Getting left behind?

Over the past five years, the direct writers have dominated the personal lines market and, as Sarah Hills reports, their success has now inspired other industries to try and cash in

Supermarkets and banks have both successfully entered the personal lines market and now pose a real threat. The sheer quantity of providers, and the number of distribution channels, has created a price-driven industry and a customer that is now confident enough to independently buy their own insurance. The question has to be asked, where does the broker fit in the future of personal lines?

The market has changed over a short space of time and the distribution impact has seen an increase in the various channels, which has prompted different customer buying habits.

Derek Findlayson, UK business development manager for Groupama, says the market has seen a "significant reduction in the proportion of business placed by the broker sector, particularly on the private motor side."

He adds: "This has started to create a trend of consumers moving away from the broker. The direct writers have been innovative in the way that they streamline the prices and enhance the customer experience."

This price-driven ethos is the key for consumers at the moment. Such is the confidence in trading independently that comparison sites have seen a growing share of the market as customers become increasingly price sensitive at renewal.

Tom Bennett, communications manager for insurance search engine, Confused.com, says: "This helps to create more of a level playing field among insurers. Moreover, if policies are close in price, customers often look at additional services included within the policy, so price, brand and additional services, in that order, all have an influence on the purchasing process."

However, the concern within the industry is that, in order to remain competitive, the underwriting discipline will be jeopardised in order to price match. A report by the financial research company, Defaqto, into the UK home insurance market, found that marketing continues to be focused on price rather than the service or product features.

Brian Brown, author of Changing Policies for a Changing World report, says these price wars are encouraging disloyalty among customers, who are always on the lookout for a cheaper policy: "We can expect to see distribution patterns change as insurers try to reduce costs. This is most evident from the increasing use of the internet."

One sector that has exploited the concept of buying online are supermarkets. For example, Tesco is now the third largest provider of car insurance and has over one million policyholders, thus establishing itself firmly within the personal lines market.

Mr Tidd says that the broking fraternity must be wondering where it went wrong: "The idea that a shop providing cut-priced food is better placed to provide a complex legal agreement that could reach into millions is hard to comprehend, yet a significant percentage of the buying public has abandoned the broker."

The supermarkets have successfully adopted a business model that caters for their specific customer base. Nick Bowyer, marketing and acquisitions director for Swinton, said that by "leafleting everyone to death" the supermarkets focused on the section of people "that fulfil their business on the internet. This model will hit the more traditional market writers and has stolen market shares from the likes of Churchill and Direct Line."

Mr Tidd says if this "pile it high sell it cheap" mentality persists "then brokers trying to provide a quality service will suffer, the products will suffer and, ultimately, so will customers." However, due to the low cost of in-store advertising and promotion, and with offers from Tesco that include an extra 5% discount on Tesco home insurance, the supermarket brands drive price competitiveness.

This presents a challenge that, according to Mr Findlayson, can be seen as an opportunity or as a threat. He says that, consumers will buy from brands that they trust: "The reality is that they are here to stay and are likely to become more successful in the future and consequently brokers will have to compete in a different sort of way."

Live and kicking

The future of the broker need not seem so grave though. The direct writers and supermarkets may have the lion's share of the market but there are always opportunities. Identifying a niche area of expertise is a good way to remain competitive. Direct writers have developed the ability to attract consumers via marketing, brand and product innovation. A focused brand, such as Sheilas' Wheels - a division of Esure that sells car insurance for women - is an example of a niche product making a big impact.

Jacky Brown, spokeswoman for Sheilas' Wheels, said that the female motor insurance market was growing rapidly and was "ripe for a major shake-up."

"We focused on providing product features especially designed for women, by women - such as handbag and contents cover of £300; a 24-hour confidential phone line for policyholders and a network of repairers trained to follow a female-friendly code of practice."

Taking private motor as an example, the customer with straight-forward private car insurance needs is now happy to deal direct with insurers by phone or online - with little or no need for advice. This is where the broker can make a difference by focusing on areas where customers do need advice or access to more specialised products, the broker can take advantage of a segment of the market that a vanilla product does not place so well in.

Mr Findlayson says that focusing the product, and developing their brand by moving away from just selling an isolated product, would ultimately benefit the customer "by providing a different proposition to the customer that would increase the desire to remain loyal. For example, by including breakdown cover, uninsured loss or legal expenses to a motor policy would develop the customer relationship."

Also, the broker must think clearly about their route to market. Mr Tidd says they must acknowledge their own worth "by marketing the benefits of their service and superior products to customers. At the same time we must encourage sound underwriting techniques. Claims costs and leakage are rising and yet insurers continue to chase market share based on uneconomical rates, especially in motor insurance."

The impact of the direct writers and the supermarkets in the personal lines market is phenomenal but both adopt a model that does not make it a case of direct vs broker. The broker sector has proved its resilience time and again and that is a message that is often overlooked. By identifying those niche areas and developing their brand, brokers scan enjoy a bright future in the personal lines market.

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