Financial Services Industry Responses
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,
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.
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
|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
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
Several major US financial institutions including American Express, Charles
Schwab, and Fidelity Investments plan to deliver applications using
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
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
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