Report predicts smaller competitors will be pushed out by big five’s expansive advertising spend
Without the funding for multimillion-pound TV advertising, smaller aggregators will struggle to survive in the motor insurance market, Deloitte has predicted.
Insurance partner Stephen Ross said that within two years there will only be five major players in the sector, with smaller operations forced to focus on more specialised markets.
This year, both Insurancewide.com and Lloyds TSB’s aggregator site, Insurance.co.uk, fell victim to tough trading conditions.
Ross said that smaller sites concentrating on niche products have the best chance of surviving, because the ‘big five’ – Comparethemarket, Moneysupermarket, Gocompare, Confused and Tescocompare – will dominate the sector.
Ross said: “As the motor insurance market generated its 14th consecutive underwriting loss in 2008, the industry now faces an ‘aggregator crunch’.
“At present, there are a small number of aggregators that dominate the market, and barriers to entry, such as demanding advertising spend, leave smaller players unable to compete unless they are focused on particular niches.
“Aggregators have aggressively raised their advertising spend. The big five increased their combined TV advertising spend by 90% in 2008 to £80m. This represented nearly 2.5% of total TV advertising in 2008, which is a significant amount.”
Ross added that a visible brand was vital for insurers aiming to grab customers on aggregators.
“Having a well-known and respected brand is vital for insurers to enjoy success on aggregators. Research conducted by YouGov for Deloitte in May suggests that 66% of consumers are unlikely to purchase insurance online from an unknown brand. In this day and age of aggregators, brand awareness has never been so important,” he said.
Moneyextra managing director Peter Gerrard said he agreed with the analysis “to an extent”.
He added that Moneyextra aimed to smash into the top five aggregator bracket, with its business model based around having call centre back-up.
Gerrard also outlined his expectations of how the sector will evolve. “What you are going to find is that the market will develop, with aggregators becoming particularly strong in certain contexts,” he said.
“For example, you are going to find one aggregator that is great overall, one that is good for home, another that is strong for car, and so on.”
Meanwhile, Ross predicted tough times ahead for insurers, with a battle to increase sales volumes and profitability.
He said they had three options: continue to slug it out on the comparison sites, increase prices and hope the rest of the market follows, or “go it alone” by dropping off the aggregators, as Aviva has.
But he warned: “Aggregators are here to stay, and insurers need a clearly defined strategy on how to take advantage of them.”
Steve Hardy, chief executive of Swiftcover
“I certainly think that price comparison sites are spending a huge amount of money on their brands, and that the number of customers using these sites will plateau over the next two to three years.
“I have questions over how sustainable the advertising spend is, if the customer numbers plateau.
“I can see a situation where maybe there is some consolidation and it slims down to two or three big brands, as opposed to the current five.”
Naeem Ali, consultant at EMB
“Some of the niche players might remain in the market, but they won’t be able to grow their business like the big aggregators.
“Even the big ones face a flattening in their market penetration. It won’t happen now, but maybe in a year or two. The percentage of new business that goes through aggregators will slow.”
Ali added that ‘direct’ insurers that are also on the aggregators “need to differentiate and rate the product differently, because on an aggregator site, if you get your rates wrong, you will have a very bad claims experience.”
Stephen Ross, Deloitte partner
“Businesses that withdraw from the aggregator sites will need to make sure they have a very strong brand so they can withstand the reduction in take-up.
“If you look at the companies no longer on the aggregator sites, such as Aviva and certain parts of the RBS group, they have strong brands in their own right.
“I do not think that Aviva’s decision to withdraw will be the start of anything of size.”
Patrick Smith, chairman of Swinton
“Insurers should stop writing unprofitable business. They’re better off writing no business than unprofitable business. Why underwriters fail to see that is beyond me.”
Smith said that part of the problem was that insurers did not have the identifying tools to properly analyse their aggregator business. He added that underwriters need to price aggregator business differently to broker business.
“There has to be a consensus that pricing on the internet should be different from offline.”