Author: Nick Johnson
29 January 2015
There’s something of a difficult relationship between brand and financial services. And no, we’re not talking about Russell Brand, though recent events suggest that this statement would be no less true if we were.
No, what this blog is really about is the way in which a brand delivers on the promise it makes, and how that’s more easily accomplished with some products than others.
In some instances, it very quickly becomes clear whether a brand has lived up to its good name. If you buy a pair of shoes, you can pick them up, try them on and then if they measure up you buy them. You instantly get a feel for whether you’re going to be happy together.
For other products, like insurance, it’s a lot harder to make that assessment up front. There is nothing tangible to touch, maybe just a feeling of ease or unease. And, of course, you’re not going to be able to try out the claims service before you buy. Indeed, you’re hoping you won’t need to do so afterwards, either.
Try before you buy... or not?
For personal lines such as car insurance, where the member pays, there are lots of individuals who buy cheap insurance. For the vast majority, they get to the end of the year, have no reason to claim, and they are perfectly happy with their choice. In effect they have got the same result and experience as a policyholder who hasn't claimed under a big brand policy.
But insurance isn't about those who don't claim, it is really about those that do. It is at the point of 'need' that the real assessment of the brand comes into play.
How easy was it to put in a claim... what exclusions and excesses applied...and how quickly did the claim get resolved. These are the issues where the perceived value of a brand could and should come into play.
So, how does this apply to pensions, and specifically bulk annuities?
One big difference is that members don't make the choice, and in many cases where the scheme is a buy-in the members may not actually appreciate that the policy covers their benefits – they still get payments from the scheme.
Equally, the day one experience is 'I still get my pension so I am happy'. At first glance, brand choice could be seen to have less of an immediate impact on the individual member. But a closer look suggests that this isn’t the whole story. Trustees should consider how members will view their decision at the point the policy is assigned to them, and in particular they need to think what the impact of this decision will be – it may affect their members for the rest of their lives. For most schemes operating as a buy-in, this time may be some time in the future. The value of a brand can be defined by the longevity of the brand itself and its capacity to provide comfort that its current promises and standards are likely to remain valid for many years to come.
Finding a brand that a trustee has heard of, and is comfortable to work with, is a task that an EBC needs to take into account during the initial discussions. In many ways, it’s similar to purchasing an expensive electronic item, such as a TV or a tablet. A non-branded or unfamiliar item may have the same or better functionality on paper, and could be cheaper than a better known brand, but there’s always that nagging doubt in the back of the buyers mind:
“It’ll probably be fine... but what if something goes wrong? What’s their service like?”
Like any other insurance product, there isn’t a ‘try-before-you-buy’ option – but trustees may have personal experiences with a brand which may influence their decision on which BPA providers have the opportunity to present to them.
I’m not saying that big brands are automatically best for every scheme; this is a decision that the trustees must make with the help of their adviser. Every scheme is different – and so must be the BPA plan to meet that scheme’s particular requirements.
What are your experiences of brands large and small? In your experience does any of this ring true within the pension market as a whole?