Progressive Direct: Room to Grow in Australia’s Online Motor Insurance Market

Progressive Direct Insurance Co. [00649] believes there is an opening in Australia's sophisticated insurance landscape for it to explore the online-service motor insurance segment.

Progressive Direct, a unit of U.S.-based Progressive Corp. [58454], opts not to compete directly with established players in the traditional market but to gain a position among proliferating online businesses, said Simon Lindsay, country manager of Progressive Direct in Australia.

This market segment offers room to evolve in Australia, where a high number consumers enjoy the online experience for personal finance, given the country's high broadband penetration, said Lindsay in an interview.

In Australia, two major players -- Insurance Australia Group Ltd. [86837] and Suncorp Metway Insurance Ltd. [77922] -- have 75% of the market share for motor insurance. Nevertheless, Lindsay said smaller players can pursue "small yet compelling" market segments in the country.

A sound regulatory environment and stable market conditions contributed to Progressive Direct's choice of Australia as the first Asia-Pacific country in which to advance its online motor insurance business, said Lindsay. The market dynamic is suitable for international market exploration and for employing the insurer's Internet-based insurance know-how and online segmentation skills.</p>

Progressive Direct Australia's online technology structure is being built up from scratch in Australia, based on skills acquired from parent company in the United States, said Lindsay. The model is designed to attract a growing alternative online market segment, rather than the general mass segment.

Web site technology is important to deliver quality and customer service. Lindsay said online functionality is a driver to attract customers who have not been offered the experience before.

A recent survey of Google found the proportion of people applying for car insurance online has been on the rise in Australia, with 68% applying online and three-quarters using the Internet at the initial research stage. Currently, Lindsay said the trend is to apply online for car insurance quote rather than buying the product or managing the policy online.

In the next five years, Lindsay said the trend for buying and managing online motor insurance will become more popular. Online claims management is still new in the market, according to Lindsay. The aim is to promote effective and efficient applications of the online platform as "A to Z" functions of motor insurance.

In Australia, Lindsay noted traditional motor insurers remain strong in the market, and this is not going to be changed in the short term. These traditional players launched their own online brands to attract new customer segments.

Progressive Direct's market position is "more independent" with online insurance, said Lindsay. The company recognizes a trend of rising online consumerism, hence its move to explore the segment.

In recent years, Australia's nonlife insurance sector has seen new players such as Australia Post and Virgin Money, an affiliate of U.K.-based conglomerate Virgin and supermarket Coles for the launch of car, home and content insurance (BestWire, Sept. 23, 2009).

These new entrants certainly enhance competition in the market, said Lindsay.

Price competition is not promoted in Australia's nonlife industry. Lindsay noted insurers are very conscious of profitability and sensitive to insurance rates in a market prone to natural catastrophic risk.

Since the collapse of HIH Insurance Ltd. [86602] in 2001, Lindsay said insurance pricing was rationalized and profitability was stabilized. Underpricing and rapid expansion were among the factors attributed to the collapse of HIH, which posted a financial deficiency between A$3.6 billion and A$5.3 billion. (BestWire, Dec. 22, 2009).

In the past year, insurers raised premiums for domestic lines and boosted underwriting revenue, particular for insurers such as Suncorp and IAG, according to a 2009 market report from broker Marsh Inc.

Motor insurance is a profitable business in Australia, said Lindsay. The domestic nonlife industry is generally stable under a well-regulated market environment, which helps the development of the online self-service segment.

Motor insurance is the largest nonlife line in Australia, with net premium income of A$8.08 billion (US$7.5 billion), compared with A$20.4 billion for the total nonlife sector, in the fiscal year ended June 2009. Net incurred claims was A$6.4 billion for all motor lines, according to the Australian Prudential Regulatory Authority.

Progressive Direct Insurance Co. currently has a Best's Financial Strength Rating of A+ (Superior).

(By Iris Lai, Hong Kong bureau manager: [email protected])