of research among each group every year. The sample sizes are nice and chunky, so that findings are robust. And the long and detailed questionnaire can be very roughly divided into two parts – one about respondents’ attitudes and behaviour in the investment funds market in general, and the other specifically about their attitudes towards, and usage of, the major firms in the industry. In other words, you and your competitors.

In the debrief presentations, there are quite literally invaluable insights on every page – and with so much change at every level in the marketplace just now, many of those insights are even more invaluable than ever, if that makes any sense. I could give you a hundred examples, but here are three:
– How well do you understand how discretionaries are thinking and feeling about your funds? Every retail fund manager I speak to at the moment says that discretionaries are becoming more and more important to them – but few know anything much about them.
– Where exactly are private investors going to get information about your funds? The answer to that question is changing rapidly – if you’re not up to date, your communications could be horribly and expensively mistargeted.
– The IMA’s sector definitions are so badly-expressed that they’re of little value. In plain English, we tell you which market sectors are in and which are out with intermediaries – and include the trend data so that you can judge which way they’re going next.

Personally, I have absolutely no commercial interest in the success of Consensus’s research. But I am keen to see higher standards in retail funds marketing, and I’m as convinced as I have been for many years that better market insight is the key to improvement.

If you’re in the funds marketing game, and not currently subscribing to IFS, contact that nice Andy Glazier at Consensus – aglazier@consensus-research.com, 020 7627 7830. And tell him he owes me a Guinness.

Is it just me, or have the wheels fallen off?

Back from holiday for a couple of days now, and things are looking reassuringly normal. I may live to regret these complacent-sounding words, but so far no regretful postponements from any of those nice clients who said that we’d let things go a bit quiet in August but get going again in September. Trade press surprisingly full of news considering the time of year – and most of it goodish news, with companies producing good figures and planning new services and products. And, more generally, London still busy, restaurants fully booked, bars overflowing onto pavements, even cabs hard to find (again, most unusual in August).

Which is all fine, except for the fact that the relentless flow of bad news over the last few weeks does seem on the face of it to indicate pretty strongly that one, two, three or even possibly all four wheels have fallen off the big, ramshackle, ponderously-moving vehicle that is … that is what? The UK? The West? Liberal democracy? Capitalism? Not sure. Could be any or all of the above. But whatever it is, I see axle stubs revealed, and wheels lying in the roadway.

At the maximum, we’ve entered the Game-Over-For-The-West phase. I can’t cope with that, so let it lie. But at the minimum, we’ve reached the Surely-It’s-Time-We-Admitted-That-Stock-Market-Investing-Doesn’t-Work-Any-More phase. Having just been through another of those weeks where people who’ve spent 30-odd years investing in pensions (e.g. me) have lost more money in 5 days than they earn in a year, the FTSE is more or less where it was when Tony Blair came to power – over 15 years, you’d have done over twice as well in a building society savings account. As you’ve probably heard me say before, over the years a million equity managers have explained to me how equity investment will outperform “in the long run”: now we’re in a situation where it underperforms over 15 years, and breaks even over 20, you can’t help wondering how long these people want.

But fortunately, as I say, no-one seems to have noticed. As far as I know, for example, those planning new direct-to-consumer investment services (of whom there are currently many) are still planning away, despite the fact that past crashes have frightened off the large majority of risk averse investors for at least two years and sometimes up to five. Others are planning great big initiatives in the retirement savings market, despite the fact that it’s become impossible to show any kind of growth projection without an unwanted attack of Pinocchio’s Nose Syndrome. And of course the increasingly-imminent RDR continues to cause massive chain-reactions of change right across the financial services industry even though most IFAs’ clients are finding that taking financial advice has much the same effect on their finances as deckchair-rearranging did on the Titanic.

Having written all this, I hope nobody reads it. If I am in fact the only person who has noticed this current wheel-fastening problem, then for purely selfish and commercial reasons I hope it stays that way. Still, no need to worry. Painfully few of the industry’s movers and shakers read this stuff – least of all when they’ve got so many big projects on the go.

Marketing rejectionists: one last bastion remains

In recent years, most service-sector markets have rolled over and embraced marketing in all its forms, brand, strategic and promotional. Schools are already there. Hospitals and NHS trusts are some way down the track. Universities are just embarking on the journey.

But, talking of journeys, there’s still one sector where a positively Stalinist rejectionist tendency still holds sway: the London black taxi industry.

The industry has all sorts of issues which seem readily susceptible to marketing initiatives of one sort or another – perhaps most of all to promotional marketing.

The most obvious is the massive variation in business volumes – between peak and off-peak times of day, days in the week and months in the year.

Another is the opportunity to encourage infrequent users to use cabs more often. And to encourage business users to become social users too. And to encourage non-users to recognise the way that the cost becomes dramatically more affordable when you’re travelling in a group of three or more.

