The insurance market has changed dramatically over the last five years. Graeme Kalbraier explains how call trading has helped insurers and brokers pick up leads in a competitive market.
Competition in the insurance sector has never been so fierce. The advent of the internet, new entrants to the market and the rise of aggregators has revolutionised the choice available to consumers and put them in the driving seat.
How people buy insurance has changed dramatically. The majority of customers now shop around rather than blindly accepting new premiums from their existing provider. This means that renewal rates have gone through the floor, undermining the traditional bedrock of insurers' profitability and leaving them reliant on new business.
Insurers need to increase the number of genuine, qualified leads from their target audiences and drive up margins. What are their options? Increasing advertising spend, embracing the internet, cutting costs by improving efficiency and call trading are all potential ways of increasing custom.
Advertising 'arms race'
Looking at advertising first, the market's 1,118 registered insurers are being forced to spend more and more to attract customers in an increasingly complex and crowded environment.
The average cost of bringing in a lead now stands at around £14, if using traditional media channels. Rates have risen while once submitted, ads cannot be changed for 14 months, limiting flexibility when it comes to branding and targeting. Calls can arrive at any time, making resourcing to meet demand difficult.
The insurance sections of these directories have ballooned in size as an ever rising number of players chase leads, meaning that a company's advert will be jostling for space with hundreds of competitors.
Switching into other advertising channels, such as TV and radio is even more expensive and only brings short term gains as the competition catches up. Insurers are therefore becoming locked into an ever-escalating advertising arms race.
Turning to the internet, despite the hype it is actually even more expensive. With cost per click through search engines like Google hitting an estimated £20 per lead – and this ignores the infrastructure costs of creating a website.
More importantly, the rise of web aggregators has led to an aggressive focus on price to bring leads in. Insurers have therefore stripped away added value (and higher margin) services, such as legal cover, replacement vehicles, free windscreen replacement and increased excesses to come top on comparison web sites.
It is then a difficult job to add these back onto the quote when contact is made with the consumer and fuller details are taken. This can explain the wide discrepancy between costs cited on an aggregator website and the actual quote received – up to £1,000 of difference in some cases.
Insurers have also been changing how they operate in order to increase efficiency, to combat falling margins. Mergers and acquisitions have led to short term benefits which obviously cannot be sustained. Leaner working practices do bring some gains but they can only be taken so far and need to be balanced against customer service and retention.
Tactics such as offshoring and call automation have led to widespread customer dissatisfaction – indeed many insurers have now returned all or part of their operations to agents in the UK.
The fourth option of increasing leads is the most straightforward and easy to implement.
A large proportion of calls that insurers receive doesn't fit their criteria, meaning they either do not want the business or cannot handle it economically. For every 100 calls, only 15 will result in a sale.
Traditionally these leads have been written off, forcing the consumer to go back to square one and wasting the time of the insurance agent taking the call.
By simply selling on these leads to other organisations who can provide a quote, everyone involved benefits. Customers receive a relevant quote, the buying insurer gets a qualified lead and the seller is able to monetise their unconverted calls.
First introduced by organisations such as Admiral, call trading has increased as insurers, and indeed brokers, realise that it is better to be paid for unwanted leads by their competition rather than letting them disappear completely.
Handled correctly it helps insurers receive targeted leads that match their criteria, reducing the need for increased advertising.
As the market has become more sophisticated independent organisations have grown to provide a platform for trading calls between the majority of large insurers.
Businesses have the flexibility to buy the leads they want and sell those that they don't, effectively swapping wasted calls for positive custom. Consumers also benefit from a better range of quotes from organisations that actually want their business, increasing customer satisfaction and conversion rates.
The insurance market has changed dramatically over the last five years as competition has increased. Traditionally high renewal rates have fallen dramatically, advertising channels have become expensive and swamped and the internet has introduced the aggregation model, squeezing margins and profitability.
No wonder that insurers have rushed into mergers, cost-cutting and efficiency drives, but these can only go so far without alienating customers by impacting service levels.
The rise of call trading now shows that it is a viable new channel for lead generation, cutting out significant waste from the quotation process to benefit all parties. Used properly it can help insurers sidestep the advertising arms race and deliver the quality leads they need. IT
Graeme Kalbraier is managing director of Call Connection