Mounting unemployment, recession and the gloomy economic outlook do not appear to be ideal conditions in which to expand a financial-services business. But this has not dented the enthusiasm or prospects of two Scottish-based insurance businesses: Bright Grey and Scottish Provident.
Bright Grey, founded in Edinburgh in 2002, and Scottish Provident, a more traditional Glasgow-based player, launched in 1837, have seen sales of their flexible, menu-based protection products rise ahead of expectations.
“You would expect us to say that new business would fall in a recession,” says Roger Edwards, proposition director at Bright Grey and Scottish Provident. “But both Scottish Provident and Bright Grey have exceeded their targets.”
The companies share a common parent in Royal London Group since the London-based mutual completed a £1.25 billion takeover of Scottish Provident on 29 December last year. They both focus on selling life insurance, income protection and critical illness cover, collectively known as protection insurance.
Edwards believes they are the type of products that become more appealing as customers grow more nervous about their financial futures.
Scandals in the payment protection insurance market — with policies sold by banks to consumers taking out mortgages — have provided a further fillip for the sector.
In the three months to March, Bright Grey won new business worth £45m (an 18% rise on the £38m of new business sold the first quarter of last year). Scottish Provident’s new business sales were £55m in the first quarter.
“The recession is making people question their outgoings,” says Edwards.
“But it is also focusing people’s minds on what would happen if they became sick or lost their jobs — it means people are more open to a discussion about protection insurance and our range of products than they would be in better times.”
However, he points out that slump is not a one-way street for the industry: “The recession can also create a barrier as protection can be expensive.”
Edwards, who worked at Scottish Provident before joining the Bright Grey launch team in 2002, says a recession can also prompt increased claims. He says that while claims have risen in recent months, the increase “falls short of being alarming”.
He stressed that specific unemployment cover — the only type of protection that pays out on redundancy — represents only a small part of the two companies’ business, and that Bright Grey stopped selling such policies in 2005.
The biggest challenge facing Edwards and his boss Ross Ainslie, the managing director of Bright Grey and Scottish Provident, is internal. Since the merger took effect earlier this year, they have been assessing how best to amalgamate the two businesses, at the same time as honouring their commitment to keep both brands alive.
There has been gossip in financial circles that Royal London’s hidden agenda is to merge the Scottish Provident and Bright Grey brands to cut costs and justify the high price it paid for the Scottish Provident’s active book (the closed book went to Pearl).
Between them, Bright Grey and Scottish Provident employ 540 staff, of whom 420 work for Bright Grey in Edinburgh and 140 for Scottish Provident in Glasgow and Reading. A further 400 people handle Scottish Provident claims at the outsourcing giant Capita.
But Royal London says it is 100% committed to having “a multi-channel, multi-brand strategy”.
“We have two strong brands. We’re keeping both,” says Ainslie. “With organic investment, we’re confident that one plus one can equal three. Our objective is to be the market leader in protection.”
The companies, which have had a joint top management team since April, have now embarked on a “brand- mapping” exercise involving extensive research among independent financial advisers to root out what Edwards describes as “bad overlap”. “The aim is to ensure the two brands are not chopping each other’s legs off,” he says.
Edwards expects the research to be complete by autumn. He has engaged the services of the Dollar-based marketing guru Hamish Taylor, a former managing director of Eurostar UK and Sainsbury’s Bank, to assist. “Hamish is very good at drilling down into the DNA of a brand,” says Edwards.
Edwards says Bright Grey — one of whose goals is to banish jargon and insurance-speak from the market — generally appeals to younger consumers. It has sought to differentiate itself by offering a series of non-financial benefits, including bereavement counselling, branded as “Helping Hand”.
Even though it was starved of investment by its former owners, Abbey National and Resolution Life, Rogers says independent financial advisers still have strong residual loyalty to the Scottish Provident brand. This is partly due to the comprehensiveness of its critical illness cover, which suits older customers with more complex medical histories.
Edwards says Scottish Provident also enjoys a “halo effect”, having pioneered menu-based products that gave customers greater choice.
Once the brand-mapping process is complete, Royal London will be in a position to take some tough decisions on reconfiguring its business.
These will include whether to bring the functions carried out by Capita back in-house — or pursue the outsourced model across the enlarged business.
“The medium-term goal, in a two- to three-year time frame, is to get both brands on a common platform and that’s going to make it easier for us to attack the likes of Legal & General,” says Ainslie.
This article was published in The Sunday Times on 19 July 2009.