Zurich’s UK profits are up, likely thanks to rate hikes in personal lines. How it approaches its next initiative – a low-price aggregator product – could result in further success

At last, Zurich UK chief executive Stephen Lewis can breathe a sigh of relief, following the insurer’s third-quarter results announced today.
 
UK profits are up 15%, and although the Swiss-based insurer does not break down exactly what drove the growth, judging by the wider group picture, the rate rises in personal lines would have played a key part.
 
The journey to repair Zurich’s spiralling performance in motor began in January 2010, when Lewis announced he would hike premiums by 20%. The effects of those hikes are being played out in the improved profits so, in that sense, it is on the right track.
 
But let’s not forget that Zurich has paid a price in terms of its reputation with some brokers.
 
They wondered why, if Zurich considered itself such an exceptional insurer, it needed to ramp up rates so quickly and aggressively.
 
Surely more gradual rate rises over a number of years, softening the loss of market share that would have happened anyway, would have been a preferable option than suddenly pulling the lever? Zurich lost around £200m in premium from the decision, although it is now clawing that back.
 
What’s in a name?

Elsewhere, Zurich’s next big challenge will be the launch of its low-premium, no-frills aggregator product, developed by Endsleigh. But what will they name it?
 
Aviva decided to call its low-premium aggregator product Quote Me Happy, fearing that keeping the Aviva brand might tarnish its heavy investment in advertising and marketing its direct offering, which isn’t on the price-comparison sites.
 
Zurich doesn’t really have that problem, and may well want to keep the Zurich name in the brand for the aggregators, especially when you look at what’s happening with its competitors.
 
Legal & General insurance managing director Duncan Finch believes that the L&G brand used for its own simplified aggregator product has been a key factor in pulling in the customers.
 
Zurich may have been behind the curve with motor insurance but, like others, is now opting for cheap products off the back of a low expense base, a strategy that has been the cornerstone of Admiral’s success over the last five years.
 
For the direct consumer, Zurich’s trusted brand name must surely be one of its greatest assets.
 
Tapping into the grey market

Make no mistake, there’s been panic in parts of the financial markets this week as fears over a devastating Italian default take grip.
 
The French government announced today that it was banning short selling on 10 key institutions, including AXA. In the UK, Aviva’s share price has been very volatile over fears of its €7.5bn exposure to Italian bonds.
 
Politicians and now, seemingly, the European Central Bank following its aggressive purchase of Italian debt, are beginning to realise that a default cannot be allowed to happen.
 
If the politicians can keep the financial system on an even keel, there is some good news for insurers.
 
That is because, amid all this uncertainty, there is actually a golden opportunity for insurance companies. Governments are implementing austerity programmes across the Continent and, with that, there is an emerging train of thought that the state can no longer afford to provide all the cushions for the increasing ageing demographic of its populations.
 
Old-age care, health and social welfare, to name but a few, are all areas where the state will be rolling back its commitments and the private sector will be expected to step in.
 
Every cloud has a silver lining and, for insurers, this could potentially be the greatest one of them all.  

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