A fighting chance

Direct insurance brands are being challenged by new ventures but, as Richard Cohen explains, it will take more than a duck and a weave for them to make a solid comeback

Direct insurance brands are under threat from new channels vying for a share of the aggressively promoted and highly competitive direct market. Affinity partners, aggregators, brokers and internet brands are putting their hats in the ring to win business in the personal lines arena where motor and home insurance are the dominant sectors.

While the direct players are often the same insurers as those sitting behind many of the new ventures, this raises the conundrum of which way the pendulum is swinging, with underwriters desperate to hang onto their share and take as much income as possible by selling their own products.

A survey of senior insurance executives by the Economist Intelligence Unit in March claimed that entry of internet affinity brands into the personal lines market will eventually kill off traditional insurance brands (PM, 23 March, p40).

While underwriters insist their direct arms are hardly on their death beds, the UK's largest general insurer, Norwich Union, admits that it has had to re-think its distribution tactics and tender for business to satisfy the hunger of the spawning online revolution, even though it would rather grow its NU direct arm.

In March, it signed a deal with internet auction site Ebay to give customers buying a car seven days' free motor cover, giving the insurer a week to secure the motorist as a permanent customer.

NU director of customer service projects Shaun Meadows says: "Traditional ways to get business are changing. TV advertising works but we are having to do deals such as the Ebay one."

It is not just Ebay, which Post Magazine predicted was on the lookout for insurance partners last year (2 June 2005, p3) that wants to steal its share of the direct, personal lines market. Other internet brands such as search engine Yahoo and online store Amazon are also being touted as big players of the future.

Aggregators such as Confused.com and Money Supermarket are also aggressively marketing, while high-street stores, most notably the major supermarkets, are joining the party.

As a potential indicator of how the market is changing, research in April by Consumer Intelligence found that insurer Esure's potential share of the motor market plummeted from 4.22% in 2004 to 2.93% in 2005 (PM, 13 April, p3).

However, the Halifax Bank of Scotland subsidiary disagrees with this figure, and spokesman Adrian Webb points out that the insurer has several sales channels, not just Esure, such as the Sheilas' Wheels brand established last year for female drivers.

He also claims that customers answering such a survey may be unaware who their actual insurer is. "You can be up to four steps removed from the insurer in some cases," Mr Webb points out.

From all corners

Being so removed from the underwriter is mainly due to aggregators, and while the top brass at HBOS may not be too concerned whether a motorist buys their cover through Halifax, Esure or Sheilas' Wheels, the emergence of aggregators is said to be a worry for insurers.

The rise of this channel - where price is the crucial selling point as the websites scan dozens of online quotes from insurers for customers - means underwriters are no longer in control of the sale. In addition, it may be difficult for insurers to hang onto clients at renewal because of the subsequent commoditisation of the market.

However, Cornhill Direct divisional distribution and marketing manager Alan Griffett questions whether the aggregator model will work given the market is new and its ability to win renewal business has not been tested.

Mark Harrison, managing director of ISL, which monitors the insurance market as a subsidiary of credit reference agency Experian, insists insurers are worried: "The large players have had hundreds of millions of pounds invested in building their brands and they want to own the client relationship - they want the client going direct to their website, not to a price comparison website."

Catherine Barton, insurance partner at accountancy firm Deloitte, adds: "Traditional insurers' and intermediaries' share is under threat. Where products can be commoditised and sold simply and cheaply, new distribution channels will emerge."

Focusing on the prize

However, insurers seem to be reacting to the changing market. Mr Harrison says direct players are having to focus on product features and customer service as key differentiators rather than just price.

He adds: "In future, there will be increasing segmentation of the market with companies focusing on niches, such as Esure with Sheilas' Wheels, and specialist players like Hiscox trying to grab a share of the affluent household market. It will prevent new entrants with a lower cost base from competing on price alone and eroding market share."

While direct brands are fighting their corner, the real losers in the fierce personal lines battleground could be small brokers, according to Mr Griffett. "The direct market is stable," he says. "It is brokers that will suffer more than insurers. It is difficult for smaller brokers to make their voice heard as the big brands will do more advertising."

British Insurance Brokers' Association technical services manager Graeme Trudgill responds: "There is a future for brokers in personal lines but it is a different future as a specialist or a niche player. Some customers want service rather than just price."

Brokers have faced threats in the past, such as the emergence of the direct brands in the mid-1980s, which forced many to become slicker and quicker to embrace technology.

However, with the appearance of a fresh set of new entrants and distribution channels, it is insurers that are being forced back to the drawing board - just as brokers had to do in the past - to ensure their brands remain capable of attracting the attention of customers.

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