AvivaPlus analysis: broking threat or innovative opportunity?

The early success of AvivaPlus is a sign all in the industry should be taking note of.

Aviva revealed to Insurance Times that the first three months of operations saw the direct subscription-based insurance product for home and motor purchased by more than 40,000 customers, with thousands of quotes now being completed each day.

According to Adam Beckett, propositions director for general insurance business at Aviva and one of those heavily involved in the 18-month creation of AvivaPlus, this is above expectation, and talks are already being held about extending it into other personal lines products.

The product has three tiers of cover, and Beckett said level of take-up on the most comprehensive tier three product was particularly encouraging.

Perhaps its popularity should be no surprise. Paying for products by subscription has become a part of everyday life - but where does this trend leave brokers?

Broker possibilities

The good news for brokers is that while Beckett said there are no immediate plans to launch AvivaPlus into the broker channel, the product is being discussed with brokers in standard business conversations.

He emphasised the importance of the broker channel to Aviva, and said there might be elements of AvivaPlus that could be translated into a broker offering.

“We’re in active conversations with some of our personal lines brokers to see what their thoughts are and how some elements of this might support that channel in the future,” he said.

Commercial lines is another area where he said elements of the AvivaPlus product could be phased in, but, like the personal lines broker channel, there are no immediate plans.

Beckett said: “Our plan wouldn’t be to take Plus as it is today into commercial lines, but I think you could take some of the elements of a Plus proposition – some of the constructs into commercial lines or some of the other distribution channels we use in personal lines.”

Even if Aviva was to make the subscription feature available to brokers though, a stumbling block remains in the software houses.

This is according to Biba’s head of corporate affairs Andy Thornley, who says that brokers will need to adapt to an increasing demand for subscriber-based products, and software houses must respond to this need.

“Generally we are shifting closer to a subscription society,” Thornley said. “Millions of people pay for a Netflix subscription and we are moving to an on-demand environment.

“As a broker, if you are unable to give a changing consumer dynamic what they want then that consumer is going to start looking elsewhere.”

Thornley revealed he had earlier this year spoken to five largest software houses about the importance of developing the new technology that brokers need to be competitive.

He said: “The majority of software providers can’t currently offer the services required to allow brokers to offer their customers subscription insurance, but there are start-ups which are emerging that have invented their own platforms that are taking advantage of this.

“These platforms aren’t widely used by brokers at the moment, but if I was working for a software house I would definitely be keeping an eye on this.”

Thornley said the investment in Applied Systems by the owner of Google’s growth equity arm Capital G was encouraging. The expertise could lead to some positive developments and the hope is that other software houses will have to follow suit.

Thornley added: “It’s important that broker members have access to the software that they are going to need in the future and make sure they are providing the service that consumers are going to want.”

The biggest danger he recognises for brokers is the prospect of disintermediation.

This is where insurance gets packaged with another subscriber product – should this catch on as a preferred route to purchasing insurance, brokers could be left out in the cold.

“Currently people see insurance as a grudge purchase, so we are seeing companies starting to bundle insurance into other subscription products,” he said.

“We need people to want to buy insurance and realise the benefits of insurance.”

Subscription 

If embraced by brokers though, shifting from an annual to monthly view of insurance can present opportunities.

Unimpeded by traditional systems that support annual policies, entrepreneurs from outside the industry have brought fresh eyes to the industry and are moving away from established ways of offering insurance.

Zego is a start-up broker offering its customers cover on a pay-as-you-go basis, and its chief executive Sten Saar is full of praise for Aviva’s move into subscription insurance.

“It’s great what Aviva is doing,” he said. “Our vision is that eventually everyone will be able to pay for insurance to only cover the time when they are at risk. It offers the consumer much more flexibility.”

Saar’s advice to brokers is to build their own software to help their customers. 

But should insurance as a monthly subscription achieve wider take-up and become offered by more major insurers and brokers in the market, Saar suggested it would be the premium finance lenders that would be most affected in the long term. 

