Financial Services Industry Responses

Distribution (Place)

After the pioneering work of Royal Bank of Scotland's Direct Line motor insurance operation, all the major motor insurers have followed suit and the practice has been extended to loans, savings, and investment products. And now the Internet, Web-TV, and kiosk systems are being used for some or all of the acquisition process.

Additional Direct Channels

These allow the supplier to reach people at a time and place that is convenient to the customer:

General insurance companies, with their commodity type of products were the pioneers in telephone based sales and service. Demand is driven by extensive press and TV advertising linked to free 0800 numbers available 24 hours per day. Legal & General is a recent insurer to join the lengthening list of "direct" companies such as Guardian Direct, Royal Direct.
All banks, many building societies, and now an insurance company (Standard Life) have introduced telephone banking. Often they are available 7 days a week, 24 hours a day.
Many banks now offer on-line & Internet Banking. Bank of Scotland was the first many years ago when it introduced its Home & Office Banking System (HOBS) and most banks have provided links for their major corporate clients. Last year TSB launched its CompuServe based system for personal customers and now many of the other larger banking and building society players are offering or piloting on-line banking. These include Nationwide Building Society.
The new FMGC financial service players have taken the bold step of offering execution only investment products such as PEPs, pensions, unit trusts.Virgin Direct, with its assertive, "it's so easy" advertising, obviously come to mind.

These direct channels also have the benefit of lower operating costs, though as the Prudential example shows, they do have very large capital costs. Direct Line took many years to break even, then made huge profits, and then slipped into the red as others emulated its business model.

Prudential²

Prudential, the UK's largest industrial insurer, launched its telephone banking service in October 1996 after a £33m investment. This included a 600 staff call centre in Dudley, West Midlands.

In February 1998, with already 115,000 customers, it announced plans for a £25m second centre in Derby. Twice the size of a football pitch, it will hold 1,500 staff.

Additional Intermediary Channels

Many insurance companies have tied-up with building societies and the FMGC retailers to offer insurance, investment, and banking products. Scottish banks have particularly been active in this area.
Banks are tying up with software houses to offer PC banking integrated with accounting systems (see box)

US already ahead of UK today as early as 1996¹

The New England (acquired in 1996 by MetLife) has invested in Meca Software, the creator of the household financial management software package, Managing Your Money. The other owners of Meca are banks: Nations Bank, Bank of America, First Bank System, Royal Bank of Canada, and Fleet Financial Group.

Allstate, John Hancock, Lincoln Benefit Life, MetLife, State Farm, TIG, and Zurich Direct now participate in the InsureMarket portion of the Quicken Financial Market Web site operated by Intuit. About 40 banks use Quicken as the front-end to their home banking services.

The QuickQuote Insurance Agency, which operates a Web site offering online quotations for term life insurance and annuities from 35 insurance companies. QuickQuote has established an alliance with the Home Financial Network (HFN). HFN operates a home banking program called HomeATM.

Several major US financial institutions including American Express, Charles Schwab, and Fidelity Investments plan to deliver applications using Microsoft's Money. The specification covers both banking and securities trading transactions. Microsoft already has an alliance with credit card giant VISA to develop a complete back-end system for bill payment processing. In the investment area, Microsoft offers a household investment management software package called Investor. The company has entered into an alliance with Fidelity Investments and Charles Schwab to allow online trading through Investor.

Reduction in Intermediary Channels

Investment products due to their more complex nature and the requirements of the FS Act are usually sold face-to-face either by a tied sales force / financial advisers (FA) or independent financial advisers (IFA). Many insurers distribute using these channels but some commentators predict that with the increase activity by banks and building societies they will become increasingly marginalised and expensive. Some High Street brokers will become niche players selling insurance to high risk people or those with unusual needs.

In theory FAs/IFAs add value by explaining complex FS products to clients and by understanding their specific needs and then offering products which satisfy those needs, but interactive Internet based systems may be able to take on this role of explaining and recommending products.

Norwich Union's Internet site directs customers to a local intermediary but it has also introduced a Direct line telesales operation for some products like motor insurance. It's a delicate balance.

Next is Promotion & Marketing

External Resources

Verity, Andrew, Pru's plan for £25m centre raises stakes in telebank war, The Independent, 7 February 1998.
Cane, Alan, Call Centre Industry Hit by Skills Shortage, Financial Times, 25 May 1998

[Overview] [Social and Cultural Factors] [Technological Advances] [Economic Trends]
[Political, Legal and Regulatory Factors] [Financial Services Industry Response] [Strategic Options]

[SIM Overview] [One to One Marketing] [Mass Customisation] [Interactive Mediums] [STEP Analysis]
[SIM Executive Summary] [SIM Report] [SIM Project] [SIM Framework] [SIM Methodology] [SIM Illustrations] [SIM Links]

[Key Information & Resources] [Guest Contributions] [List of Support Topics] [What's On]

[Contact] [Company] [Disclaimer] [Privacy] [Legal] [Copyright Fair Use] [Feedback] [Publications]
[Publicity] [Why Ads?] [What's New] [What's Coming] [Technical Info]
[Home] [Site Search Form] [For a Full list of Contents see the Site Map]

To follow: external resources; Forecasters have estimated that over zzz,000 jobs will disappear from the established banks by zzz