In the same week that Rothschild Assurance chairman Sir Mark Weinberg called for the financial services sector to stop offering just products and start integrating their services, British American Tobacco was hatching plans to form the most ambitious, diverse and fully integrated financial services organisation in the UK (MW last week).
BAT Financial Services chief executive George Greener is understood to have briefed consultants on developing an integrated brand management operation for its general and life insurance organisations, Eagle Star and Allied Dunbar.
The plans include the development of a centralised marketing function to manage the brand portfolio plus the purchase of a high street bank. BAT is reportedly about to pounce on a bank or building society and has 2bn to pay for it.
In insurance terms alone, it would be a formidable operation. Eagle Star was once the UK’s biggest motor insurer and a leading player in the home and contents market – Allied Dunbar is the fifth-largest life office in the UK.
The move is not unprecedented within BAT. It has already merged some Eagle Star and Allied Dunbar operations and treats their different products as separate brands within the same company. In May 1994, the asset management was taken out of Eagle Star and Allied Dunbar and merged into Threadneedle Asset Management.
Although the two company brands were retained, they form part of a product portfolio within TAM.
But many are sceptical of Greener’s chances. BAT Financial Services operates in a sector where there is little to distinguish between products and the most radical branding exercises appear to be putting the company name before “Life”, “PEP” and “Direct”.
But if successful, BAT’s initiative will force other financial services groups to go down the integration route.
The biggest problem is believed to be BAT itself. Ever since it bought Eagle Star in 1984, financial services has been allowed to exist in splendid isolation. Very few on the tobacco industry-dominated board liked or understood it.
Even when in 1989 BAT chairman Sir Patrick Sheehy began the break-up of the conglomerate, shedding retail and paper interests to concentrate on tobacco and insurance, it still seemed that financial services would be left to its own devices. Brand management skills learned in tobacco could not and would not be transferred to the financial sector.
But over the past year, this view has changed. BAT admits that 1994 was a difficult year for its financial services interests, which has clearly focused minds on the sector.
NatWest Securities analyst Tony Silverman says that rather than transfer skills learned in tobacco marketing, BAT has sought to bring in finance specialists. These include Rupert Pennant-Rea, the former deputy governor of the Bank of England, and Rosalind Gilmore, former chairman of the building societies commission. And the fact that Sheehy is to be replaced by former SG Warburg Group chief executive Lord Cairns further indicates the shift in emphasis.
“These recent appointments to the BAT board show that financial services is being taken more seriously,” says Silverman.
The first indication of a change in direction came with a strategy rethink at Allied Dunbar. According to inside sources, two years ago it was decided to shift the company’s advertising away from products and more toward consumers. In addition, there was greater investment in advertising.
In the past very little was spent above the line. For the past two years, Allied Dunbar has consistently spent more than 5m to promote its “There may be troubles ahead” campaign through Grey London.
In May last year, Eagle Star received the Greener treatment. Marketing and above-the-line advertising had been accorded a low priority. From 1992 to 1994, it spent just under 3m on above-the-line advertising, through Ogilvy & Mather, to promote its brand.
During this time, the insurer’s market leadership in motor insurance was lost to Direct Line and its dominance in the home and contents market was severely undermined by fresh competition.
To make things worse, Eagle Star had suffered enormous losses in the first few years of the decade from mortgage indemnity claims resulting from increased repossession of houses.
The general insurer’s chairman, John Bishop, resigned to be replaced by Greener and Stephen Melcher who moved from Eagle Star Life to become group chief executive.
At the time, Greener described Melcher’s new role as that of a brand manager for the whole of Eagle Star. Greener’s terminology was intended to elevate the role of marketing in the company, rather than to diminish Melcher’s position. He wanted Melcher to focus more clearly on the Eagle Star brand and to the end of June this year, advertising spend leaped to 6.2m.
But increased spend is no indicator of performance. Eagle Star has failed to arrest the decline in its general insurance core business, and its competitors are spending more money on effective advertising.
Eagle Star moved into phone selling two years ago in response to Direct Line, but failed to promote it to the same degree and was unable to compete on price.
Eagle Star spends only a sixth of the amount that Direct Line spends on advertising home insurance products (Register-MEAL). It also spends less than either Direct Line and Churchill Insurance on advertising for motor insurance.
Allied Dunbar may find it has similar problems. NatWest life assurance analyst David Nisbet says that although the company has been successful at containing costs and maintaining profitability it still faces fierce competition.
“Allied Dunbar is not particularly well positioned – it does not have a sufficient point of difference in a particularly competitive market,” he says.
Last month, Allied Dunbar swallowed its corporate pride and, despite executives declaring distrust and dislike for cheaper telephone life assurance selling, it launched Allied Dunbar Direct through Grey Integrated. At the time of the low-key launch, divisional director Mel Cole was at pains to explain that the new operation “is meant to work alongside its salesforce, not compete with it”.
Sheehy is on record as saying that there will be an overall decline in the UK life assurance over the next two years – Allied Dunbar Direct is one way of helping to reduce long-term costs.
Allied Dunbar retains a direct salesforce of more than 4,000, plus several thousand independent financial advisers (IFAs). The company has stubbornly increased its sales force while the rest of the life assurance and pensions industry have eagerly shed theirs in the wake of new disclosure rules.
Although most phone selling of life and pensions products launched this year has been slow to take off, it is probable that phone selling could do to the market what it did to general insurance in the early Nineties.
But the fact is that cheaper direct phone selling does compete with the direct salesforces and intermediaries. Because of the political problem of satisfying its huge direct salesforce and IFAs, it will be difficult for Allied Dunbar to fully promote the new service.
With just about every financial services company moving into selling life and pensions products over the phone, Allied Dunbar may fall into the same trap as Eagle Star.
One senior marketer at a rival insurance company says that Allied Dunbar’s customer base is being eroded.
“Allied Dunbar will have to do something about the banks and building societies poaching customers,” he says, citing the Prudential’s move into direct banking, “no insurance company can be an island anymore.”
This, along with the new problems associated with the costs of maintaining a direct salesforce, are understood to be contributory factors to BAT’s determination to own a major bank or building society.
If Greener’s plans to introduce brand management to insurance companies and extend services into banking and savings products are successful, he may find himself running one of the most powerful financial services organisations in the UK.
If he does not succeed, as the line goes: “There may be troubles ahead.”