I could go on, but even those with the most elementary promotional marketing skills will already have started seeing the sorts of things you can do to tackle issues like these. Railway companies have offered lower off-peak fares for decades: why can’t cab drivers or firms do the same? Why not offer a BOGOF – buy a peak-time journey at full price, get an off-peak journey for nothing? Why not increase frequency by offering a Cafe Nero-style savings card scheme – have your card stamped on nine paid-for journeys, get the tenth free? Or pinch the Pizza Express voucher principle – one person pays, three more can ride free? (That one doesn’t even cost anything.)

But how many of these or for that matter of other promotional marketing ideas will you actually find on offer in the London taxi business? None, that’s how many.

There’s a superficially-obvious reason: the Public Carriage Office won’t stand for it. Anyone who remembers Jack Rosenthal’s TV play The Knowledge, now over 30 years ago, featuring a disturbingly young-looking Nigel Hawthorne as the PCO Inspector from hell, will realise that this organisation has never stood at the leading edge of contemporary thought, and that on the whole it’s an organisation that prefers finding ways to prevent things rather than enable them.

But you can’t help thinking that at a higher level, industries get the regulators they want and deserve. The cab driving trade is dominated by people deeply hostile to change: no surprise that they get a regulator which thinks the same way. If enough cab drivers drove up and down Penton St demonstrating for the right to offer customers a better deal, it’s impossible to believe the PCO would refuse for long.

Personally, I’m quite pleased that the black cab trade maintains its complete marketing aversion. Seeing them continue to fail to tackle their problems helps reassure me that the stuff we do is worthwhile, does work, and does serve everyone’s interests: continuing to run empty off-peak trains and offer only full-price fares would have done nothing for travellers or train operating companies alike.

Sometimes, when I’m feeling particularly masochistic, I take a cab and try some of these thoughts on the driver. Judging by their reactions, I’m not expecting this last bastion to fall any time soon.

Remind me, what exactly is so “normal” about general insurance?

A lot of brand and marketing people at the longer-term end of financial services – life assurance, pensions, long-term savings, that kind of thing – are deeply jealous of those who work in the major general insurance markets – principally motor, but also home, travel and pet.

At one level this is simply because most of the general insurance people have thumping great big advertising budgets, while most of the financial services people don’t. But there is more to it than this.

The real reason for the jealousy is the belief that in general insurance, unlike financial services, you can do some proper marketing, branding and marketing communication. The fact that these covers are annually renewable, rather than once-or-twice-in-a-lifetime purchases like life assurance, means that there are vast pools of new business to go for every year, month, week and indeed day, just as there are in proper consumer markets like washing powder, shampoo and teabags.

And that, in turn, means that unlike complex, badly-understood, infrequent-purchase, mainly-intermediated financial services, the usual rules of brand development, strategic marketing and marketing communication apply, and can justifiably and beneficially be followed with the application of thumping big advertising budgets.

Except that when you look at it a bit more closely, there is nothing “normal” or “usual” about general insurers’ customer relationships at all. For one thing, washing powder, shampoo and teabag manufacturers do not make the bulk of the their money by ruthlessly overcharging their most loyal customers until eventually the most loyal customers realise they’ve been taken for total mugs and storm off in a fury promising never, ever, until hell freezes over, ever in any corcumstances to do business with that company again.

I could cite quite a few examples of things the FMCG boys don’t do either, but let’s just stick with that one. Imagine that goods on sale in a supermarket don’t have fixed price tags, and what you’ll pay at the checkout will depend on how often you’ve bought the product before. If you’ve bought it really a lot, and are one of the company’s most loyal and valuable customers, you’ll pay up to three times what a first-time or infrequent purchaser will pay.

It’s total nonsense. Any company behaving in this way would be considered stupid and criminal in equal measure, And it would be entirely obvious that any concomitant attempt to play by the mainstream rules of branding and strategic marketing would be utterly doomed to failure. What kind of positive and attractive brand positioning could possibly be reconciled with such behaviour?

Yet I have heard a most senior brand and marketing man in a very large general insurer try to justify his firm’s behaviour – simply on the grounds that when it come to bottom-line performance, it works. You make more money by stealing from your existing book than you do from respecting and rewarding them for their loyalty.

Well. It may be that you’d make even more money by sending drug dealers round to get their kids hooked on heroin. Or by kidnapping policyholders and sending body parts to relatives in the post until large ransoms are paid. I can think of a thousand things that firms could justify in terms of bottom-line performance – but they don’t because they’re wrong.

Ripping off your most loyal customers and relying on their ignorance and inertia to be able to keep doing so is wrong. No firm whose business model depends on doing so has anything at all to teach any firm that doesn’t. And no brand, marketing or comms person has any reason to feel in any way inferior to those trying – and failing – to make silk purses out of the ugliest and coarsest of sow’s ears.

In the last few months alone, Judy and I have parted company angrily and resentfully with the AA, First Alternative and Direct Line, having realised belatedly that we’ve been treated as fools. We feel nothing but contempt for these organisations.

Marketers in other parts of the industry should see past those thumping big budgets and feel the same way.