Michael Gaughan and Ian Barrett take a long-term look at the impact the insurance cycle has on brand building.
If a week is a long time in politics, then an insurance cycle is closer to eternity. Sooner or later, however, competitive premiums and squeezed margins give way to hardening rates and greater profitability. And, just as inexorably, under the pressures of growing competition, rates will one day start to soften again.
Of course, no formula exists to predict the duration of a full insurance cycle; nor has anyone yet been able to forecast accurately the intensity of the highs and lows. The last full cycle in the general market probably took us through almost seven years, the one before that - for those who can remember it - lasted about eight.
The underlying causes of this cyclical phenomenon have filled books, papers and dissertations but in the end it always comes down to the same thing: market forces. Few would dispute the fact that recent events, including an unusually long and frothy bull market followed by a very heavy landing, have had a big impact, especially on the life market.
One of the common ways of gauging cyclical trends in insurance is to look at advertising spend. Although the figures in the following tables are for the UK market, the trends will be more or less replicated across the world.
As might be expected, it is immediately obvious that life and general markets have been marching to very different marketing rhythms. The overall advertising budget of the UK insurance sector rose from £81.8m in 1998 to £95.4m in 2000 and then fell back in 2001 to £87.2m. But the non-life market has seen advertising expenditure rising strongly over the past four years, peaking at £70.8m in 2001.
Similarly, the advertising-spend cycles within individual market segments in the UK seem to point to not one insurance cycle but a whole series of micro orbits.
A word of caution about the figures is necessary. Fashions change, new media appear and advertising rates are subject to the same market fluctuations as insurance premiums. Above all, however, the methodology of categorising different insurance sectors over the years has been far from transparent, particularly going back earlier than 1998, which is why these figures have been limited to the past four years. Furthermore, ad campaigns are subject to the `drag effect' because booking decisions are usually made many months in advance. So the 2001 motor budget, for instance, probably reflects conditions in 2000 when competition was at its most intense, in anticipation of hardening market conditions.
The questions remain: why do we continue to witness these wild swings in advertising and other marketing budgets? Why did the UK's motor insurers spend more than four times as much in press advertising in 2001 compared with 1999? Or, over the same period, why did their TV spend leap from £6.3m to £14.6m? In spite of all that we have read about protecting, developing and differentiating brands, it seems the insurance market is still dominated by crude short-termism and opportunistic marketing strategies.
In one sense this is only to be expected. The insurance industry demonstrates a depressing lack of strong brands when compared with other sectors. Many people believe that you need look no further to explain the image problem faced by the entire industry. Writing in the Swiss Re Insurance Report, Lucien Camp, chairman of CCHM and one of the leading brand marketing gurus in the UK, says: "Re-engagement with customers is an immense challenge for an industry (life and health) tainted by the misdemeanours of the past, but the potential gains for organisations which succeed are massive."
Recent history doesn't furnish much optimism. The 1990s and early years of the 21st century have witnessed the wholesale destruction of insurance brands, and a transformed insurance industry has emerged remodeled by consolidation and mergers on a hitherto undreamt of scale. Respected names, such as General Accident and Scottish Provident, have disappeared. Other brands are under pressure from asset stripping and restructuring including the once-mighty Pearl. And, with no let-up in the pace of consolidation, there is little doubt that a further ten years down the insurance line, the world we now know will once again have changed beyond recognition.
Whilst all sorts of factors, from weak management to financial opportunism, lead to brand destruction, one of the major causes undoubtedly lies in failure to focus on the individuality and uniqueness of the brand itself and to communicate these strengths unambiguously and, above all, consistently to the customer.
Chubb Masterpiece is a good example of a brand which has kept its customer focus since its launch in 1996. "We have a clear understanding of our customers and their needs, and our customers know what the brand stands for - exceptional cover reinforced by an award-winning claims service," says John Sims, European manager of Chubb Masterpiece. "Our product has adapted to market needs and lifestyle threats - for example the recent introduction of cover for identity fraud. As market leaders we have recognised the importance of sticking to our brand values, and remaining true to our customers' expectations. Therefore we have deliberately avoided gimmicky covers or marketing tactics. We have continued to execute classy, sophisticated communication plans - regardless of the market conditions."
