Industry still dazed and confused

I think the letter from Debra Williams, managing director of Confused.com, (Post, 5 April, p13) perfectly emphasises the differing attitudes of a marketing led company and an insurer. Ms Williams highlights the low acquisition costs through an aggregator and the less than expected attrition rate.

This is only one part of the equation for underwriters. Direct writers have grown their market share at the expense of brokers by a package of advantages. They own the customer totally and can control the claims costs, up-sell and cross-sell other products, select risks carefully, control the flow of business by maximising prices and build up a brand and loyalty with a customer direct. Above all, they are not subject to the price comparison that insurers suffer from when they deal through brokers. Brokers at a touch of a button can offer alternative quotes from all the insurers who sell through this distribution channel.

This requoting process is the ultimate selection against insurers leaving them at every renewal with only those risks where they are the cheapest. The cheapest is not likely to produce a profit for underwriters and this was the reason companies such as Norwich Union turned their focus towards the direct market.

The aggregators turn the direct concept on its head, giving the customer the opportunity to easily get the best quote from the market each year. The process erodes some of the benefits of direct writers and can only reduce their profitability because the price they obtain for each unit of exposure will reduce.

This is good news for brokers as aggregators are really no more than online brokers, so why would the public not go back to using this channel of sale?

Insurers will see their direct profits gradually erode and start putting more emphasis into the broking channel, where the cost of distribution is a fixed percentage of the premium received.

The merry go round just starts again.

Tony Cornell, Cornell Consulting