Get wired to survive

Despite overcoming many challenges, the small high street broker is dying a slow death, according to a report on the home insurance market. The study by research company Defaqto entitled Home insurance, changing policies for a changing world, reveals that: "For the small high-street broker who traditionally depends on local business traffic the future looks bleak.

"Customers are increasingly choosing not to shop on the high-street at all, as many retailers will testify. Access to new technology is driving consumers away from buying goods in person, and even dealing over the phone is becoming less popular."

All of which is bad news for companies which depend on customers coming through the door for business. Depressingly for the broker, Defaqto says the high street broker has few options. But to succeed it says brokers will need to consider:

"Brokers who currently do not have the technology or organisation to allow customers to deal with them via the internet, or even communicate via email will struggle to survive," says Brian Brown, Defaqto research associate director and author of the report.

"Unless businesses can show that they offer real benefits to customers they will always struggle," he adds.

Although for larger brokers there are increasing opportunities for schemes partnerships with brand names

"More and more affinity groups are waking up to the benefits of offering their members special deals, and these can provide a very useful customer stream for brokers," says Brown.

Defaqto notes that areas in which brokers will survive are in the non-standard and high net worth areas where a much more individual approach is needed. "Even here though brokers will still use technology to attract customers away from less advanced brokers, so even within this market competition will be present," adds Brown.

Stunning growth
Brokers embracing the use of technology is, for David Quick, managing director of independent general insurance network CETA, key. "The stunning growth and future potential of e-commerce is too big to be ignored.

"Insurance brokers have already seen some of their traditional business ebb away to direct insurers on the internet and they need to embrace new technology if they are to survive," says Quick.

Government statistics show that two-thirds of all adults now regularly use the internet, and this rises to over 80% in the under-45 age bracket. The message is the internet is becoming much more integral to the way people run their lives.

Norwich Union (NU)and MoreTh>n have both reported that their direct sales over the internet now exceed telephone sales. This appears rather surprising given NU's TV advertising campaign which appears to concentrate on customers using the phone to get a quote.

And Britain is rapidly becoming a nation divided by the web, with customers having distinctly different purchasing habits.Those with internet access will increasingly use the web to search for and choose insurance policies, while those without will be targeted by TV and print advertising for telephone sales.

Many insurers already realise this and have taken action. Over a third of all home insurance policies analysed can now be bought online, and almost nine out of ten home insurance sellers now provide some form of product information on their website, even if they sell through non-internet channels such as over the telephone or via brokers.

Brown says: "The young and the more affluent will increasingly conduct financial matters online, including buying their home insurance, while the older and poorer section of the population will be left to buy over the telephone or through branch networks of building societies and brokers.

"Insurers who wish to succeed will need to develop multi-channel strategies to cater for each group, or choose a niche and stick with it."

One interesting feature of the market in recent years has been the rise to dominance of bancassurers. Three of the top five home insurers in the UK are now banks.

Since the advent of direct writing in the 1980s the home insurance market has experienced unprecedented levels of competition, with marketing primarily based on price rather than service or product features.

"To keep competitive, insurers have been working on areas such as reducing administration expenses, claims costs and acquisition costs. Better claims handling, the use of repair management companies and replacement goods have helped, while the use of offshore staffing is helping to reduce administration fees," says the Defaqto report.

According to the AA, buildings insurance premiums have remained virtually unchanged since 1992 and contents premiums have risen by around just 5% over the same period. "Wide-scale competition and a benign claims environment have undoubtedly helped to keep premiums low," says Brown.

Intense competition
Customers in the home insurance market have not experienced premium increases like those sustained in the motor market, so the drive to change insurer is not as great.

"The current market with its benign claims experience and intense competition is great news for consumers. Home insurance premiums are unlikely to increase much in the foreseeable future, and there is even scope for them to fall by a few per cent should the market begin aggressive price cutting," says Brown.

The study reveals that there is a growing trend towards white-labelling of policies with well known non-insurance brands allowing their name to be used to sell insurance, in return for a share of the profits. The brands themselves have little or no involvement other than to provide an alternative distribution channel for the insurers.

So who will be the winners? "The big winners in the home insurance market will be the banks and the brands, particularly those which can attract customers directly by cross-selling to existing clients, rather than having to pay the significant costs of acquiring entirely new customers through the traditional advertising and marketing routes," says Brown. IT