Cracking the Schemes Market

Schemes Overview

A scheme is a tailor fitted (often bespoke) insurance and risk management solution. A successful scheme is focused and targeted around a particular niche (whether trade/sector/affinity), who share a common coverage requirement.

There are two approaches to creating a new scheme; either creating a product that focuses on an existing client base, alternatively creating a product for an entirely new sector. There are advantages to both approaches.

Creating a product for an existing client base will ensure you already have a generic knowledge of the demographic, established contacts within their sector, and awareness of their demands and requirements. This experience will contribute to aligning yourself with the customer and understanding how to reach them with marketing, and how to appeal to them, and cater to their requirements with the coverage you offer. Such schemes are usually the most successful, and are often born from an environmental/lifestyle/legislation change that creates a new avenue to explore, with the opportunity for a new niche product. Your product will need to be specialist and unique to the selected sector; this could even be specifically for a particular geographical region. Ideally you will have a really good understanding and passion about the selected industry sector, the subject matter, and the class of business. Understanding the chosen industry, combined with strong product knowledge will always help to sell a scheme; being immersed in the subject matter will ensure a greater appreciation for customer needs, as you will react and empathise with how your audience will. Such schemes that are born from hobbies often succeed (for example sports clubs or collectibles), as the broker can market to the client suitably, and understand the needs and requirements of the product. In essence, the broker can identify as a user. If you look into your book of existing business, you may identify a natural niche/affinity within your portfolio that you specialise in; if you can find something you already convert well and then develop it further, you will already hold statistics, expertise and invaluable relationships to assist in your success.

Creating a product for an entirely new sector will require generic knowledge of the demographic, and a basic understanding of how to reach them with marketing choices. Research is of the utmost importance as you will need to develop a concept through to fruition – when there is no established book of business, your scheme will need to define the demographics requirements, and ideally progress to holding the dominant market share for the foreseeable future.

Regardless of approach, the insurer you pitch the scheme to will need reassurances before they will agree to proceed. Longevity is paramount, and also the scheme needs to be profitable; you need to ensure that you have enough mass to cover loss ratios for margin perspectives. You will be expected to explain why you can market the scheme better than other brokers. You will be expected to understand the sector and how the product will evolve and develop in line with industry progressions in the future, and what impact these changes will have on the client’s needs and requirements. If you have no prior experience with schemes or combined operating ratios, an insurer will want to see a good track record and the ability to deliver profitable results in other areas. Credibility and reputation are invaluable when an insurer considers entering into a scheme related partnership with a broker. You will need to understand specific cover features, research your demographic thoroughly via surveys/emails/conversations, and have access to financials for existing schemes, previous successes, rather than just claim statistics or profit shares figures.

Trade Associations

It is possible to successfully pursue a scheme proposal without the backing of a trade association; that doesn’t mean however that it’s a good idea. Some trade associations will be apathetic and will decline to assist you in your venture, yet the ability still exists for negotiating with insurers.

Having the support of a trade association is definitely a great method for accessing the market, however be aware that not all trade associations are equal. Pick your trade association as carefully as your choose your insurer, as some will engage well, add value and understand the benefits that you can provide; whereas others will add very little to your cause, and simply collect subs annually. Many industries will also have more than one trade association, so approach the competitors if your primary choice declines to assist. Always consider that a trade association that you approach could already have existing affiliations with another broker. Also, remember; just by having a trade association in your corner does not mean you have a marketable affinity or scheme.

You can always choose to chase a market without the backing of a trade association; you can carry out your own market research, attend related events and seminars, and gain insightful feedback from customers. This can sometimes be the best acid test for gauging whether the coverage you are offering will align with your demographics needs. Be aware however, without a trade association backing you, your credibility and distribution may suffer so you will need to counter this through other methods and avenues.

Insurers

The best way to choose an insurer partner is by aligning your objectives with theirs; it also helps if you have an existing relationship with them, and preferably a strong security rating. An insurer will require reassurances before committing to a partnership; they will want to see a well-researched, planned and marketable proposal. An insurer will need to see that you can provide good quality capacity, projections and estimations of profitability, and volume.

