From M/A to Partnerships: Understanding the important relationship between Mortgage Firms and Insurance Providers
A couple weeks ago, as thousands of professionals from within the mortgage and insurance categories flooded Las Vegas (for InsureTech Connect) and Boston (for LeadsCon’s Connect to Convert), a bombshell fell on the two industries which will surely impact business for years to come in each category. The news, in case you missed it, was the announcement of LendingTree’s (TREE) intention to purchase Seattle-based insurance lead seller QuoteWizard for north of $300 Million. (You can read the full report, here). On the surface, this deal makes a ton of sense. These two firms have independently done incredibly well in their primary markets; their joining forces should lead to even more impressive dominance in performance marketing space, with coverage in two of the most active and important lead generation industries.
Much of the work our firm does touches these industries – we represent leading players from both the insurance industry and the residential finance (mortgage, home improvement) ecosystem. In fact, we’ve been the driving force in a number of partnership programs between insurance providers and lenders. While we weren’t surprised by the news of the transaction, we do find it both extraordinary and noteworthy. I figured I’d write a little bit about the transaction, and more importantly, the general benefits of a mortgage-insurance partnership strategy.
First, though, some background. I know each of these businesses pretty well. My relationship with LendingTree dates back a number of years – I consider a number of folks on their senior team to be close friends. It’s a business that I respect tremendously. QuoteWizard has been a great partner to a number of the companies I’ve been involved with as well, and while their senior team typically communicates with my partner, Brett (our COO), I’ve come to similarly respect their work. These are good companies, and I’ve got exactly zero doubt that they’ve done something very smart by joining forces.
I’ve also believed for a long time that mortgage lenders and insurers make for very good partners. Dating back to Brett’s and my time at DoublePositive (when we launched the now-mothballed ReadyForMyQuote mobile product), I’ve been thinking about how to profitably align these industries. I’ve seen firsthand the success that USAA has had in helping their Members on both the bank side (which is where their mortgage products live) and the property and casualty business (I’m a Member and I’ve supported that business in the past). Later, at my last ‘real job’ (a national property and casualty insurance agency) we worked hard to partner with residential lenders. In other words, I’m a believer that mortgage customers make good insurance customers, too.
It would seem I’m not alone. This acquisition is certainly big news, but if you read the ‘trades,’ you know that there are a number of businesses out there who are thinking about insuring borrowers. Some are wholly-focused on this; these businesses exist specifically to leverage the relationship that these two industries can and should have. Others see this as a program or a channel – though not a business model. Whether all-in or simply playing at the margins, the list of firms looking to bridge the mortgage application and the insurance policy is growing. (Quick note: We represent some of these businesses, so I face a weird thing, here. I either mention just the ones we work with, share a broader list or just skip naming them, entirely. I’ll go with door number three to avoid any feather ruffling.)
So, why is this happening?
Given the level of activity between the insurance and mortgage industries, one’s mind naturally looks for the motivation behind this. Let’s put the acquisition that inspired this post on the shelf (as the parties involved may have had additional/different motivations than just the synergistic relationship these industries can have). I’ll focus instead on the perspective of a mortgage entity (which could be a direct lender, a broker, or even a loan officer) and the insurance provider (maybe a carrier, an agency or an agent). Specifically, I’ll try to nail down why they’re valuable to one another. To my mind, there are a couple major contributing factors, and then a bunch of secondary benefits. Both are briefly described below:
These industries are either critical or supplemental to one another’s ability to sell. You can’t borrow money for a home that isn’t insured. This means that for a mortgage firm to close a loan – and for a loan officer to get paid – an insurance certificate is required. (Further, RESPA mandates that the lender can’t sell insurance.) For the insurer, the relationship is less necessary than it is beneficial. I mean, who wouldn’t want to work leads who have to buy what you sell?
There are likely dozens of solid justifications for lenders and insurance companies to work together. Some, though, are really simple and important; I’ll stick with these.
Homeowners = better insurance customers.
While insurance carriers rely on dashboards that look like a nuclear submarine control panel, their profitability really comes down to just a few elements: acquisition cost, customer longevity, and products sold per customer frame the basics; loss ratios and claims frequency form the more advanced perspective. Working with homeowners aligns to better than index outcomes in each of these areas: they’re more likely to buy multiple products, less likely to move, and generally display a lesser risk profile than non-owners.
Exclusive leads rock! Cheap, really good ones are even better.
This actually speaks to the above point. Typically, when a mortgage firm refers its customers, it does so to a single, trusted entity. And, often, they do so without charging market rate for a lead. Insurance agents prefer exclusive leads to those they have to share with their competition. And because these leads don’t typically carry the weight of expensive media COGS (costs of goods sold), these programs can mitigate – or even eliminate – upfront acquisition costs.
Lenders have very few opportunities to engage their customers. If they’re successful in funding a mortgage, it’s likely years before they may be approached about a new loan (either purchase, refi or line of credit). Further, as consumers become more and more rate conscious, there’s no guarantee of that repeat business ever happening. Forming a partnership with an insurance company can mean incremental revenue for the lender.
Increased NPS and Loyalty.
Helping customers with things you don’t necessarily sell isn’t just good for revenue; it’s good for referral activity and loyalty. When a lender partners with an insurance company, and that partner delivers great service, it reflects well on the lender. They can expect an improved Net Promoter Score and a greater degree of customer loyalty.
Let’s wrap this up. LendingTree and QuoteWizard makes sense. So do the many business models and programs looking at the relationship between banks and insurers. To me, the more important message is that these programs aren’t just formed by acquisitions and deployed capital. There’s nothing stopping residential lenders and P/C insurers of all sizes from forming partnership programs that can leverage this value. These kinds of engagements help companies grow, but more importantly, they help customers have a better experience.
I hope you like this content. I’ve loved writing it. I think this stuff is fun to think about, but it’s even more fun to execute. I typically don’t use this blog to promote our business, but here I will:
If you’re a lender looking for an incredible insurance partner, we can help.
If you’re an insurance company looking for great lender partners, we can help.
If you have a technology that makes it easier for mortgage applicants to buy insurance, we can help.
Thanks for reading. Peace!