IT Spotlights: Insurer competition

Implications for motor

Adopting new technology

Case study: Google

Talking points

Q&A: Jeremy Lefebure, Accenture

The sheer number and diversity of affinity deals that have been signed recently suggest a style of sale that is very much on the up. This autumn alone has seen Allianz provide legal expenses cover for BMW’s motorcycle brand, Motorrad, through specialist broker Devitt Insurance Services. Meanwhile, Hastings has won the contract to issue commercial vehicle insurance for B&Q-owner Kingfisher; while Ageas will underwrite travel cover for John Lewis Insurance.

Yet a hard-hitting Accenture report, co-authored by the managing director of the consultant’s European insurance practice, Thomas Meyer, says that the industry’s biggest players “risk going the way of the dodo”.

The report says: “The danger for the industry is that other, non-traditional companies like retailers or telecoms and car companies could snap up the opportunity and move into the insurance market using low-cost digital distribution and their established customer base … they could capture the most lucrative business.”

The ABI seems quite sanguine over the issue - “the insurance market has always been very competitive”, says a spokesman - but there’s little doubt that the industry was stunned by one particularly powerful new entrant.

Last year Google paid nearly £38m for aggregator BeatThatQuote, a loss making business that nonetheless threw down the gauntlet to large established players like Gocompare.

The Office of Fair Trading was so concerned about such a dominant search company entering the market that it even launched an inquiry into whether this deal might distort competition (see case study).

Implications for motor

Car manufacturers are licking their lips at a European Union directive that demands all cars have built-in ability to record collisions by 2015.

Car makers will almost certainly use this as an excuse to fit telematics boxes, which record motoring habits and then reward young motorists with lower insurance premiums, if they are found to be safe on the road.

Broker iGO4 executive director Tom Cooper says that because the boxes are a “point of sale product” it makes sense for manufacturers to sell them directly to customers through their car dealerships.

“It’s almost like a white goods item, with the customer right in front of you,” he says. “Ford has been doing that in America for a few years now.”

Retailers or telecoms and car companies could move into the insurance market using low-cost digital distribution and their established customer base”

Accenture report

The fear is that there is little that brokers can do to tackle this threat to their businesses, as it is such a straightforward add-on item to a
car manufacturer’s business model. Cooper says the biggest hope is that major retailers and car manufacturers will grow frustrated by the tiny margins in an overcrowded marketplace and flee to concentrate on their better-paying core businesses.

Benalder Consulting managing director Neil Batley insists that he does not envisage any market-changing new entrants for at least two years.

While there are several big name retailers who will inevitably develop an insurance presence - Batley points to supermarket Morrisons as an obvious contender - they will quickly find that they “won’t make a killing” through insurance.

Adopting new technology

Accenture counters that the insurance industry “risks losing the customer relationship to competitors and new entrants eager to step in” and, therefore, being reduced to “becoming simply a product factory”. But, as one industry insider puts it, there is “no sense of a new distribution model” from many of these threats, making the support provided through affinity deals that much more appealing when outsiders discover how little money there is to be made.

“Even though new technology, like telematics, is interesting for new entrants, that doesn’t necessarily stop insurers from doing well and doing affinity-type deals,” the source said.

The key could be, though, to ensure that the industry moves quickly to adopt efficient technology and marketing techniques to directly reach the consumer, rather than wait for someone to type their details into an aggregator. Indeed, the Accenture report acknowledges that insurers like Admiral, E-Sure and Swiftcover have all “undoubtedly benefited from first mover advantage in internet commerce”.

Having the technology means that, a retailer, for example, won’t have to bother developing its own service to meet the insurance needs of customers buying goods online from the company. Therefore, it also will not develop as a threat and, as Accenture puts it, insurers should avoid finding that “others are eating its lunch”.

It’s worrying, though, that the main reason the insurance lunch could be unappetising is that the portions are so small.

Talking points …

● Do motor insurers need to tie up deals with car producers to include built-in telematics boxes?

● What will Google’s next move be in the insurance sector? Clearly it is on internet search company’s priority list following the launch of its own bespoke price comparison list.