April 13, 2016

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What U.K. Can Teach about Aggregators

In the last 10 years or so, the single biggest development we have seen in U.K. personal auto insurance distribution is the phenomenal rise of aggregators – known otherwise as “price comparison websites.” Top aggregators in the U.K. marketplace such as Confused.com, Moneysupermarket.com and Comparethemarket.com have grown, leveraging the high usage of Internet among U.K. households. According to the latest industry reports, aggregators accounted for around 56% of the new motor insurance policies sales in the U.K. in 2013.

The overall potential of aggregator share in the U.K. personal auto new business is capped at around 60%, which means aggregator growth is fast approaching stagnation. Though this is evidenced by the flattening growth we are seeing in recent years when compared with earlier periods (when market share rocketed from 25% in 2007 to 45% in 2009), aggregators are here to stay – purely because U.K. customers still see cheaper cost as the major preference in choosing auto insurance.

For insurers and brokers who operate in markets with a heavy aggregator presence, the options are pretty clear and simple — either to partner with aggregators or to compete with them. There are pros and cons in both these approaches.

The advantages brought about by aggregators to customers are too obvious – exposure to a larger variety of auto insurance products, competitively priced quotes and, most importantly, an efficient purchasing process. For insurers and brokers specifically, aggregators provide medium- and small-sized players (who don’t have the scale to compete with the biggies) the opportunity to generate business by advertising their products at a low marketing cost. Also, through their online platforms, aggregators collect large quantities of customer data around customer website visits and browsing patterns. These can be gainfully used by the insurers/brokers to build a better picture of their customers’ profile and risks as well as put in necessary checks for improving fraud control.

Key risks are:

  • Too much emphasis on providing the most competitively priced quote based on a minimal set of questions results in quotes incorrectly priced and a below-par underwriting performance for the insurer
  • Consumers get the ability to make purchase decisions based on what-if scenarios (like inputting lower mileage or switching then main driver to see the resultant reduction in premiums), possibly inducing them to provide incorrect information and purchasing unsuitable cover
  • Reduced due diligence at the underwriting stage associated with online policy acceptance can result in increased risk of fraudulent claims – including instances of intentional fraud such as use of stolen credit card information, dead letter box addresses and identity fraud.

Some large insurers in the U.K. have withdrawn from partnerships with aggregators to compete directly in this space. Aviva, for example, offers a quotes comparison facility on its website, while DLG encourages its customers to go online to its site to avoid paying aggregators’ commissions.

A few major factors that influence large insurers and brokers to move away from aggregators are:

  • Having a product listed consistently lower in an aggregator’s rankings is perceived by insurers as hurting their brand>
  • Insurers/brokers rely on opportunities to reward customer loyalty and retention at every possible point (through cross-selling/upselling discounts, etc.) to maximize their revenues, while aggregators thrive on customer churn, leading to a possible conflict in business models and weaker customer relationships

Still, none can deny that aggregators are a fixture in the personal auto insurance business for the foreseeable future. Some larger insurers that offer auto insurance online directly to customers also agree that it’s possible to build effective partnerships with aggregators. Some ways of ensuring success through aggregator channels for insurers and brokers are:

  • Collaborate more closely with aggregators to sell on brand rather than just on price – insurers/brokers will primarily own customer relationships and have profit-sharing agreements in place that provide incentives for aggregators to cross sell more of an insurer’s products apart from auto
  • Build systems to ensure that the wealth of data from aggregators is well-utilized for smarter and more frequent pricing of auto quotes (for example, daily rather than monthly or quarterly)
  • Design and segment customized auto policies specifically for aggregators, with underwriting models reflecting the questions set Ensure that the aggregator online platform is updated on a periodical basis and that all components reflect the preferences of the insurers, brokers, customers etc.