He said paying for cover on a monthly basis would cancel out the benefit of paying for an annual policy in monthly instalments through premium finance, but said lenders could still remain relevant.

Saar said: “Premium finance lenders will need to adapt by developing short-term loans to cover a week or month, not just annual policies. If their services complement pay-as-you-go insurance and offer customers more flexibility within payment terms, they can still remain valuable.”

Premium finance

Modelled through, Beckett said mass market uptake of subscription insurance could be a threat to premium finance, and subsequently the income brokers make on premium finance arrangements.

But he said currently there was no danger to premium finance lenders.

“If it got a level of adoption, it would be something that those companies would have to keep a close eye on,” Beckett said.

Premium Credit chief executive Tom Woolgrove said the early success of AvivaPlus was positive as it demonstrated the customer’s preference in paying monthly for insurance. He said market innovation was good for the industry, but recognised challenges ahead for Aviva.

Woolgrove added: “As a new, innovative product, the challenge for Aviva will be to raise consumer awareness of the benefits and overcome the low purchase engagement around insurance in general and scepticism that it will offer good value for money vs. more traditional annual policies. 

“For many UK customers, where ownership of major assets like a home or car is still prevalent, annual insurance products are well established and cost effective.

“For the Aviva product, what will be interesting is the uptake and retention, and therefore cost of acquisition, and the claims experience of a ‘pay as you go’ product, which will inform the technical pricing and ultimate overall profitability. Will it genuinely attract customers, will the product fully meet their needs, will the pricing be sustainable and therefore will it fulfil the customer promise?”

Pricing

Beckett vows that the pricing of AvivaPlus will be in line with or slightly better than the current standard Aviva direct home and motor products due to the absence of APR fees.

“What this isn’t doing is loading the premium in order to make the commitments and the promises,” he said. “What we have here is from a very detailed and technical data analytics piece of work to make some assumptions about how it will perform over a period of time that means we can keep it at a competitive rate.”

If customer response continues to be strong Beckett says AvivaPlus could replace the current standard direct home and motor products entirely, although for the foreseeable future both products are offered to allow customers choice.

“Customers are still getting used to the idea of paying a rolling monthly subscription, versus a debit debit payment,” Beckett said.

“If customers still want to do that or make one annual payment they can still do that, but if they’re comfortable with a monthly payment, then Plus is wiser.

“The reason we put Plus forward is because we believe it is a better offer for consumers if the offer is right for them.”

Beckett is targeting the mass market with AvivaPlus, and with Premium Credit research suggesting 43% of consumers are set to put more than £500 of insurance premiums on credit this year, it suggests there is a market for insurance paid monthly.

But how quickly and how many of these customers turn to AvivaPlus is hard to predict.

Mass-market

Aviva claims to be the first to market with a scaled subscription-based product without APR, and with its renewal price guarantee has introduced one of the boldest solutions in the market to dual pricing.

Radical market change is in the short term unlikely as Aviva looks to phase in the product slowly and ensure consumers understand the product before pushing a full rollout.

Should other insurers put out similar offering, things might different, but for now that looks unlikely.

RSA chief executive Scott Egan said AvivaPlus is an “interesting” product and that “it will be interesting to see how it pans out”.

But he said it was wrong to think that one product would be appealing for the whole market.

Egan said: “We’re always looking at both what our competitors are doing, as well as ideas for ourselves. Some things will work, some things won’t work, but we’ve got our own initiatives.”

“I’m not one to forecast the future, but the danger is thinking that one product can be a solution for the market. It won’t. It might be a solution for parts of the market.

“You mustn’t generalise about different segments of the market. It will be different things that work in different segments of the marketplace. We need to be alive to it because the world keeps changing.”

It’s still very early days for AvivaPlus, and Beckett says any firm decisions on where to take the product will largely be based on its future performance and customer feedback.

But Aviva so far appears to be profiting from this bold step, making it an area personal lines brokers, software houses, premium finance lenders and insurers should watch closely in the coming years to ensure they are not left behind.