Affinity insurance can be a winner for charities and their beneficiaries, but it is important to get the arrangement right. Mathew Little investigates.
In 2002, ex-offenders charity Unlock received a letter from the elderly parents of a man who had spent eight years in prison for supplying Class A drugs. Upon release he had moved in with them as a condition of his parole.
It seemed as if life was going back to normal when the couple made a routine insurance claim after their washing machine flooded the kitchen.
But instead of getting a cheque in the post, their claim was refused and their policy abruptly cancelled by Prudential. The reason: they were now living with someone who had a criminal record.
For Unlock, the case brought home a hidden injustice faced by reformed ex-prisoners and their families. Subsequent research revealed that five out of six people with a criminal conviction have been denied cover by insurance companies.
"The question asked is: 'Do you or a member of your family have a criminal conviction?'," explains Unlock deputy chief executive Julie Wright. "If the answer is 'yes', more often than not companies will refuse to offer insurance or existing cover will be withdrawn."
And this isn't just a minor inconvenience. It can, in practice, deny a livelihood to people determined to go straight.
"Without motor insurance, people can't drive - and most of us get to work by car," says Wright. "Some mortgages are dependent on insurance. And a lot of ex-offenders want to start their own businesses, but it's illegal if you don't have public liability insurance, even if it's a window-cleaning round."
Unlock decided that if the insurance industry wouldn't offer insurance to ex-prisoners, it would. It set up its own insurance brokerage, Esteem Insurance, which trawls underwriters trying to find cover for the charity's beneficiaries.
It hasn't been easy. Many providers simply aren't interested, and some offences, such as paedophilia convictions, result in blanket refusal.
But patient negotiation and the credit earned by Unlock's insistence that members show they are living crime-free lives has secured insurance for many ex-prisoners who were unable to buy it on the open market.
Unlock is one of a growing number of charities that have chosen to intervene directly in the insurance market on behalf of their beneficiaries. Affinity insurance - so called because of the affiliation between the charity and the supporters it is promoting insurance to - is offered by charities as diverse as Diabetes UK, the MS Society, the RSPCA, Help the Aged and the Ramblers Association.
Under affinity schemes, the charity refers its supporters to specialised brokers or underwriters who offer deals burnished by the endorsement of the charity's brand. In theory it is a win-win arrangement - the charity earns a cut of every policy sold, and beneficiaries receive a nuanced, tailored service they couldn't get elsewhere.
Five years ago, the RSPCA decided its policy of recommending insurance for every pet in order to pay for vets' bills could be better served by actually offering the product itself.
The animal charity identified eight underwriters that could provide the service. Three subsequently pitched for the contract and UK Insurance was chosen. Now every animal that leaves one of the charity's rehoming centres is given one month's free cover. The insurance company then follows up with the new owner to see if they would like to buy long-term insurance.
The branded scheme has enabled the RSPCA to fill a gap in the market.
Conventional insurance schemes refuse cover to owners if their pets are over eight years of age, but the RSPCA's policy, though not the cheapest on the market, guarantees cover irrespective of the animal's age.
For Anthony Baumann, the charity's head of fundraising, the scheme has multiple benefits. "It's a service to make it easier for the person who's rehoming an animal," he says. "But it's also almost a campaign, because the promotion is very visible at the point of collecting an animal. It says: 'If you don't go with us, you should have pet insurance in any case.' And obviously it is a fundraiser as well."
The scheme is worth £200,000 a year to the charity in commission from policies sold, but Baumann cautions against a fundraiser's impulse to see affinity insurance schemes as cash cows crying out for milking.
For one thing, they require significant supervision by the charity. "If these affinity deals are to work, the charity has to be prepared to account manage them - approve all promotional material, keep its own records of customer satisfaction and resolve any problems," he says. "It's almost a full-time job. I have one account manager who works solely on insurance."
Baumann also believes charity managers should resist the temptation to decouple the type of insurance offered from the aim of adding value to the charity's work. "Historically, the RSPCA is an organisation with a large database, and I initially felt we ought to maximise the database and be selling general products, life insurance in particular," he says.
"But on reflection, I think a charity needs to market products that have some synergy with its brand. Much as I would have liked the benefits of being in the life insurance market, I think we've probably done the right thing."
However, not all charities have shunned the allure of this income-generating route. Many UK universities offer affinity life, motor and home insurance to their alumni as a means of raising funds. The Ramblers' Association also sells general insurance to its members. Unlike the RSPCA or Unlock schemes, it is unrelated to the purpose of the charity.
