Think twice before buying your insurance

The 10 million-plus members of the public with mortgages represent a very juicy captive market for the sales of financial products by lenders. And despite an increase in awareness of alternatives, particularly due to the new breed of direct insurers, three-quarters of all borrowers still buy their buildings and contents insurances from the same place as they arranged their loan. Is this proof positive that the discerning British customer knows a bargain when he sees it, and that building societies offer unrivalled value? Highly unlikely, according to the experts. More to do with inertia, they say.

Stephen Ingledew, development director for the financial planning arm of Frizzell, the insurance firm, says: "Building societies have a terrific advantage in that people simply trust them more than banks, and certainly insurance companies. It is not particularly logical but they are held in an almost affectionate regard by many people.

"But now that building societies are heavily promoting anything from travel insurance to PEPs and pensions, individuals should remember the `eggs in one basket' adage. There is every reason why a building society should have a good value tie-up for products related to an area it knows, property, but it does not follow that people should automatically assume its pre-eminence in general financial planning as well."

Only a few years ago a building society might deal with the mortgage and let somebody else arrange peripheral requirements such as life assurance or endowment saving plans to repay the loan. Although the branch manager would no doubt suggest a policy from a company with whom the society had a tie-up, financial services was not a core business activity, and if the customer arranged cover elsewhere it was generally not a great loss. But things have changed. Millions of pounds have been invested in setting up own-brand life companies such as those at Nationwide and elsewhere. Now that the borrower is encouraged not only to buy contents and buildings insurance but also life assurance, pensions, health policies and stock market savings plans, what level of value does he or she get? Alan Oliver, a spokesman for Nationwide, claims that the financial services arms of building societies are not trying to make a fast buck on the back of a positive customer perception but are aiming to compete with the best. He says: "People are increasingly aware of what is on offer. We cannot afford to have second-rate equipment if we want to do a first-rate job. For example, when we set up Nationwide Life, we used people like Schroders to do the investment management and Premier for the administration. I think we have a well-oiled machine now."

There are plenty of sceptics, however. Philip Ost, of Zurich Municipal, an insurance firm, says: "Frankly, there is still plenty of fat to be trimmed from mainstream premiums. Reductions of nearly half are not uncommon and not to be sneezed at."

When it comes to non-property-related financial services, many believe the customer does not realise the basis upon which he or she is being advised. Mr Ingledew says: "Some products are of good value because competition is having its effect on prices. But how do customers know if they are being offered something good or indifferent unless there is something to compare it with? Most customers assume they are being offered the best thing around, just with the building society's name on the application form. In fact, it is usually the only thing being offered. No one buys the first television they are offered; they look at different sizes and prices. Why settle for the `one single option' approach when you are talking about a pension for the rest of your life?"

One exception to this is the Bradford & Bingley, which remains committed to providing independent financial advice. Buildings and contents insurance is tied to Eagle Star but for life assurance, pensions and other investments the society provides an advisory service for products from the whole market. Chris Holland, a spokesman, says: "Newspaper articles are always recommending individuals seek independent advice but finding an adviser is not always easy. With 250 branches we are the largest IFA on the high street."