A recent report by the Chartered Insurance Institute (CII) and Ernst & Young looked at the UK auto insurance marketplace, the rather dismal situation it is in at the moment and some of the challenges it faces as it tried to return to some semblance of normalcy. In a nutshell:
“We have seen the distribution of motor insurance evolve rapidly in recent years, leaving its history of face-to-face intermediation far behind. The development of online aggregators has been the latest and arguably the most profound step, but it is just one of many recent developments in technology and customer preferences that are reshaping the industry. The current model with its lack of profitability is not sustainable for many. The future will need to bring fundamental change for many insurers – in short, profitability has to be brought back from the brink of extinction.”
Price comparison sites are not uncommon in Canada. Thus far the impact appears to have been much smaller than in the UK, as summarized:
The impact on the industry of price comparison sites – referred to in this report as aggregators – can sometimes be exaggerated, but it is clear that the rise in online sales does represent a fundamental shift in patterns of distribution. It is forcing existing players to find new models for generating profits.
Looking ahead at how to return to profitability, the stress is on determining the best business model and how it can evolve over time:
The future needs to change fundamentally for many insurers. The difficulty in achieving profitability on the core product is driving the industry to change its business models. This has led to a greater focus not only on better pricing and underwriting but also on maximising ancillary sales and other revenue streams. However, the ancillary sales model is becoming more difficult to execute for insurers. As they search for a competitive edge, insurers and distributors are increasingly looking to strengthen their brands and improve their customer segmentation approach.
How will the insurer, aggregator and broker model as it exists today change going forward.
The ongoing squeeze on broker and insurer profitability has only reinforced pressure to consolidate. Larger broker networks continue to consume smaller players, and, in the process, the broker universe is polarising further into mass-market firms that rely on brand strength and high volumes, and smaller players that rely on reputation and niche capabilities. A majority of the insurers surveyed view brokers as being well-placed to take ownership of policy servicing in future, a potentially valuable source of additional revenue. Aggregators will also consolidate over time. Few aggregators will be able to sustain their current levels of marketing spending to support a market that is not growing and the lower price differentials which are potentially reducing the value they can demonstrate to customers.
Read the full report by Ernst & Young and Underwriting Faculty CII: “Bringing Profitability Back From the Brink of Extinction: A Report on the UK Retail Motor Insurance Market” (PDF).