Cornhill Life is to become a mortgage superbroker as it fights to survive the low margin stakeholder environment.
General manager life Ian Reed says the company has decided to become a niche player specialising in mortgages because it is “the one area where customers still need advice”.
He is also concerned Government charge capping on products such as stakeholder pensions and Catmarked Isas means there is “not a lot of money” in selling either investments or stakeholder pensions.
Current proposals on stakeholder require a maximum charge of no more than one per cent of a fund value per year.
Cornhill has laid the foundations for the push into the mortgage market by retraining some of its 180-strong salesforce to sell mortgages as well as doing roadshows.
It plans to capitalise on the venture by selling protection products such as critical illness and phi on the back of repayment mortgages which come from a panel of 12 lenders.
Mortgages currently account for half of Cornhill's new life business but Reed intends it to become “progressively more”.
He says most mortgages sold - more than 80 per cent - will be repayment mortgages although he remains committed to selling endowments, particularly when a client is seeking a top up on an existing mortgage. The company recently reduced the commission for arranging an endowment mortgage by 35 per cent in a bid to make the product more attractive.
Cornhill relies on general insurance for its bread and butter earnings but has been in the life and pensions market for seven years. The company bowed out of the healthcare market in September in the face of mounting costs and competition.
Reed says: “We asked ourselves where we were going and have decided to become a niche player and specialise in mortgages. It is the one area that pays sufficient commission and fees and where the salesforce can do a good job for clients. A handful of our salesforce - 10 or 12 people – disagreed and left.”
Industry analysts have said that life offices will only survive if they become giant organisations selling all types of financial products or, like Cornhill or Scottish Provident, tailor their services to become specialist niche players.