Money Marketing's recent Financial Strength Survey revealed the operating costs and assets of insurance companies during 1996. Some of the most interesting figures were those relating to the cost of acquiring new business.
The lowest figure was that of Equitable Life at 15 per cent. One of the reasons for this figure, as given by Nigel Webb, the company's director of corporate affairs, was "superior expenses' control".
If you have ever dealt with Equitable Life, you will know that it issues only one copy of the compulsory data for a contract, closely printed on both sides of one sheet of paper. There is often a time lag of up to three weeks when responding to letters and there is a marked reluctance to return phone calls. Not much in themselves but they must add up over a year and, presumably, form part of the superior expenses' control.
As far as IFA offices are concerned, best was Scottish Equitable (52 per cent) and the worst Sun Alliance (169 per cent). One has to wonder at the cost control exercised by Sun Alliance directors when it cost £1.69 to put £1 of business on the books.
The same table states that Royal Life's cost was 135 per cent. As it would appear that neither company is effective in controlling acquisition costs, it will be interesting to see the figure for their first year as Royal & Sun Alliance.
How much easier it is if you are self-employed. At the end of the month, you are just thankful that there is enough over to let you draw something out of your bank account.
This does not mean you don't have to keep control of expenses but, whereas an insurance company may be considering the cost savings resulting from updating its computer system, people at my level are changing suppliers to save a pound or two on 1,000 envelopes.
Of course, I can react more quickly to an apparent excessive expenditure than any insurance company or even take steps to recover unnecessary extra costs from other people.
Working from home with only one employee (my wife) means that overheads are minimal so the impact of unnecessary expenses is significant. Needless to say, most of these arise from insurers' mistakes.
One company recently gave a wrong pension forecast for a client while another issued an incorrect policy document and then took two months to correct the mistake. In both cases, compensation for the additional and unnecessary work was paid. Hardly a steady income but at least it is tax-free.
To return to acquisition costs, insurance companies must make better use of resources. This means a rethink on the utilisation of premises and employment of staff on a shift basis. Opening hours of 8am-8pm on Monday to Saturday and 10am-4pm on Sunday should become the norm.
Why these hours? The most obvious reason is that it spreads fixed overheads over a longer period of productivity. Also, with some hard-nosed marketing, it will enc ourage people to visit insurance companies to transact business in the same way that they visit supermarkets.
This is made even more relevant by the news that Tesco is starting a life company which will bring even more pressure on the acquisition costs of the more conventional sources of insurance. Of course, Tesco is open during the above hours.
No doubt, there are many insurers (and IFAs) which will look down their noses at this market. They do so at their peril. The fact is that many IFAs already deal with a significant number of Tesco shoppers who are looking for good financial advice. Many of them welcome the individual attention that an IFA can give, as it is not something they have had before. They will usually be persuaded by the correct use of data that their current investments – usually via a bancassurer – could be bettered if made elsewhere.
Insurers should also modify their attitude to monthly charges. Instead of a fixed amount, which can significantly reduce the investment content of small premiums, they should adopt a percentage basis with a ceiling on the total figure.
They must move away from the concept that every transaction must make a profit and concentrate on making overall profits. The gross profit margin enjoyed by British supermarkets is about 12 per cent to 14 per cent but nobody assumes that this margin is made on every transaction.
For those of you who say that business below a certain level is uneconomical, despite the growing competitive pressure from the Tescos of this world, ponder the following point. When you bought your newspaper this morning, do you think that the profit gave an adequate income to the shop for the time spent serving you? Or was it the additional profit on the packet of cigarettes/box of chocolates/magazine that made the complete transaction worthwhile?