Scheme pitfalls UK General Insurance

Successful Schemes: Five schemes pitfalls and how to avoid them

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Introduction Strategy Director Nick Rawlings explains how to make the most of your scheme and highlights five scheme pitfalls to avoid

The rise of schemes Schemes have been a growing force in the general insurance market for some time and it’s not hard to see why. Consumers get access to products more closely tailored to their needs and brokers can use schemes as a vehicle for growing revenue and adding value to their business. UK General’s 2015 annual schemes survey further supports this view with 70% of brokers reporting scheme growth of 10% or more in the last three years. But schemes aren’t just a passing trend. 98% of brokers expect scheme business to continue growing in the next five years.

If the commoditisation of core GI products started the growth in schemes – as brokers sought alternative income from less competitive products – the emergence of a more demanding consumer has sustained the trend. Today’s consumer is savvier and expects to buy a policy which meets their specific needs. Standard products developed for mass market segments are rigid and no longer fit for purpose so it’s no wonder brokers turn to schemes to create tailored products more appropriate to niche and more profitable segments of the market.

No silver bullet With all the talk about schemes being one of the fastest growing segments you’d be forgiven for thinking you can simply phone up your insurer for capacity, launch your scheme, sit back and count the cash coming in. If only it were that easy!

Success in the schemes market doesn’t come easily. Like all start-ups the first year of operation is crucial and many new schemes will fail in the first 12 months. Success takes careful planning, effort and commitment. Even then early performance might be steady at best while the scheme beds in and gains market traction.

Maximise your chances of success There are some things you can do to maximise your chances of success: the most important advice we can give is to invest time getting your scheme right from the beginning. Making changes to your scheme post-launch because the cover is off or the pricing uncompetitive causes delays, can damage reputation and ultimately reduces income. So allow yourself time to prepare. Generating income from your scheme doesn’t happen overnight so start planning at least six months in advance and longer if you’re planning to trade online. If your product is seasonal, such as travel insurance, start the ball rolling the season prior to launch.

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Here at UK General we have written literally thousands of schemes over nearly two decades and have gained a unique insight into what makes a successful scheme. For further advice on setting up your scheme see our guide to successful schemes.

But of course not all schemes will be successful. As well as seeing thousands of successful schemes over the last two decades we’ve also seen a number fail and over the next five weeks this series of articles explores our most commonly observed schemes pitfalls. Each week we tell you what to look out for and share our experience on how to avoid each one.

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Pitfall #1: Failure to understand the market

A thorough grasp of the market is essential when planning a new scheme. Understanding the demands of your target customer, what’s driving buying behaviour and the positioning of competing schemes will enable you to optimise yours.

Steve Jobs, the late Apple founder and CEO, was famous for relying on intuition rather than consumer research because “customers don’t know what they want”. Few of us can claim to be so talented that we can afford to do the same. It may be that you’re already active in the market and you have a wealth of data to tap in to, in which case you don’t need an elaborate research plan. But if the market is new to you don’t just guess or assume you know your market based on insight from loyal friends; get out there and ask prospective consumers who meet your target profile.

Developing a product without conducting market research is high risk. It may save you some time and get you to market more quickly but it’s not a shortcut worth taking. What is more, the FCA’s focus on Know Your Customer (KYC) means insurers have an increasing responsibility to demonstrate that all schemes have been designed with the consumer in mind. When pitching to an insurer you’ll find you’re quickly dismissed if your proposal doesn’t cover the basics or there are gaps in your understanding of your target customers. Don’t forget you might only get one chance at pitching your scheme!

Learn the difference between ‘qualifiers’, the basic requirements your consumers look for when selecting a product, and ‘winners’, the thing that makes a consumer buy your product rather than a competitor’s product. Consumers may shortlist products based on cover but they’re likely to make the buying decision based on just one or two factors such as price, brand or convenience. Knowing what factor is driving buying behaviour can have fundamental implications for your scheme design.

Don’t just assume that price is the driver! Research published in the Harvard Business Review suggests that convenience is now the principle requirement in lower value purchases for some consumers.

Look at the wider business environment as well. Are there social, political or technological changes coming which will impact your scheme? How will you prepare for them?

