Aggregators are putting pressure on insurers' pricing models
New research released by Consumer Intelligence suggests smaller insurance companies were powerful competition when it came to swooping up personal lines market share in 2007.
Saga, The Post Office, Marks & Spencer and Swiftcover were among those crowned last year’s winners in terms of overall growth in the housing and motor markets.
The success, to some extent, was attributed to those companies’ ability to do well on aggregator sites, according to CI managing director Ian Hughes.
As a result, some have questioned whether a trend may develop over the next 12 to 24 months of insurers beginning to rate products differently on aggregator sites.
Typically insurers have partnered with affinity brands to benefit from the recognition and loyalty those companies enjoy with their customers. Insurance policies provided through certain brands may be sold at lower premiums if that brand’s customers are perceived to be lower risk.
The concern some have raised with aggregator sites is that anyone can access those lower premium quotes whether they fit the profile of a brand’s typical low-risk customer or not. Therefore, affinity brands might not be attracting the customer they would normally target through their advertising.
Hughes said he could also see a move towards more recognized brands in the future trying to negotiate paying lower fees and commission to aggregator sites because of the business they attract to the site through advertising.
More recognized brands also face the risk that once a customer is on an aggregator site, that person may choose to go with a lower cost, less recognized brand.
Hughes said: “Brands need to be wary that the cost associated with maintaining that brand does not place them substantially away from the market and lead them to propping up lower cost players.”
Nathan Williams, underwriting director for personal lines at Royal & Sun Alliance said the company’s pricing model has always been to look at the risks and decide how to make it profitable at a competitive rate.
He said: “That’s our strategy for pricing and we wouldn’t operate any differently because of aggregator sites.”
That said, Williams wouldn’t rule out the possibility that other companies may opt for different pricing models for aggregator sites in the future.
There may be a move for smaller insurers to begin investing in improved pricing models to play up against the more dominant brands, Hughes adds.
He predicts there will be significant changes to the price comparison market over the next 12 months and a decline in the current number of players.
He said: “Basic Darwinian theory would point to the fact that you can’t have too many people in the food chain. We now have one too many people in the food chain and someone has to go.
“Something needs to change to make this a more stable market.”
