With Asda's recent venture with LifeSearch to offer protection just finding its feet, Johanna Gornitzki speaks to Gev Lynott , director at the retailer's financial arm
Asda has always been known for its low prices but, with other supermarkets such as Tesco giving the retailer a run for its money, Asda has had to step up its game – and launching a financial services arm has been part of that.
"Being the price leader is no longer enough to win people over. At first, we really dominated on price but over time everyone has redone their prices so, while previously we had a 20% price gap between ourselves and other supermarkets, this has now narrowed down to 10%. Against Tesco this has gone down a further 5%," explains Gev Lynott, director at Asda Financial Services.
While Asda's love affair with the personal finance sector only recently began, Lynott is by no means a novice in this field. He started work at the age of 16 as a filing clerk and, having tried various roles in the financial sector, he went back to school and trained to become an accountant as well as a qualified banker. In 1996, he joined Marks & Spencer Financial Services as head of the firm's finance and credit risk departments. However, with the publication of the McKinsey report a few years later, a new chief executive was appointed. For Lynott, this meant his role was going to become much smaller than it initially had been and, as a result, he started to look around for another job and that was when Asda caught his eye.
"Financial services is all about trust, confidence and doing the right thing for the customer and I thought what kind of brand could tick all those boxes especially given all the mis-selling that has gone on. Asda, I thought, hadn't really capitalised on its brand and taken financial services to heart," he says.
Lynott joined Asda Life in 2003 and, since then, his focus has been on establishing Asda as a credible financial services player. He admits the firm has a lot of catching up to do as Tesco and Sainsbury's entered the arena in 1997 and M&S did so as early as 1985. He reveals that it has been pretty difficult. "The first thing a retailer would focus on during difficult times is its core business. But we persevered and, during the time I have been with Asda, we have gone from 40,000 accounts of policies to more than a million."
The backbone of Asda Life's business is its credit arm, however, Lynott is hopeful that its protection business will take off. Asda first launched into this market together with Scottish Widows but the partnership ended earlier this year when IFA firm LifeSearch took over the Asda protection reign.
"While the cover that we offered through Scottish Widows were the cheapest products in the market they did have their limitations and we agreed with Scottish Widows that it wasn't working and decided to go in separate directions. I found it a bit too one-dimensional. If you know what you want and all you want is vanilla term assurance, then that is fine. But, if you're not too sure what you need, it is a bit confusing. And, what we have to say to customers is that, if you are not sure, you need to see your IFA first, because we can't give you advice. Then come back to us after that. It is obviously a two-step process, whereas with LifeSearch it is a one-step process, and that, to me, is the core value of what I want Asda Financial Services to offer," Lynott says.
He adds: "The LifeSearch relationship will be much stronger than the one we had with Scottish Widows as, not only will it be able to give advice, but it can give advice on more than just the bog-standard term assurance – so we're now offering a full range of protection cover."
That said, Lynott is adamant there is still a place for the direct sales model, although it has its limitations. "There is still space for those companies because if you know what you want and are prepared to shop around, then buying protection is pretty much like buying motor insurance."
However, he argues: "For the majority of customers they can't sort out their protection insurance in the same way they sort out car insurance and that is why advisers are so important."
Performance
It is still early days for the Asda/LifeSearch venture but, so far, Lynott says the retailer has already been writing about 30% more protection business than it did previously. It is also writing it at a higher premium value, he reveals.
Despite these optimistic figures, Lynott is unsure whether other supermarkets will be jumping on the advice bandwagon. "I think it depends where their priorities lie. I guess that they are making the majority of commission out of their general insurance and credit products, so protection is probably not prioritised." The same argument would hold true for Asda as well, so why did it pick up on protection? "I think it is because we felt it was a good offer for customers. Last year, we offered customers to try to find out if they could get cheaper protection anywhere else in the UK in a bid to drive demand but we were just not getting the uptake in volumes. So, clearly, it wasn't working on price. Still, we didn't want to knock protection as a channel simply because it has its limitations, and we felt this opportunity with LifeSearch to test the market was good," he says.
Lynott thinks it is key to find that "hook" and that "motivation" that will get people to become more aware of their protection needs. He compares it with the child trust fund (CTF) situation, where the Government was saying that not enough people were saving for their children. "We then teamed up with Engage Mutual and offered CTFs and we did so in a really simple way so that shoppers would understand. For example, in stores where there were high illiteracy rates we set up a little table near the entrance and said 'if you want to invest your CTF vouchers just bring them down and we'll help you fill the form in.' That went down really well," Lynott says.
"Can Asda do the same for making people realise how under-insured they are and spur them to do something about it?" he asks.
Subsidies
Although he definitely thinks supermarkets have a key role to play when it comes to highlighting the need for protection, Lynott also argues that the Government should try to do its fair share by, for example, subsidising life insurance. While that may be wishful thinking, Lynott believes there is a place in the market for protection, as there will always be a need for it. If we could only get people to become more financially aware and plan better, it will make it so much easier, argues Lynott. He adds: "I think education is the way forward. People are very materialistic. We have a 'want it now' culture, and tomorrow is tomorrow. We need a mindset shift."
Over the next 12 months Lynott hopes that Asda's financial services arm will be contributing to the retailer's overall profitability as well as offering customers a good deal. But, on the question of whether Asda is likely to knock Tesco off the throne as the biggest supermarket in the UK, Lynott is rather ambiguous: "Tesco is twice our size, however, we have 13 million customers coming through our doors, which is not a bad achievement".
