Survey Calls Aggregators Major Presence in U.K. Auto Insurance Market

Aggregators, or operators of price comparison Internet sites, are shaking up the U.K. auto insurance market and causing established carriers to look closely at their existing operations.

That assessment comes from U.K.-based actuarial and business specialist EMB Consultancy, which has put the aggregators’ share of the market at about 40% of new sales. Direct sales on insurers' Web sites bring the share of new online auto insurance business in the United Kingdom to about 60%, EMB said. The consultant also pointed to the aggregators’ “small but increasing share of the household insurance market.”

The rise of the aggregators, EMB said in a statement accompanying a study of the market, “has hit motor insurers’ profit margins and is forcing them to rethink their pricing, distribution, marketing and brand strategies.”

One possible effect, EMB said, could be higher prices, as the aggregators squeeze underwriters’ profit margins.

EMB said its survey was based on interviews conducted in September with executives of insurers responsible for 80% of the U.K. auto insurance market.

Julian Beardsworth, a senior consultant at EMB, said insurers are finding it harder to attract customers to their Web sites, while the aggregators are able to bring people to theirs. “You can imagine there’s sort of a seismic shift in how insurers are facing the marketplace here,” Beardsworth said.

Since the survey was taken, Beardsworth said, the aggregators’ share of the U.K. auto insurance market has risen from 40% to about 50%.

The aggregators have become a factor in the U.K. auto insurance market over the last three or four years, Beardsworth said. They have, he explained, been able to steer insurance buyers to the sites of insurers and distributors. The goal, Beardsworth said, is “to give the customer a single market-wide view of pricing and what policies are available to them at what price.”

Beardsworth estimates the level of new business in the U.K. auto insurance market at about 2 billion pounds (2.48 billion euros) a year, within an overall market that is worth about 10 billion pounds.

The rise of the auto insurance aggregators is a reflection of conditions in the United Kingdom, Beardsworth said. In continental Europe, he said, the common practice of tacit renewal relieves insurers of the need to chase business as aggressively as their U.K. counterparts.

“There is a tradition here [in the United Kingdom] that people will change insurers every three years, every two years,” Beardsworth said. “And so there is a very healthy amount of new business volume coming through that the aggregators are sort of attracting to their site.”

In the United States, there is a high degree of price regulation that would work against the development of aggregators, Beardsworth said. While U.K. insurers themselves are regulated, he said, their pricing tends not to be. Another advantage for the aggregators, Beardsworth said, is that U.K. customers tend to zero in on the cheapest price.

In at least one case, however, an insurer decided to bring the aggregator's function under its own roof.

U.K. underwriter Norwich Union Direct Insurance stopped using aggregators in September 2008. Norwich Union now shows the prices of competitors on its own Web site, said Adam Cracknell, a spokesman.

Norwich Union had a good experience with aggregators, Cracknell said, but wanted “to set up our own Web site properly.”

“As a direct insurer, we would hope that people would come directly to our site,” Cracknell said, arguing that people are more attracted by product quality than low prices.

The aggregator sector can trace its roots to call centers. From there, the next move was to the Internet, where customers did their own hunting. The big change began to take shape, Beardsworth said, after “a group of entrepreneurs spotted the opportunity to sit in the middle of the relationship between insurers and their customers.”

These new entrants, or aggregators, set out to advertise, collect data, offer quotes and “hit the Internet sites of every single insurer that they could sign up with,” Beardsworth said.

The role of the aggregators has been expanding for the last three or four years, Beardsworth said. He cited the dramatic growth of such operations as moneysupermarket.com and Confused.com. “It really started relatively soon after Internet distribution for insurance kicked off,” Beardsworth said of the aggregator market.

The new environment means insurers can no longer rely on the traditional attractions of reputation, brand and television advertising, Beardsworth said. An insurer that operates through the Internet might feel pressure to offer the lowest price among four or five. “Suddenly, with the aggregator, you’re into a space where you have to be the cheapest of 30, 40,” he said.

It is imperative that insurers get their pricing right. If premiums are pegged too low, the business is likely to flood in, with the possibility of very expensive claims activity. “Statistical error is embedded in the pricing,” Beardsworth said.

An insurer may face a choice, Beardsworth said: sell under its own brand and rely on its own advertising or effectively delegate its marketing operation to an aggregator.

Insurers have accepted the presence of the aggregators, Beardsworth said. Asked if the insurers see them as a threat, he said, “They’re not entirely sure how they should be responding to the aggregator proposition.”

There has been interest from insurers in getting involved in the aggregator business. Beardsworth noted Confused.com is owned by Admiral Group plc.

Beardsworth envisions an aggregator market with three of four substantial operators. “I can’t imagine a space with a hundred aggregators,” he said. “And neither can I imagine a space with just one or two.”

According to the Association of British insurers, the top five private motor insurers in the United Kingdom, based in 2007 net premiums written, were RBS Insurance, Aviva plc, Zurich UKGI, Fortis Insurance and RSA Insurance Co. plc.

(By Robert O'Connor, London editor: [email protected])