Expert analysis: The return of motor madness

The Igo4 price index, detailing the best motor quotes across 750 separate risks, has fallen for the fourth consecutive quarter - this time by 4.2% - and the market is now soft rather than flat.

In the last quarter's review, consideration was given to whether this was a mere correction of overcooking previous increases, but it is now clear that there is a huge push for volume once again, with the direct writers leading the way.

Reasons for this are varied and fly in the face of 2011's collective underwriting performance, which produced a loss-making combined ratio of 106%, despite the rate increases that had flowed through 2010 and the first half of 2011.

The major protagonists will all have their own reasons for such an approach; there are the stated IPO intentions of Direct Line Group, Esure and Hastings for a start; and, for some, the need to support large operating cost bases, with the money given away at point of sale potentially underpinned by renewal income from large back books.

Direct writers are dominant despite the continued retraction of competition and, as with the Spring 2012 watch observation, there has been as a 20% reduction in the number of prices returned on some risks, compared to the previous quarter.

Igo4 recently experimented withdrawing from a particular segment on one site and witnessed up to a 50% increase in sales through other sites for the same business, providing further evidence that consumers visit more than one site when shopping around.

Brokers tackling fraud
It is clear that, with a few exceptions, brokers are finding it increasingly difficult to operate in the core motor market and appear to be keeping their powder dry or concentrating on profitable niches.

However, in their quest to be seen delivering value to insurers, brokers are leading the way in attempting to identify and act on application fraud.

This can manifest itself in manual checks on ‘no claims bonus' and licences, through to using the Claims & Underwriting Exchange, automated identification verification and credit scoring.

The latter is a growing phenomenon as directs and national brokers increasingly provide this capability, soon to be joined by all software houses, resulting in a further retraction of the competitive footprint.

Experience proves that taking such action can have a hugely positive impact on the underwriting result and, despite creating an extremely expensive operational burden on brokers, is well worth the effort.

The challenge is that you turn away or cancel significant levels of business at inception. Convincing price comparison sites that such action is good practice for the brand partner and the site is a difficult sell, when they are receiving smaller cheques from those taking this type of action than from a partner that does not carry out such tasks.

The market needs to work together to tackle the issue, and this includes the aggregators. The shared sentiment we have experienced personally is encouraging, as indeed is the positive action from some sites.

Direct access to various databases remains a work in progress, particularly the DVLA but, through the use of web activity monitoring software, it should be possible to alert partners, for example where previous claims have been removed. After all, you have either had a claim or not.

Partner fees to the price comparison sites are exempt from VAT because these sites are an integral part of the buying process and not merely a generator of leads.

Ultimately, it is the responsibility of the participating brands to ensure that information provided by the customer is correct before a policy is taken out, but more help from the aggregator market in pursuing this would be welcome.

Home is growing and resilient
Meanwhile, the household insurance market still appears resilient in the face of increased competition on aggregators, and steady increases in premiums are being recorded.

What effect the recent widespread flooding will have remains to be seen. Having the right amount of rain at the right time is a challenge and needs to be consistent to maintain a profitable result, as does the worrying increase in escape of water costs.

As reported in the last quarterly analysis, the motor market is reaching maturity and, were it not for the increase in motor quotation numbers on Compare the Market, there would now be a backward movement from the same period last year.

On home, that maturity remains some way off. Driven by Compare the Market and Money Supermarket, we have witnessed an annual increase in quotes of around 20%, but total quote volumes are still only 10% of those achieved in motor and the mass market remains reluctant to fully embrace comparison sites as its preferred distribution and purchasing method.

Meanwhile, brokers appear to be holding their own on home. From the smaller 250-strong home basket, Swinton was the leading brand, particularly on stand-alone buildings or contents cover.

While many of the top brands are the same as motor, others such as Legal & General, More Than and Home Quote Direct are also prominent within these chosen product lines.

Aggregator market contraction
With the acquisition of Martin Lewis' Money Saving Expert by Money Supermarket for £87m, not to mention Covea's announcement that it will not move forward with its own aggregator, it has certainly been an active few weeks in the price comparison market.

On the former, Money Supermarket will feel it has acquired the Lionel Messi of the aggregator world and fears of consumer loss of confidence in the impartiality of the views expressed by Lewis are unlikely to manifest themselves in a significant backlash.

Lewis will no doubt remain the darling of the popular press and breakfast TV sofas and this is an astute move from Money Supermarket, which holds a hugely dominant position in the financial sector of the market.

Covea's decision to pull the plug was of little surprise, especially after the deafening silence that followed the news of its proposed launch.

Some of the talk around the commercial proposition was interesting, but the minimum spend required to establish a foothold at the top table, coupled with the signs of a potential return to motor underwriting profit could have led Covea to believe there are easier ways to make a significant return on its investment than throwing a speculative £20m at a price comparison start-up.

With motor maturing, and home growing with recognised limitations, it has also been interesting to see the increased marketing activity for other product lines, such as credit cards, and this is vital for the long-term sustainability of some of the biggest aggregators.

Tom Cooper
Executive director, Igo4

Aggregator highlights: Summer 2012

• Private car market confirmed as soft: fall in rates for fourth consecutive quarter plus pace of fall increasing; direct writers largely responsible as brokers take a more conservative approach on pricing
• Brokers taking a lead in tackling application fraud
• Price comparison market shows continuing signs of maturity for motor
• At 10% of motor quote volumes, home may seem small but steady premium increases being recorded and market appears resilient
• Compare the Market clear leader on quote generation for motor
• Evidence of further contraction of the price comparison site proposition