Brokers selling motor insurance on aggregators continue to win over the insurers by selling ancillary products in addition to the basic policy, analysts say.
James Shuck, equity analyst for Jefferies, spoke to directors at Admiral and BGL Group to get a clear picture of the price comparison market.
Shuck says: “Brokers still have a thing or two to teach the insurers. BGL highlighted how brokers have lost significant market share and remain under pressure. One problem is the time it takes to re-price (up to 60 days in some cases) versus direct insurers (perhaps 1 hour).
"But they are good at generating more than just risk margin on a core insurance product through packaging product and focusing on customer duration. Insurers selling through brokers are beginning to understand this and are seeking to break into this part of the value chain. Aviva, ZFS and Axa were cited as examples of insurers working on point of sale pricing - that is, being able to price product through additional customer margin above the core rack rate of car insurance.”
However, Shuck believes that 30% rate increases that buoyed the market last year, will dwindle to single figures in the second half of the year as players look to grab back market share.
He says: “Both BGL and Admiral indicated that they expected the very strong 2010 rate increases (+30% or so) to slow in 2011. BGL suggested to around 12% on new business.
“Interestingly, H2 is expected to slow to low single digit levels as some players begin to fight back from recent market share losses. In our view, Admiral's current share price leaves little room for disappointment and this is a risk in H2 as the growth rate slows.
“Our hold recommendation reflects this. BGL were actually pretty complimentary about Admiral's operational excellence versus peers, and although there has been some catch up Admiral remains the standout direct motor insurer in terms of both efficiency and product pricing. BGL gave an interesting example about how Admiral was able to quote on a new car brand very quickly whereas it took up to 3 months for others by which time pricing had fallen.”
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