A click away from failure

The demise of Confident Cover, the price comparison website owned by Saga, the over-50s insurer, underlines the fierce competition in the aggregator sector.

In the past five years the number of price comparison websites has increased from about five to at least 130, with major players such as the Admiral-owned Confused.com and Moneysupermarket.com now spending millions on marketing to maintain market share.

Confused.com spent £15m on marketing last year, about one fifth of the sector’s total advertising spend. Three years ago, the sector’s total spend was £5.5m.

Price comparison sites took up more than half of all television and press car insurance advertising last year, up from 35% in 2007. In the same period, policies purchased through the sites made up 38% of UK motor sales compared with 24% in 2007. This was all too much for Saga, which was unwilling to spend the money needed to develop Confident Cover.

Not surprisingly, this bloody advertising battle is hitting the profitability of aggregators. Confused.com’s profit fell to £26m in 2008, down 30% compared with the previous year. Meanwhile, Moneysupermarket reported that its margin from insurance price comparisons last year was squeezed by rising marketing and increased acquisition costs through search engines such as Google, although it did not say by how much.

It is not just increasing marketing costs that are hitting these websites’ profits. Competition is suppressing the fees that aggregators charge insurers and brokers for using their service, known as click-through fees.

Margins will be squeezed further if click-through fees continue to fall. As Insurance Agenda wrote last year, insurers are examining their aggregator strategies and some

could follow Norwich Union’s lead and withdraw from using the sites. This could reduce click-through fees further.

Confident Cover therefore is unlikely to be the only the casualty as the smaller players find they do not have the marketing muscle and the financial strength to survive. The recession will also mean customers reduce the amount of insurance they buy.

Much will depend on how intense the competition is this year. Some analysts point to indications that it could be moderating. Price comparison ad spend slowed in the final quarter of 2008 to year-on-year growth of 3% compared with 42% in the third quarter (although the third quarter of each year is traditionally a competitive period for the motor insurance sector).

So how will aggregators adapt to these challenging conditions? They will have to cut costs so will need to look for ways to extract value from lower marketing spend. They must also boost revenues through expanding their product ranges and look for cross-selling opportunities, such as selling premium finance.

They also should try to improve customer loyalty and conversion rates through improved websites and pricing consistency – they have been criticised for not consistently providing the lowest prices.

Finally, they must get closer to their product providers to ensure they maximise their value as a distribution channel and provide the right type of customers for profitable business.