As customers turn increasingly to the internet in search of better deals, Emma Jones looks at how this growing trend is affecting the industry
Whichever way you cut the online cake, the message is still the same: the number of people searching for quotes and arranging insurance online has dramatically increased in recent years. And experts say the trend is set to continue.
According independent analyst Datamonitor, almost half of all internet users purchased goods or services in 2003, compared to just 30% in 2001. And higher numbers of people are using the internet to search for information on insurance.
User experience consultant Foolproof has uncovered a similar trend. Its 2006 Online Shopping Survey into motor and home insurance found that 66% of all online motor insurance shoppers expect to apply online in the future compared to 50% in 2006.
In home insurance, 49% of all online shoppers will apply online for home insurance in the future, compared to 28% this year.
Datamonitor's prediction may fall a little lower, but they still suggest that 20% of motor insurance and 13% of household insurance will be sold via the internet in 2007.
"There has been a phenomenal growth in online sales in the past few years," explains Peter Ballard, managing partner of Foolproof. "But it's only just the beginning and it looks set to continue."
According to Foolproof's online survey, which will be published on 5 October, in 10 years' time four out of five general insurance policies will be transacted online. And a separate recent poll has suggested that more than a third of insurers' cost base comes from the acquisition of new customers.
It is little wonder that with lower acquisition costs, lower expense ratios and, ultimately, lower combined ratios, companies are eyeing up the online market.
Insurers are reporting very strong growth in online sales and several new players have entered the online market. Norwich Union, for instance, says 50% of its new direct motor insurance policies are now bought online. Royal & SunAlliance (R&SA) discloses a similar figure.
"Our online [direct] sales now represent over half the sales we make each year, compared to around a quarter two years ago," says a spokesman for R&SA.
"The growth in sales through aggregators such as Confused.com and Money Supermarket has been one contributory factor to this increase and our aggregator sales have risen consistently year on year."
But experts warn that insurers risk losing large chunks of business if they abandon the call-centre model in favour of online-only sales. Internet sites alone, some argue, are insufficient to meet consumer needs.
Foolproof's Ballard insists that an increase in online sales is by no means "the death of the call centre".
"We still see that although researching motor insurance online is pretty much ubiquitous, actually buying the policy still requires the consumer to make a call somewhere in that process, normally to get a number of answers that they cannot get online," he says.
"There is not a big provider who could move to an online-only model at the moment without seeing a chunk of business being lost as online processes have just not been perfected enough."
Equi=Media, a digital direct media agency, which measures how people's channel preferences shift over time, suggests that over the past six months there has been a 37% increase in people using the high street to search for car insurance.
At the critical quote-and-purchase phase of a consumer's buying behaviour, it found that the telephone was still the most preferred channel overall, with an increase of nearly 11% so far this year.
If online is to be the distribution channel of choice, a simple and effective online quotation process is needed, says Vicki Summerhayes, lead analyst at Datamonitor.
Summerhayes says that while the low cost of acquiring consumers online is attractive, there are certain drawbacks.
"Our consumer research has shown that customers who buy online are far more motivated by price," says Summerhayes.
"Also borne out of the figures are loyalty and switching habits. Consumers are more likely to switch if they buy online. The internet is creating a consumer that is more price conscious and more willing to switch because of the ease of doing their own research and looking at different sites."
There's little doubt that online insurance sales will continue to grow over the next five years and a clear and resounding message that insurance players can ill afford to ignore this channel.
"A web presence is a good method of ultimately driving sales, even if those sales are not transacted online," says Summerhayes. "Just by looking at the sheer growth that we have seen over the last few years in this channel it obvious that it cannot be ignored.
"Obviously, there are elements that are still going to rely on personal forms of interaction, particularly for the more specialist risks or for those people who don't feel as comfortable about making that decision themselves.
But, if you're going for a mass-market product, such as motor, you cannot afford to ignore the internet." IT