The majority of motor business is conducted by aggregators, with the other major lines of business set to follow soon. With four huge comparison websites on the rise, brokers definitely have cause for concern
Having dominated the motor market and made headway into household cover, price comparison sites could soon be making life difficult for UK general insurers in other lines of business. So predicts Stephen Lathrope, a partner in the insurance practice at consulting firm Accenture, which released results of its survey in April into insurance buying.
Price comparison sites, also known as aggregators, have made a big splash in the UK insurance industry. Accenture’s survey found that an increasing number of consumers are seeing the internet as the preferred choice for buying insurance, with 70% of the UK consumers surveyed planning to buy policies online over the next 12 months. Insurance websites and aggregators are coming to dominate the UK market.
The success of the aggregators – the best known of which are CompareTheMarket.com, Gocompare.com, confused.com and Moneysupermarket.com – has been particularly troublesome for the larger insurers that deal with customers directly rather than through brokers, Lathrope contends.
These companies’ direct strategies meant they didn’t have to share income from policy sales with brokers through commissions, but the arrival of the aggregators has led to greater price competition and a renewed need to pay commissions.
Going up the value chain
“Now the majority of motor business is conducted on aggregators, their commission needs to be paid, which is a squeeze on the economics of each policy sold,” Lathrope says. “The other major lines of business could follow; household is already way up the charts in terms of aggregator use. For those insurers that have a broader footprint than just motor and household, such as commercial insurance for small to medium-sized enterprises, for example, may start to see that squeeze in other areas as well.”
In addition to broadening product coverage, Lathrope suggests aggregators may also start to become more broker-like. “There is the potential for them to go up the value chain,” he says. “Rather than act purely as a search vehicle that hands the leads over to insurance companies, why wouldn’t they start to provide some services and retain more ownership of the customers like traditional brokers did in the past?”
While he has yet to see evidence of aggregators making such a move, Lathrope says: “It is a logical place to go next.”
Growing influences
News of aggregators’ growing influence may be unwelcome to insurers, which are suffering difficult market conditions. Rates in most lines are soft, and investment income is down. Many firms have propped up results by releasing reserves, but this may not be sustainable for all. Pushing premiums up only helps to a point – higher prices typically results in lower premium volume, making growth prospects slim.
Lathrope expects to see more companies developing simpler, lower cost coverage specifically for sale via aggregators. “When people click through to you to buy the product, you then have the opportunity to up-sell the bells and whistles rather than giving them away,” he says.
Insurers may be able to use aggregators’ presence in the industry as a means of growing in today’s challenging market, instead of simply offering their regular products more cheaply via aggregators, as many have done to date.