Ian Cracknell, marketing manager with UIA, the broker that runs the Ramblers' Association scheme, says these more demonstrably fundraising-based ventures can work well. But he adds that there must be a close fit between the ethos of the charity and the insurer (UIA is itself a not-for-profit mutual) and the product must also compete well with what is on offer on the high street.
"There has to be a real benefit to the member in using the product," he says. "The charity needs to be able to say that it has used its clout as an organisation to negotiate the best deals for people. It needs to feel confident it can't be accused of having a scheme only because it's giving a big-name insurance company access to its members so it can make money out of the deal."
But exactly this suspicion has tainted the reputation of some of those charities that have marketed insurance schemes, according to consultant Stephen Brooker, former finance director with the British Red Cross. He says two or three have haemorrhaged members as a result and "really wished they hadn't done it".
"There is a real issue here," he adds. "If you are a really strong brand such as the Red Cross or the RSPCA, you know there is a resilience in the supporter base. So you can afford to write a letter that says: 'We are enclosing three of four offers, please throw them away if you're not interested.' But I think the supporters of Amnesty International, for example, would be annoyed by anything that intruded on their personal liberties."
Even if a charity goes into an affinity insurance scheme purely to bring benefits to financially excluded beneficiaries, there are still potential dangers to its reputation.
The MS Society launched an affinity insurance scheme in 2002 for people with MS who were being turned down for life and travel insurance. Marketing director Ken Walker says the intention was not to make money but to respond to needs that kept surfacing on the charity's helpline.
The society negotiated a partnership with broker Heath Lambert. But with the overriding aim of increasing accessibility to cover of people with MS, the charity could not simultaneously offer the lowest price.
"Difficulties arise because people assume that as it's the MS Society they will always have the cheapest rate," says Walker. "But we set out to be the most understanding and accessible. Although we try to offer something that is competitive, we can't really compete with Tesco and Direct Line."
The charity has also had to fend off disgruntled members who have been turned down for insurance. "There will always be issues between insurance companies and claimants," says Walker. "People are occasionally turned down or have claims rejected. Inevitably you become the appeal court, even though you're not formally involved."
He says affinity insurance can provide something of real use to a charity's beneficiary group. But it is not a get-rich-quick scheme and the charity will have to actively manage the service. "Although you might try to keep it at arm's length, if you're promoting it to your members there is an expectation that you are offering something special," Walker says. "You need to get involved."
CASE STUDY - MS SOCIETY
By 2002, callers to the MS Society's national helpline were increasingly complaining they were unable to get insurance cover. People with MS were either being refused outright or were being charged very high premiums without apparent reason. Life and travel insurance were particular problem areas.
"Neurologists say that people's inability to get cover for their mortgage or protection for their family often causes almost as much anxiety as their condition," says marketing director Ken Walker.
The society took the decision to enter the insurance market directly in order to change attitudes by setting an example. It selected Heath Lambert as broker and arranged meetings between its medical adviser and insurance underwriters to dispel myths about the disease.
"Actuaries work on hard data, and a lot of that is 20 years out of date," explains Walker. "They like to cover their backs and tend to err on the side of caution."
The charity negotiated a standard package that included cover for wheelchairs, drugs kept in the fridge and mobility aids. All calls are referred to Heath Lambert, which searches for the best deal. Staff are trained to be aware of specific difficulties callers may face, such as problems with diction and handwriting.
Despite offering its own branded insurance, the society remains independent and advises people to seek other quotes if the society's premiums are too high.
There have been problems in managing the expectations of beneficiaries, but the charity has helped about 2,000 people to get cover. "People are coming to us for specific reasons, which is fantastic," says Walker. "We have found the two niche products that people need."
FSA RULE CHANGES
New regulations on insurance from the Financial Services Authority will be introduced in January, affecting what charities that offer affinity insurance schemes can and can't do.
Charities that promote branded schemes through separate brokers or underwriters will need to register as "introducer appointed representatives".
This means they will be able to recommend their preferred insurance partners but not endorse specific products. They will also be allowed to pass on their databases of members to insurers and publish adverts or leaflets promoting schemes. Under the new regulations, charities will be required to have written agreements with brokers and to allow companies access to their records.
But they will not be allowed to assist supporters in filling out forms or forward forms to brokers, nor assist members with claims.
Charities with existing affinity insurance agreements should talk to their brokers to ensure they have applied to the FSA for authorisation to transact insurance from 2005.