Direct insurers steal a march in motor

Insurers are taking advantage of their size and data resources to eat up a greater share of the private motor market through direct channels, according to the latest data from Consumer Intelligence.

A year ago, in June 2017, brokers accounted for 55.3% of the five cheapest quotes found on price comparison websites, but the roles have now reversed with direct insurers making up 54.6% of the cheapest available quotes as of April 2018.

Consumer Intelligence insurance market specialist Tim Stout says this is down to the direct brands being in a better position to take advantage of favourable underwriting conditions.

“There has been good growth in motor, but that is now moving into a bit of a period of deflation,” he says. “Despite this, large direct players have been reaping the benefits of healthy underwriting profits over the past couple of years, which can be hard to come by in insurance.

“The large direct players have a couple of well-defined advantages that have helped give them a competitive advantage, and primarily we are talking about data and a greater access to data to manage informed pricing much better.”

“They also have a greater speed to market, because these large direct players have much more ability to be agile in their pricing and change their prices daily or even hourly,” he adds.

Stout says that direct brands have also been better at navigating the choppy waters of regulatory change, helping them to overtake brokers when it comes to being able to offer better prices to consumers.

“The last year has been a difficult one for insurance, with a number of large industry events such as the IPT increase and the Ogden rate change, which is still not finished yet,” he says. “The renewal price transparency regulations came into force last year, and looking forward we also have the whiplash reforms coming in.

“When you have so many large industry level events taking place, generally speaking it is going to be the large direct insurers that have the clout and data to ensure they can lead the market [and adapt to the changes].”

MGAs on the rise

Despite this, Stout says brokers still have a bright future, and says that the entrepreneurial spirit within the broking industry will see smart brokers adapt to the changing market landscape.

“Brokers have always been entrepreneurial, and we are seeing a surge of companies going down the MGA route,” he says. “There is a big appetite in the market for brokers to be bolstering their pricing capabilities and brokers are already beginning to fight back by bringing pricing decisions in-house with a bigger appetite to handle tactical pricing themselves.”

Stout continues by saying that brokers with an established foothold in the motor insurance market could return to the acquisition trail in order to steal a march on their competitors and help close the gap to the direct brands.

“In the short-term, established brokers with good books of business have the opportunity to widen their footprint and capture more market volume,” he says. “One of the things we have seen is there are lots of niche brokers operating on the edge of that standard mass market footprint, and as we see those businesses get better at what they do, it could be a good option for  some of the larger brokers to acquire that non-standard book and broaden their footprint through acquisition.”

A return to more traditional broking could also yield benefits for brokers.

“Over the long-term, we could see brokers looking a lot more like brokers of times gone past with close, personal relationships with customers and no longer competing on price,” Stout says. “There are opportunities for that in the multi-car space and also in the more on-demand market that we are starting to see rise in popularity.

“Brokers have to take the conversation away from price, and connect with their customers and give them that personal tailored service.”

So while direct brands may have the advantage for now, that same set of circumstances could also lead to the revitalisation of traditional broking in UK general insurance.