Rate tarts switching to cheaper home policies are creating opportunities for brokers Alex Hawkes reports.
From credit cards to telephone bills, switching is the overwhelming consumer mantra of today.
A host of websites advise on the best deals, where 'rate tarts' cosy up to the cheapest solution to their personal finance problems. The cult of switching has now reached home insurance, according to new figures from the market research company, Consumer Intelligence.
Consumers are now far more price sensitive when renewing home insurance policies, it says, with consequences for insurers and brokers alike.
Greater discernment on the part of consumers means mortgage lenders, who have traditionally sold insurance policies alongside home loans, may suffer, Consumer Intelligence says.
Brokers also say there are opportunities for them in the shift, highlighting what they can offer in preference to the mortgage lenders. Graeme Trudgill, technical services manager at Biba says: "It is definitely an opportunity for brokers. If people are looking outside of their banks, and can find a broker, the broker can build up a relationship and offer a personal service."
Others fear consumers may lose out opting for price over other considerations which may mean they end up with inappropriate cover.
Consumer Intelligence's survey pointed to a shift in consumer attitudes to home insurance. While it suggested that there had been no change in the number of people who said they were going to shop around at renewal - around 66 % of the population.
Of those who would switch, however, the number of those who would do so for just a small amount of money, £20 in this case, increased from 3% to 15%.
The news was especially surprising given that home insurance has been a more conservative market. Unlike motor insurance, where people do tend to shop around more, consumers have been more loyal to their home insurer.
There is a good reason for that, says Kevin Young, group chairman of Argyle Insurance Group, the Sussex based brokers: "With a house there tends to be a much larger investment. A lot of people look at motor insurance as something they just have to have as a legal requirement."
The most likely consequence of a shift, Consumer Intelligence says, is that the mortgage lenders will suffer. Historically, lenders have been able to cross-sell home insurance when selling home loans, if not actually bundle it as a block policy.
Ian Hughes, Consumer Intelligence's managing director, says the analysis shows the home market has reached saturation. Companies will have to start reviewing the pricing and channels to market.
Improving retention
Not everyone agrees that consumers are more prepared to switch their home insurance more.
John Hollis, More Than's home insurance manager, says that home insurance retention levels have actually been improving over the last few months.
But the insurer acknowledges the challenge: "We operate in a market where the consumer has more choice than ever before with direct insurers, banks, building societies, brokers and supermarkets all competing to win their custom.
"Shopping around is both more common and far easier, particularly given the popularity of the internet as a research tool."
If consumers really are asking questions about the kind of cover, then lenders may lose the chunky commissions associated with cross-selling. Direct insurers, by contrast, will stand to gain by competing on price.
The theory is backed up by market share figures, which show that the majority of major mortgage lenders lost market share over the past 12 months.
Lloyds TSB, NatWest, Abbey, and Halifax fell away, leaving only Nationwide and Barclays to gain ground. The biggest winners in 2004 were direct lenders like esure and Direct Line.
Esure, of course, is owned by HBOS, meaning that what the lenders giveth, their direct insurer arms taketh away.
Selling direct
Halifax, the nation's largest mortgage lender, is a good example. Though it sells home insurance alongside its home loans, it has also been selling insurance direct since 2002
Within a year, direct sales, through Intelligent Finance, Sainsbury's and esure as well as Halifax Insurance, accounted for 50% of its insurance revenues.
"Lenders and banks used to sell block policies that gave them 50% commission," says Jon Jenkins, of Stennings, the Folkestone-based broker.
He says that though they can no longer do that, they can sell in other ways. "It's a different marketplace today," Jenkins says.
Some worry that consumers chasing the cheapest prices is a danger. Jenkins thinks that "people become so price focused and do not end up with the same cover".
"They may only discover that when it is too late."
Taking hold
But again, this is an area where a broker's expertise is vital, and one reason why some do not believe that switching will entirely take hold in the home insurance market.
Kevin Young is a sceptic: "Our retention rate is 97%. I think any switching happened a while ago when the direct brokers moved on to the scene."
He thinks that consumers will continue to be conservative, wanting to get the right level of cover rather than the cheapest price.
That is one reason why Argyle has its own bespoke home insurance policy, underwritten by Norwich Union.
Telling customers exactly what they are getting for what they are paying will encourage them not to throw the baby out with the bathwater, he says.
For brokers, the challenge must surely be competing with the internet.
Websites like insuresupermarket.com and others present an easy way for individuals to scan policies and find rock bottom prices.
Figures released recently by AXA show that up to 67% of all new home insurance business is now traded electronically, almost double the figure from the previous year.
