Aviva's revolution in e-trade pricing – who will follow?

Aviva’s radical break with convention to offer personal lines products cheaper via its e-trading platform than through software houses will net it “double-digit millions” within 12-18 months.

And Aviva’s managing director of UK intermediaries Phil Bayles says this figure will only accelerate, as he declared results since the roll out of the products on Fast Trade as a great success.

Aviva has been able to reduce the costs of its motor, home and commercial van products by cutting out the associated costs of selling through software houses.

Within two months of launching in July, more than 1,000 of the products had been sold through Fast Trade and Bayles said Aviva would be selling more than £1m worth per month by year-end.

He said: “We will comfortably be through a million pounds in the next couple of months, and that’s from a standing start.

“That will be the most difficult million we will make because it’s gone from no one knowing how to use the system. As people start to learn how to use the system, that figure accelerates.”

Doubters dismissed

Bayles was responding to concerns from rival insurers who have doubted whether the strategy would be successful since the roll out.

RSA’s e-channel manager for commercial risk solutions Ryan Bendelow questioned whether brokers would be prepared to move away from the established way of trading through the software houses.

He said: “Our longstanding view of the broker in personal lines and the commercial van market is that brokers are looking for the most efficient way of trading this low premium, high volume business as well as having access to a wide range of markets to give their customers choice.

“By removing the associated software house costs, Aviva is able to offer preferential rates to brokers using Fast Trade. However, it remains to be seen if this alone will be convincing enough for brokers to rekey data onto Fast Trade – effectively doubling their work to obtain one extra quote.”

But Bayles says the early results show that among regional brokers there is a significant demand for cheaper personal lines products to compete with the direct market.

“I laugh when I hear that people won’t use it, because they are using it,” said Bayles. “There’s obviously a lot of vested interest from other people in saying it’s not going to work and I know that the majority of people will continue using software houses because it’s easy; but for those that want to get the best price or don’t use software houses, it gives them an alternative.

“If it then helps them win a few more customers or keep a few more customers – then happy days.”

Software houses

Aviva will continue offering personal lines products through software houses, albeit at a more expensive rate, in addition to Fast Trade.

Bayles says the move is intended to offer personal lines brokers the cheapest price possible to enable them to better compete with the direct market – not as an aggressive move against software houses.

However, Bayles has told Insurance Times a by-product of the action could be software houses lowering their own fees to better compete with insurer extranets like Fast Trade.

And with these early results, he accepted some business would have been taken from software houses.

He said: “Some of this will be business that would have ended up on software houses, but isn’t going to anymore and some of it is business that wouldn’t otherwise have been written because the prices aren’t good enough.

“What it does is grow the market. We’re not trying to compete with the software houses, we’re trying to compete with the direct model.”

So far, the damage to software houses has been limited by rival insurers resisting following Aviva’s lead.

While that remains the case, Open GI’s chief marketing officer Nick Giddings may feel confident that software houses can survive Aviva’s move.

He says Aviva will incur new costs by selling personal lines products through Fast Trade which largely balance out the savings made through cutting out the associated costs of selling through software houses.

And Giddins added: “The broker that chooses to get a slightly better rate, if it is a better rate, on an extranet for a white van man customer isn’t necessarily going to be getting an amount that an end consumer would necessarily even notice. We’re not talking big differences.

“A broker’s duty is to their customers and to conform with regulatory requirements they need to find their customers the best product.

“But they want to do this in an efficient way, and the most efficient way of doing this is putting it through a quote engine rather than going to different insurer extranets.

“If the saving to the consumer warranted them rekeying the information, then it would make sense. But the saving doesn’t warrant it.”

‘Damaging’ differential pricing

However, with news of the early success of Aviva’s cheaper e-trade strategy, it remains to be seen whether these insurers will continue standing by the software houses with equal pricing.

This prospect was what alarmed SSP sales and marketing director Adrian Coupland, who commented that “differential pricing via an extranet like Fast Trade is quite damaging”.

Allianz director of SME markets and corporate partnerships, and Polaris board member, David Martin said the only thing that could justify differential pricing between software houses and an insurer extranet is if the costs involved were “substantively different”.

Martin said: “The challenge is if you look at software house costs you need to be able to make sure you can determine how different those software house costs are to the costs of running your own platform. 

“Depending on the carrier, that may be a different calculation for you. It’s not for me to comment on what a competitor is doing, but for anything that Allianz does we seek to accurately price the entire end-to-end process and business model and we try to make sure that serves customers and gives access to our products.

“The question is whether the cost of running the products on an e-trade platform is substantively different; because if you’re running different algorithms, obviously there’s a cost.”

Bayles says he is happy if rivals decide not to adopt a similar approach. He said: “Each insurer is going to come up with its own strategy.

“Most innovations start with everyone saying it’s not going to work and then everyone tries to jump on board. The beauty from our perspective is even if they do we’ve made the first move and will always be known as the insurer that did it first.”

Brokers

Were insurers to follow suit though, the danger is it could herald a return to brokers having to inefficiently rekey information in each insurer extranet to find the best price.

This concern was why brokers previously described Aviva’s move as a “mixed blessing”.

Brokers are happy for cheaper prices, but don’t want to go through the process of rekeying information on multiple platforms, and it could mean a lot of extra work for relatively little extra reward.

“The danger is other insurers following suit,” said Peter Smits, managing director of independent broker Ashbourne Insurance.

“Then you’ve got a situation where rather than having a software house as one place to go and search for the best rate across multiple insurers, you’ve got to go and search multiple platforms, which creates a time issue.”

For now, at least, it appears brokers do not have to face this prospect.

And according to AXA’s director of commercial intermediary trading, Deepak Soni, it will ultimately be down to brokers and broker demand to decide if cheaper prices at the cost of greater inefficiency is really what they want for the industry.

He said: “If we as AXA wanted to change the way we approach the market we’d do what we feel is right for brokers, which doesn’t always necessarily mean it’s right for every other insurer.

“So, if lots of other insurers followed suit then we’d certainly look at it, but that doesn’t necessarily mean it would be a route we would follow.

“It would depend on how it affects the market and if it’s what our brokers want. Because fundamentally the way we trade is designed to make it simple for them and us to trade together.

“Doing something that is counterproductive to that isn’t going to help either party, so it’s got to be driven by brokers as much as it’s driven by us.”