Want advice on conducting research for your scheme? sayhello@ukgeneral.co.uk

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Pitfall #2: Launching before you’re ready

In today’s highly competitive general insurance environment, speed to market can be the difference between a roaring scheme success and a disappointing ‘also ran’ in a race for consumers already tied into an alternative provider. Product lifecycles are getting shorter as is the window of opportunity to benefit from a gap in the market. In such an environment brokers are encouraged to take shortcuts to realise a faster return on their investment. But launching too early can cause significant issues.

Here are three we see most often: 1. Insufficient demand – This could be for a number of reasons. It may be that there isn’t a consumer need at the heart of the product or it may be because the market doesn’t understand the benefits of the product and therefore has no rationale to buy.

The solution: Make sure the scheme is designed around a consumer need (see pitfall #1) and communicate the product benefits in a simple and straightforward way.

Consult a small sample of your target audience to test your sales pitch and check you have your key messages right.

2. Insufficient or ineffective marketing – consumers are not aware that the product exists. The scheme can be the best consumer proposition on the market but if it’s a well-kept secret sales will be slow.

The solution: don’t follow the “build it and they will come” mantra. Invest in a welltargeted launch and marketing campaign to get your messages across and continue to attract new customers. Campaigns don’t have to be expensive but they do need to be well planned so seek advice if you lack marketing capabilities in your business.

Want advice on setting up your scheme or marketing your product? Talk to us at

3. Inadequate staff training and buy-in – staff aren’t up to speed on the product and/or lack the knowledge and incentive to promote it to consumers. Clearly, staff must understand what it is they’re selling. If they don’t or the product is hard to sell, they’ll soon stop trying.

The solution: involve your staff in the development of your scheme to gain their buyin. Spend time on training so customer-facing staff are fully-informed and have the tools to answer consumer queries. If staff are selling a number of products, let them know where each fits into their priorities.

If you can get your scheme right and still be first then you maybe onto a winner. But don’t panic if you’re beaten to the market by a competitor. It’s a common myth that first movers have an advantage and are more likely to succeed. Shane Snow - author of ‘Smartcuts - How Hackers, Innovators, and Icons Accelerate Success’ – found that first movers had a 47% failure rate and that “companies that took control of a market after the first movers pioneered them”– had only an 8% failure rate.

So called ‘fast followers’ are less often discussed but there are lots of advantages. For example, fast followers can enter a consumer market that is ready to purchase having been warmed up by the first mover (at the first mover’s expense). One well-known example is Amazon. The US firm ‘Book Stacks’ beat Amazon to become the world’s first online book store by two years. Amazon learnt from Books Stacks and perfected the online formula.

While Amazon has gone on to dominate the western digital marketplace, how many people have heard of Book Stacks?

The moral of the tale is that it’s better to be late to market and right than premature.

sayhello@ukgeneral.co.uk

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Pitfall #3: Poor system delivery

In today’s digital society most consumers expect to be able to buy online. Delivering online schemes has always been challenging with traditional software houses notoriously slow and expensive.

Thankfully, in recent times, there’s been an explosion of web-based platforms offering online solutions at a fraction of the price.

But not all systems are made equal: functionality, flexibility, usability, scalability, stability, support, cost and even security all differ from one platform to the next. We always advise looking at a number of different options to make sure you find the system that works best for your business – both now and in the future – managed by a team you can trust. Switching platforms is time-consuming and potentially costly so it’s important to choose one that will grow with your business.

Product and journey optimisation – Don’t assume you can take a product and simply replicate it online. The online consumer experience is fundamental in the decision to buy and optimising it may require changes to the product design as well as the order and format of underwriting questions.

Testing – Inadequate testing leads to problems later and can damage the trust between broker and insurer. Website errors also put off customers who are unlikely to come back if your site is down. It’s important to choose a partner that is flexible and quick to implement changes.

Make sure you find a reliable and responsive software provider that can support your business and thoroughly test the system before launching it.

Once you’ve selected your platform there’s plenty to think about: Planning – Don’t underestimate the time and complexity of online. Leave plenty of time to spec your product, design your site, build the system and complete your marketing before you launch.

