Deloitte predicts bloodbath as smaller aggregators struggle to survive
Price comparison sites are facing an ‘aggregator crunch’, Deloitte predicts.
Deloitte anticipates that within two years there will only be five major players in the motor insurance arena, with the smaller player unable to compete on advertising and facing a battle to survive.
Stephen Ross, insurance partner at Deloitte said:: “As the motor insurance market generated its 14th consecutive underwriting loss in 2008, the industry now faces an ‘aggregator crunch’.
"At present there are a small number of aggregators that dominate the market, and barriers to entry such as demanding advertising spend leave smaller players unable to compete unless they are focused on particular niches.
“Aggregators have aggressively increased their advertising spend. The ‘Big 5’ aggregators increased their combined TV advertising spend by 90% in 2008 to £80m. This represented nearly 2.5% of total TV advertising in 2008, which is a significant amount.
“Having a well known and respected brand is vital for insurers to enjoy success on aggregators. Research conducted by YouGov for Deloitte in May suggests that 66% of consumers are unlikely to purchase insurance online from an unknown brand. In this day and age of aggregators, brand awareness has never been so important.”
Commenting on the role of aggregators, Stephen Ross added: “Accounting for 38% of new motor insurance business last year, aggregators are here to stay, and insurers need a clearly defined strategy on how to take advantage of them.
“Aggregators have been successful as they offer price transparency to consumers at a time when price is a major criterion for people buying on the internet. They are also easy to access and are user-friendly for consumers to navigate. The larger aggregators have developed strong brands through their innovative advertising campaigns which has helped them gain ownership of the customers.”
Offering advice to insurers, Stephen Ross commented: “Insurers face challenges regarding their strategies to increase their sales volume and profitability at the same time as customer retention has become increasingly difficult. There are three options available to insurers. They can ‘bite the bullet’ and increase prices and wait for the market to follow. This is likely to result in a loss of volume in the short term. Or they can ‘fight it out’ increasing market share with the expectation of benefiting from the hardening market. This is likely to result in a decrease of profitability in the short term. Or they can ‘go it alone’ without aggregators and directly compete with them. It is likely that this third option can only be applied by businesses that have strong brands and significant market share.
“My prediction is that successful insurers in today’s market must have a clear aggregator strategy whilst relentlessly reducing costs, continuing to innovate as well as develop strategies to improve retention.”
