John Deane talks to Paul Robertson on management of a multi brand proposition, mutuality and the ever present protection gap.
It was almost exactly a year ago that Royal London finally bought Scottish Provident (Scot Prov), having lost out on a bid for the insurer to Abbey in 2000. Since last year Scot Prov has been run as an entirely separate business from Royal London’s other intermediary facing business, Bright Grey.
However, this summer Royal London decided to move a management team across both brands. So what is going on? Are we looking at a slow amalgamation?
Brand Issues
The man in charge, John Deane, chief executive of Royal London’s intermediary division, is keen to dispel any concerns. He is obviously, and unsurprisingly, well prepared on this issue.
When the Scot Prov/Bright Grey management is brought up he says: “Stepping back from that question for a second, one of the reasons we acquired the Scot Prov brand was that we think you need reasonable scale in this market to do well. When we acquired Scot Prov we also got Phoenix, which we have moved to the Royal London brand. So overall, we have the Scot Prov brand the Bright Grey brand and the Royal London brand, which we sell through Abbey/Santander.
“So what we have decided is that we need just one management team to operate what is a multi-branded protection proposition. We think this is sensible because it allows us to get synergies within some of the back office functions. But the Scot Prov brand is very different to Bright Grey. Scot Prov is a traditional brand, you will have seen it on the Rugby Lions tour recently, it has been around a while and stands for what people perceive as traditional values. Bright Grey is a younger brand, slightly different to the market in brand terms.”
Yet it can be argued that firms are defined by their branding, and that branding is driven in turn by the firm’s brand managers. Bright Grey for example favours a sleeker product, while Scot Prov is happy to have products with ‘extras’ such as increased CI definitions.
Deane counters: “Well now we have Roger Edwards, who speaks as our protection guru in the market, but within the marketing teams themselves we have people whose sole job is marketing Scot Prov, for example, and others for Bright Grey. These people are there in support of the differentiation.
“People marketing a brand need to be working solely for that brand. The customer and IFA linked communications are therefore focused on the brand and then we have the management team which looks strategically across the brands and also the back office functions I mentioned – reinsurance, commission payments etc – which are not at all customer facing.”
Business as Usual
It is not hard to see Royal London’s point when it comes to back office functions. For example, to focus on reinsurance; “We will learn lessons, by putting all our intellectual property in one place, what the best rates we can get would be, what the most appropriate level of risk is and the most appropriate level of reinsurance. It gets quite technical, but we obviously have different retention limits for different contract on different types of cover. This is a lot of important technical data and putting it all in one place seems hugely sensible. Focusing on brand marketing, while taking economies of scale, gives the best of both worlds. To be frank this gives us a better return on capital.”
Deane says all Royal London’s brands are currently operating on a “business as usual basis”, and there are no plans in place for merging or replicating systems. These issues are to be left as normal business decisions.
There is just one caveat: “What we are committed to however is not amalgamating Edinburgh with Scot Prov in Glasgow. That would not be sensible, we have skilled people, who are customer facing, in Glasgow and the same in Edinburgh. In fact the two offices give us disaster recovery capability. A lot of firms, when they are constructing disaster plans, have to go outside the business. Well, we already have the two sites.”
Mutual Satisfaction
Royal London is of course a mutual; one of the more respected sectors of financial markets nowadays. While there a currently no demutualised firms still in existence in the mortgage market, there have been no scandals amongst the mutuals. The few mutuals that were in trouble were quickly rescued within the sector.
Deane, however, is less up beat than could be expected on the sector. He says: “If you look at mutuality it is really just about ownership. What comes before that is how the company is run. Has the management understood the risks it’s taking and does it understand what an appropriate level of risk is for that business. There are proprietary businesses, and, sadly, mutuals in the Building Society sector, that have taken inappropriate levels of risk for the size of business and for the capital base.
“So I think the form of ownership in terms of proprietary or mutuality is of secondary importance to the viability of how you are managing the company.
“However, there is a danger that proprietary firms can get to a space where because they are driven by share price. In a mutual company we don’t have that so we are able to make a longer term investment. The acquisition of Scot Prov is a clear example. But good mutuals are run along exactly the same lines as a good proprietary company. Nationwide would be a classic example of this. It is all about the discipline that is applied. Historically the mutuals have been a little more conservative in their risk taking and in the present environment that suits particularly well.”
He points out that, if you look at the failed demutualised firms they show two traits. The first was switching to concern over their short term share price and the other was that they went into new areas, and made bigger bets in those areas, in order to maximise profit in a shortest possible timescale. These levels of commitment have come back and bitten them.
“In the protection arena the overall concern is ‘are you being well run?’. What people need to know from an insurer is; are these people going to be around in order to have the claim paid? Protection analysts are much more focused on that than the form of ownership,” says Deane.
The Elephant in the Corner
Royal London now has three brands selling protection. It would be strange therefore if it had not spent time dwelling on the industry’s elephant in the corner; the protection gap. Stretching into the trillions, surely this gap is now insurmountable? Deane takes a view becoming noticeably more prevalent amongst senior management in today’s protection markets.
“What do we do as an industry? We design and make products, we help sell those products and then we service those products. That is great if we were in the car industry. The problem is that a car can be put in a show room and it’s pretty clear what it does. People rarely buy a car by looking at page 49 of the manual in the glove box. They go in and know what they want it for but chose on the basis of how it makes them feel and what it says about them. We on the other hand are selling something that has none of those attributes whatsoever.
“We need to stop talking about product and start talking about peoples need. We need to get over that people are going to have to take a lot more responsibility for their own finances going forward. People need to understand the consequences of their choices, without using scare tactics.
“The protection gap is actually about how people are deciding to spend their money. That doesn’t make those people wrong. For us to keep banging on to the British public that it needs to do more is, I think, the wrong tack. We need to get the benefit of protection out there in a way that busy people can understand. If we can’t then we shouldn’t be surprised when people don’t buy.”
This of course begs the question on what the industry’s response will be to the ongoing plan to fund a generic protection campaign. “The danger is that these campaigns can mutate into a big fanfare. I will wait for the report and make a decision, on the basis of ‘is it making it clear to people what they need’,” says Deane. “There are enough channels of communication out there that there is no excuse for not reaching people.
“There is no protection gap. People have decided that is the level of protection necessary. For us to say there is a gap is us hectoring the consumer. We need to just show people the consequences of their decisions. At the end of the day the consumer will decide.”