Skills – The online market is distinctly different to the offline market. Consumers have different buying behaviour and more challenging expectations.

If you don’t already have the skills, hire them in.

Here, digital experience is more important than insurance experience.

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We always advise looking at a number of different options to make sure you find the system that works best for your business

For more advice about getting your scheme online, including how to optimise digital your product, talk to us at sayhello@ukgeneral.co.uk

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Pitfall #4: It goes without saying that you need to consider the competitiveness of your product but it’s surprising how often brokers ignore this. Failing to respond to competitors will lead to a product that falls short of expectations.

Launching your scheme You can’t launch a scheme in isolation and expect it to be successful. You need to find a space in the market by asking “why should a customer buy from me not my competitors?”

Once you can answer that question you know how to differentiate your proposition from the rest of the market. If you can fill the consumer need better than your competitors you’ll have a source of competitive advantage worth protecting.

This is where your earlier work in understanding your market (see Pitfall #1) pays off. You will have a thorough understanding of the specific needs of your target consumer segment and with some careful analysis, and mystery shopping, you will be able to map how well your competitors meet these needs. Armed with this information not only can you design

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better products and services but you can craft marketing messages to highlight the superior elements of your proposition.

Competing in the market Unless you’re operating in the mass market it’s likely you have no more than a handful of competitors so you can easily track changes in pricing and cover to stay one step ahead.

Are there patterns in competitor behaviour?

Are they targeting your scheme? Understanding how competitors will react to changes you make is a little more difficult but over time you might gain some insight.

For example, if you increase your cover do your competitors follow? How long does it take them to react? If competitors match immediately then you know your advantage will be short lived so you’ll need to make the most of it.

Ultimately, understanding your competitors and monitoring their moves provides the intelligence you need to succeed.

You need to find a space in the market by asking “why should a customer buy from me not my competitors?”

Once you can answer that question you know how to differentiate your proposition from the rest of the market.

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Ignoring the competition

Need help creating a product to fill a niche in your market? Talk to us at sayhello@ukgeneral.co.uk

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Pitfall #5: Apathy So, you’ve done your research, designed a great proposition, invested in the right technology and launched you scheme with a fanfare. What do you do next?

Having invested all that time and effort bringing a great scheme to market, don’t let it all go to waste. You’ll need to spend time helping your scheme gain traction in your chosen market, making tweaks and changes in response to feedback from consumers and your insurer.

After all, a good scheme doesn’t manage itself.

Once your scheme is established it’s tempting to move onto the next big thing. All too often we see brokers investing in a new scheme only to watch it deteriorate. Constant monitoring is required to check competitiveness of the product and understand what is or isn’t working and devise a response. By dedicating time and resource to your scheme you can ensure your return on investment and a profitable business for the future.

Here are a few things to watch out for: 1. Lower than expected sales – An indication that your product is not meeting customer requirements or is uncompetitive on price.

Your marketing could be insufficient or customers not aware of the benefits of your product 2. Sales significantly higher than expected – This can be as troubling as very low sales and

Nick Rawlings strategy director – Property at UK General Insurance nick.rawlings@ukgeneral.co.uk

needs to be investigated properly. Best case scenario, your scheme is ultra-competitive and you have flexibility in your cover and pricing. Worst case your rating is incorrect and your risks under-priced which will give you an issue with your insurer.

3. High volume of customer queries and complaints – Needs investigating immediately. High queries is an indication that your product features and benefits or claims processes are unclear. A high number of complaints could be warning of an issue with your sales process or customer service.

Only by constantly monitoring and refreshing you scheme will realise the true value to your business and stay ahead in the market.

Summary We hope you found our experience of common scheme pitfalls useful. To ensure the success of your scheme: 1. Make sure you fully understand your market and target consumers 2. Invest time in getting your scheme right from the outset 3. Don’t underestimate the importance or complexity of online. Select your system provider carefully 4. Keep an eagle eye on your competitors 5. Continually manage your scheme to ensure its longevity.

Now it’s your turn.

Tell us what you think at sayhello@ukgeneral.co.uk