Brand anew

The success of partnering arrangements has supermarkets and banks gearing up to sell more than just home insurance policies to their customers, reports Martin Membery

A typical insurance corporate partnership model will involve a leading household name with a strong brand and customer base seeking to generate substantial revenues from the sale of insurance products without needing to establish its own regulated insurance underwriting vehicle. This is achieved by entering into what is typically an exclusive arrangement with an insurance company, whereby the insurer agrees to underwrite policies marketed and sold to customers of the corporate partner.

Partnering arrangements of this type are particularly prevalent in the banking and retail sectors. Virtually all the supermarkets and retail banks promote a wide range of insurance products (typically including home, motor, travel and pet cover) to their customers through a variety of distribution channels, including leaflets at the checkout counter, internet-based sales and direct marketing.

There is a compelling commercial rationale for these types of arrangements. The larger corporate partnerships will often be generating gross written premium income of several hundred million pounds annually. The corporate partner will almost invariably receive a (usually significant) level of commission on every policy sold and may also participate in the overall success of the venture by means of a profit-sharing arrangement with the insurance company. This sum will usually only be paid once the insurer has earned an agreed level of return on the book of business.

The advantages of these arrangements for the corporate partners are clear. They are able to benefit from the opportunity to leverage a significant income from the sale of non-core products to their customers without having to find the capital to support an insurance company or deal with the complex and costly regulatory requirements that apply to all UK-authorised insurers.

The attractions of partnering arrangements for the leading insurance companies are also easy to discern. Although the financial margins will often be relatively tight for the insurer, the sheer scale of the business involved enables the insurance company to acquire very significant volumes of additional business that would cost more, and take significantly more time to generate, through more traditional broker channels and direct sales methods.

One of the reasons that corporate partnering arrangements are so successful in comparison with other distribution methods is that the policies are marketed and branded with the name of the partner rather than the insurer. Even the very largest insurance companies with well-established brands within the insurance market increasingly recognise that there are other brands (in a non-insurance context) that are more attractive to many customers within the UK retail market.

The marketing literature and policy documentation is accordingly ‘white-labelled’ with the brand of the partner. Although for regulatory reasons the insurer’s identity needs to be stated in the documentation, these details are usually tucked away in the small print in order to encourage customers to feel that they are purchasing a product from their trusted bank or supermarket rather than from an unknown insurance company.

The size and complexity of the larger corporate partnership arrangements mean that they can take several months to negotiate and document. Lawyers will typically work closely with the respective business teams, negotiating the key commercial aspects of the deal and assisting with the structuring of the arrangements to ensure that they sit comfortably within the complex regulatory regime that applies to the underwriting and distribution of insurance products.

The key issues from a legal perspective will usually include the following:

  • ensuring that there are appropriate controls governing any delegation of underwriting (and sometimes claims) authority from the insurer to the corporate partner or third-party administrator (particularly if the arrangements constitute material outsourcing from an Financial Services Authority (FSA) perspective);
  • advising on the exclusivity provisions and related competition law issues;
  • documenting the complex financial arrangements that govern the insurer and corporate partners’ respective returns (often working closely with the clients’ accountants and actuaries); and
  • advising on a wide range of matters stemming from the FSA’s regulation of both insurance companies and intermediaries within the UK. Unless an exemption applies, the partner must be authorised by the FSA as an intermediary and disclose its status as such. There can be challenges in structuring an arrangement that meets the parties’ commercial desire for a ‘whitelabelled’ product while ensuring that appropriate status disclosure is provided by those involved in each segment of the distribution chain.

    To date, the large majority of corporate partnership arrangements have concerned the distribution of general insurance products. This is beginning to change and the relatively small number of firms with experience of this type of work are likely to be in increasing demand as the partnering model is applied in a life insurance and multi-channel context.

    Martin Membery is a partner at Pinsent Masons