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Do you want insurance with that?

Adding complementary services to your existing business, known as ‘adjacencies’, is the real estate growth strategy du jour. Entering into an adjacency with an insurer can offer clients a value-add and the agent a valuable income stream, so it’s important to choose the right partner. Sharon Fox-Slater of EBM's RentCover explains.

Upselling, value-adding and alternative income streams are all part and parcel of modern-day business.

The business growth strategy du jour is ‘adjacencies’.

Adjacency is a strategy where a company looks outside its boundaries for new sources of income, moving into related areas that use and reinforce its core business. In real estate, the most common partnerships are with related services such as mortgage broking, conveyancing, surveying and insurance. Other value-adds could include arranging utility connections for clients, or removals and storage.

Adjacency in action

Domain is a good example. Traditionally, the company’s core income is derived from advertising revenue from residential sales listings. Later it introduced content marketing as an adjacency to cover the cost of investing in journalism. Then last year the company entered into a joint venture with Lendi to offer a mortgage-broking service.

At the time, Domain’s CEO said the broking business was the most lucrative of the “adjacency businesses” to online real estate listings and that earnings from services could eclipse earnings from listings.

UK realtor Countrywide’s adjacencies strategy was to achieve 50 pence in adjacent service revenue for every pound in property sales. Mortgage broking, general insurance and life insurance commissions, as well as conveyancing and surveying fees, complemented its revenue from property sales and enabled the business to weather the post-GFC property market decline. Today, property sales account for only 20 per cent of Countrywide’s profits.

Partnering with insurers

Entering into an adjacency can provide advantages for both agents and their clients – offering clients a value-added service and the agent an income stream. Partnering with an insurer to offer landlord and tenant contents covers is an option many real estate business owners are exploring. And it can be a great strategy, so long as the right insurance partner is chosen.

Insurance is a heavily regulated industry, subject to strict legislative requirements and accountability. Insurers have many obligations under Commonwealth, state and territory laws that deal with the financial integrity and conduct of the general insurance industry, and under the industry General Insurance Code of Practice.

The general insurance industry is governed by a number of laws, most importantly the Insurance Act 1973, the Insurance Contracts Act 1984 and the Corporations Act 2001. It is regulated by the Australian Prudential Regulation Authority (APRA, which sets prudential standards) and the Australian Securities and Investments Commission (ASIC, which is responsible for licensing financial services providers and regulating consumer protection in the financial services industry). In addition, insurance companies must abide by various other laws and regulations, such as privacy laws to protect the confidentiality of information they gather.

In light of this environment of regulation, it is imperative that any real estate business owner looking to enter into an adjacency with an insurer does their due diligence and chooses the right partner – one that has the right structure to support the agency and protect agents when dealing with insurance.

By choosing to partner with a trusted insurer, the real estate business will be able to reap the rewards.

More to consider than just commission

All companies or individuals who provide financial advice or deliver a financial service to consumers must be licensed under the Corporations Act 2001 (‘the Act’). This means that anyone who sells an insurance policy needs to do so under an Australian Financial Services Licence (AFSL).

If an agent arranges an insurance policy for a client, they need to either hold an AFSL or be appointed in writing as a representative of an AFS licensee – this may be as a distributor, authorised representative or corporate authorised representative. Agents can also act as a ‘referrer’ and simply provide insurance marketing materials to clients without being authorised to act as a representative.

At EBM RentCover, our partner agents can be authorised as Distributors, Corporate Authorised Representatives (CARs) or Referrers to offer our landlord and tenant cover products. As an AFSL holder we have obligations, defined by the Act, to ensure that our representatives are adequately trained and competent to provide financial services.

Distributors and CARs are authorised to provide a financial service under EBM RentCover’s AFSL. Distributors and CARs are authorised to:

  • supply brochures, flyers and other marketing material from EBM RentCover to clients
  • arrange insurance for a landlord
  • pay the premiums

To meet our AFSL obligations, we provide training with ongoing monitoring and supervision to our Distributors and CARs on the services they are authorised to provide to their clients. Importantly, we also extend cover under our Professional Indemnity (PI) insurance policy for financial services related to EBM RentCover and associated products.

Referrers are not authorised by EBM RentCover to provide a financial service or arrange insurance cover; they can only provide our marketing materials to clients. As such, they do not work within our AFSL and our PI cover is not extended to Referrers.

By providing the supporting systems and processes that ensure our agent partners operate within the boundaries of their authorisation and are protected, we make it possible for agents to offer our insurance products to their clients – providing landlords and tenants with value-added service and the agent with an additional income stream.

Adjacencies with insurers can be a great way for real estate professionals to grow their business and increase their income – so long as the business owner makes sure that they partner with an insurer who can provide the right type of agreement and ensure the agent is protected. By choosing to partner with a trusted insurer, the real estate business will be able to reap the rewards offered by the adjacency.

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Sharon Fox-Slater

Sharon Fox-Slater is the Executive General Manager of EBM’s RentCover, which insures 120,000 investment properties around Australia and creates covers specifically for the property industry. Sharon was also the first woman to become a Fellow of the National Insurance Brokers Association. For more information, visit rentcover.com.au.

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