Added value products – getting it right

Having run an insurance brokerage in the past, I still remember the regular letters from my motor insurance providers telling me that they were reducing my motor commission. As income from that source was under constant downward pressure, it was only natural that you would examine all of your options for maintaining or even boosting income. Therefore, the ancillary products which sat alongside the main policy became of critical importance to balancing the books.

The days of having an all-inclusive price for the main policy and all of the additional add-on products, such as legal expenses, are over. Nowadays, it is common sense that customers should know how their insurance premiums are made up.

Mandatory commission disclosure did not happen but high margins are causing concern among our betters. The FSA is now on the case and no doubt their successor will follow suit, so now is a good time to make sure your house is in order.

Here are a few thoughts to be going on with:

1. Optional add-on insurance: State this clearly and price it separately
2. Compulsory add-on insurance: Clearly point this out to the client
3. Preferred provider(s) for add-on insurance: Think carefully if the sale is advised or non-advised and reflect this in your terms of business
4. Mis-selling scandals: Avoid this by backing up your add-on insurance with a ‘demands and needs statement’
5. Documentation: Ensure that your clients receive the correct documentation for the policy they have bought
6. Margins: Consider carefully what a reasonable margin would be
7. Find out more: For further advice, facts and figures on selling optional add-ons read the FSA report: http://www.fsa.gov.uk/pubs/other/factsheet_extras.pdf

Ultimately, we should all consider if optional add-on products are genuinely useful for the client and not just a vehicle to increase revenue. I used to think to myself, would I sell this to my mother? If so, at what price?

If revenue from commission and optional extras is not enough, there is always the administration fee. But that is a whole other subject….

John Gray, Corporate Development Executive
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