How insurance can drive new customer acquisition for commercial finance
by Brad Liebmann, Managing Director, Xbridge Ltd
Business Money, October 2004
Most large banks offer commercial insurance for their small business customers. But they treat their insurance offering as a stand-alone product. By integrating their insurance offering into their core banking product range more closely, insurance can be an important driver of new commercial finance business as well as a stand-alone source of revenue.
Issues with the status quo
Banks currently offer commercial insurance primarily to make money from the insurance product itself. But insurance premiums for small businesses are relatively low. And the information gathered during the underwriting process is seldom re-used by the bank to gauge the appropriateness of core banking products for the small business. A rich vein of information about the customer is therefore unutilised squandered.
Most bank-sponsored policies are sold via branches to existing business customers. Few lenders focus their insurance marketing efforts on start ups -- most of whom now conduct extensive research online before starting a new venture. Each time that a prospective entrepreneur researches and seeks an insurance quotation for his business online, an opportunity for a bank to establish a new banking relationship is lost.
The biggest indicator of where a customer will establish a business banking relationship is where his personal current account is. A well crafted strategy for marketing commercial insurance provides banks with an opportunity to change this.
How bank-sponsored insurance should work
A bank-branded insurance business can be a significant driver of new commercial banking business. Such products are a highly effective tool for engaging with prospective entrepreneurs before they start their businesses.
Liability insurance is one the few financial products that all businesses need. Accordingly, it is often researched before a business banking relationship is established. Over one-quarter of Xbridge's online enquires for commercial insurance are from start ups. Few banks focus on this opportunity.
Banks should actively market online their insurance products to potential start ups. Bank-branded insurance products are a highly effective tool for engaging with prospective entrepreneurs before they start their businesses.
How to implement effectively
The cross sell of core banking products can be a highly lucrative source of new commercial customers. The information gleaned during the underwriting process enables the efficient cross selling of core banking products.
Xbridge uses software algorithms to automatically vet each new insurance applicant to assess the business' propensity to need each of the banks' core products. The software also navigates DPA opt-out issues. It is a given that every new business will need a current account. More lucrative is the cross selling of higher margin products such as invoice finance and commercial mortgages. No recruitment company or printer should apply for insurance without a phone call from a local business development manager to discuss invoice finance!
Implemented properly, an online commercial insurance business will drive significant levels of new commercial finance. Xbridge derives a significant amount of its new invoice finance leads from its commercial insurance marketplaces. It should be no different for every bank.