Briefing: The next generation of personal lines insurance is here

By Saxon East

The recent history of UK personal lines insurance has had different stages of innovation and change. The ‘Big Bang’ happened in 1985, when Sir Peter Wood set up Direct Line.

By selling insurance direct via the phone, he cut out the broker and passed on associated saved costs to the customer.

Within nine years, Direct Line was the biggest insurer of private vehicles in the UK. Copycats, such as Admiral, subsequently proliferated across the UK insurance landscape and direct selling gained dominance.

Then we had the price comparison sites. That was the disintermediation of disintermediation.

This evolution continues today.

Personal lines insurance now has a new breed of app led insurance firms. Apps – more so than websites – is the primary form of interaction with customers.

These types of firms are typically MGAs, using others’ capacity to take on all or a significant share of the risk. Think Urban Jungle or Getsafe.

These app led MGA players have a market share that is relatively small compared to the established players, but they have advantages.

App advantages

For a start, the good app led MGAs will have a very low cost operating model. That opens up the possibility of cheaper pricing.

These firms can then hoover up new business by offering cheap deals, while the established players concentrate on maintaining their market share with existing customers at renewal.

Secondly, being primarily app-focused means all the MGAs’ efforts and concentration is on this technology driven part of the business.

This will lead to a super-smooth experience for app users, especially younger customers who see this channel as the most convenient form of interacting with insurance.

For example, Getsafe claims to have a unique technology platform that reduces manual paperwork and complexity with smart bots and automation. Customers can file claims or change their coverage in real-time with just a few clicks.

Only six years old, the business has a quarter of a million customers and has raised $115m (£90.8m) in funding so far.

Thirdly, without IT legacy systems and a back book of customers, app focused MGAs can experiment more easily.

Pricing battle and claims

There is evidence of these types of MGAs – some being so new they have not even engaged in dual pricing – aggressively poaching new business.

They played a big role in keeping a lid on new business price increases last year.

They are also adept at data segmentation and targeting the best customers.

Above all, they can win the day with a differentiated claims service.

The FCA’s thematic review in 2014 revealed insurance firms’ poor communication and lack of oversight.

These issues remain today.

Too many brokers and insurers delegate their claims service to a third party. The third party then delegates the responsibilities down once more. Sometimes there is a fourth and fifth party in the service chain.

Put simply, claimants get passed on from a call centre and then lost in a maze.

These new breeds of MGAs can be far nimbler than that.

Having one trusted claims partner, ideally which does not rely heavily on sub-delegation, will be key.

The old cliché still stands true today - a good insurance company makes a good ending.