Chris Smith, customer, marketing and communications director at RSA (Royal & SunAlliance), agrees about the need for consistency in building a brand. "We would be the first to accept that in grappling with some of the challenges over the last few years we have not been focused on the needs of our clients, particularly at the large commercial end of the market. It is very easy to become reactive rather than listening to customers."
The RSA response, in its large business segment, has been a renewed commitment to building a brand around `listening', `flexibility' and a long-term, sustainable proposition. RSA has been using `Open Minds' as a message to reflect its approach to large commercial customers. But, how far will this commitment go when the going gets really tough?
"There is a huge pressure on budgets as all insurers look to become more efficient and deliver to their shareholders a more consistent and adequate rate of return," says RSA's Mr Smith. "But we see the marketing budget as critical in terms of the investment in our commitment to the large business segment. The challenge is to get the right balance between customer and shareholder need and, to achieve this over the long term, it's critical that we continue to get our messages to the market, using all the resources available from marketing and public relations."
While consolidation and mergers may create branding problems for the multinationals, medium-sized providers could find the going even harder. The 2002 Swiss Re Insurance Report predicts a particularly dire future for the `stuck in the middle' life and health providers. These are firms who are unable to fuel sufficient organic growth to enable them to compete with the larger and more rapidly growing companies. Scale can be achieved in only three ways: by merger or acquisition; taking stakes in distribution companies; or organic growth through brand strength.
Consistent differentiation of the brand may be the only long-term survival strategy. Yet, the trouble is that there are so many seemingly good excuses for taking the eye off the ball, no matter what the state of the market. Here are just a few that we hear daily in the wider market:
There is something of a chicken and egg situation here. Customer awareness can only grow if financial commitment is put behind marketing the brand, but if management confidence in the brand isn't strong enough, the cost of the campaign needed may well be prohibitive.
The glimmer of light is that the marketing teams of most providers are at least paying lip service to the notion that sustained brand marketing through soft and hard markets results in a far more positive and competitive response to sales opportunities.
No one disputes that the stronger brands in the current non-life market, such as Norwich Union, Zurich and Chubb, have a real competitive advantage. Chubb, founded in the 1880s and still trading under the same name, can almost lay claim to having invented insurance branding.
Even in the crisis-torn life sector, it is the brands with differentiation and identity which are showing the most resilience. Often it is the small and nimble niche players which have picked up the message first. Roger Edwards is product director of Bright Grey, one of the youngest protection providers in the UK, and he believes that, in a sector with serious image problems, differentiation is everything. "It doesn't take much research to understand that a lot of people find most things to do with insurance dull, boring and untrustworthy," he says. "But we have taken research into attitudes a lot further, and believe that we can use this to our advantage. The Bright Grey brand stands for imagination, clarity of presentation, a brighter vision, and that's not a veneer but an inside-out attitude which runs through everything we do."
Finding a set of drivers to keep the brand alive requires almost daily attention, and that applies across the board from niche players to industry giants. According to Adrian Beeby, media and political relations manager at Lloyd's of London, active brand maintenance can't be left to chance. "Although Lloyd's has existed as one of the world's most famous brands for hundreds of years," he says, "we recognise the value of active, targeted marketing which highlights the market's unique strengths. However, we can't just do this during the up part of the cycle. Successful marketing needs sustained effort across all market conditions - but the nature of that effort changes depending on the stage of the insurance cycle. During the upcycle, brand maintenance and information provision are our primary aims, but during the downcycle we are more concentrated on active promotion of both the market and the Lloyd's brand as a whole."
In other words, to stay with the cycle you have to keep pedalling.
In a competitive and unpredictable world, customers will be drawn more and more to strong reliable brands. The consistent and attractive values which are, after all, the essence of the brand for the customer, must be reinforced daily.
As Shakespeare knew, we must "suit the action to the word and the word to the action."
By Michael Gaughan and Ian Barrett
Michael Gaughan is managing director and Ian Barrett is a director and head of public relations at FWD Financial Services Marketing in London.