Can the insurer provide exclusive arrangements or bespoke coverage to prevent easy replication at other brokers? There is no point relying on premium to sell the scheme, as prices can be matched and challenged by holding brokers. Will the insurer’s current appetite for your scheme expand in proportion to the product if the environment evolves and diversifies? Will the insurer still be able and willing to accommodate the risks you seek to write if the sector or industry sees major changes that affect the demands and needs of the client? How much flexibility can the insurer offer? There will always be referral points regardless of how well defined a scheme is.

The broker/insurer relationship needs to be mutually aligned; where a broker will appreciate access to a dedicated underwriting team who understand the sector, the scheme, and the development of them both; the insurer will appreciate good communication between Business Development Managers and key staff members within the operations of the scheme. Both parties need to understand the scheme in preparation for environment changes that require the product to develop and evolve; the implementing of a scheme should not be seen as a quick fix, but rather a mutually beneficial investment in the future of the sector.

An insurer is likely to be very formal about the partnership. There is often formal delegated authority agreements, various standard or adapted business models for complaints, claims, service level agreements, profit, commission, and underwriting referrals. Pitching your idea to an insurer does not generally mean sitting across the table. It is common now for brokers to make initial propositions over the phone to explain the scheme, background context, broker information and alignment with the insurer. Expanding on the initial pitch, the broker will often be expected to demonstrate knowledge of the sector and demographic including defining the clients current demands and needs and how you have identified these, awareness of sustainability in a diversifying market, foresight of evolving opportunities and future projections, and providing financial estimates such as targets, statistics, current book and figures, alongside volume and capacity. The insurer will hope to see consideration for how the sector will react, especially within their own markets as a consumer, and that marketing solutions support long term common goals that align with projected profit margins.

Be aware that environment changes can render a scheme unsustainable. In the event that the landscape changes during the life of the scheme, it is important to be transparent with your insurer partner and address issues as they arise. To ensure continued goal alignment and measurable targets, you will need to recognise failures and remain realistic about the income projections. You need to establish precisely where the business will be written, and often income projections are halved to provide a fail-safe estimate as a minimum commitment.

A broker will also need to explain how they plan to compete with other brokers within this niche and clearly explain what unique coverage they are looking to offer that will make the scheme specialist. Some insurers will press more into the depth of your proposal even so far as querying marketing planning, budget, approach and reach; you will need to ensure you have fully investigated how your target demographic seeks information within the sector, whether it’s traditional advertising, digital media, or an amalgamation of the two. If you have any previous experience within the schemes market, be prepared to discuss your successes, loss ratios, and related statistics work to help enforce your credibility and reputation.

It can seem a daunting prospect achieving credibility with an insurer. Primarily ensure your scheme is well researched, and not just an ambiguous idea; demonstrating a clear understanding of the product, demographic and sector, alongside identifying a unique selling proposition to stop the holding market defending on price is a sure fire way to garner reputation. If you show a natural affinity and passion for the industry, and can present a valid argument why loss ratios will be better with yourself than on an open market, you are likely to score highly with the insurer. Also remember that setup costs for a specialist scheme are not cheap, and this will likely influence an insurer’s willingness to commit; if you are expecting them to invest resources into assisting you, then you will need to be guaranteeing ROI. Discussing the sharing of costs upfront can strengthen the relationship if you can reassure the insurer they are not going to be burdened with all the financial outlay, although there will likely be marketing support as the insurer’s resources are greater.

Having your scheme accepted by an insurer can feel like a victory in itself; however you will often be expected to wait 3/6 months for delivery, depending on the insurer you chose and the complexity of the product you have defined. If you are asking for an exclusive rate or feature, this will require internal referrals and will likely prolong delivery even further. Once established, the trust can begin to grow; initially the underwriter will wish to have control over any undefined decision on a referral basis, although this tends to fade as the partnership and scheme flourishes. An insurer will look to delegate authority once they feel comfortable with your expertise and professionalism and allow you greater flexibility over the business you write, whilst streamlining the referral process.

This is by no means a clear cut guide for achieving success in the schemes market, but hopefully this insight will help you to find your feet when stepping out into the big, scary world of specialist and niche product sectors.