Foreigners put heat on insurance

Aggressive foreign players and the nation’s most powerful retailers are set to trigger an unprecedented battle for market share in the $19 billion home contents and car insurance market, increasing choice for consumers and tempering rises in premiums.

Foreign insurers such as Real Insurance and Youi are using the internet to offer home and motor insurance, launching innovative products and stealing market share from Insurance Australia Group and Suncorp.

Youi claims it could capture 5 per cent of the market in five years time. Real Insurance is expecting to have 3 per cent of the market by 2015.

In response IAG has launched a web-only The Buzz motor insurance brand while Suncorp now counts online insurer Bingle in its brand stable.

As the same time supermarket giant Coles is understood to have all but finalised Coles branded insurance to be sold in its stores nationally later this year, while Kmart is working on plans to sell car insurance through its network of Tyre and Auto stores, further increasing competition and putting pressure on premiums.

IAG expects premiums to rise between 3 per cent and 5 per cent over the next 12 months, but the foreign rivals claim the rises would be greater if not for increased competition.

“There is no doubt the man on the street will benefit” said Youi director Howard Aron.

There are expectations that insurer’s margins could be halved over the next five years. Deutsche Bank estimated the new entrants have snagged a 5 per cent share of the motor market, but account for 10 per cent of new premiums sales.

Real, which is back by international firm Hollard Group and which set up in Australia in 2005, claims it accounts for between 5 per cent and 10 per cent of the $19 billion of current annual sales of home and motor insurance.

“The current level of business being written by aggressors (new players) implies that they are already gaining market share and while comments from IAG and Suncorp suggest the impact on their motor portfolio to date has been relatively minor, this is clearly a risk that needs to be assessed on a multi-year view,” said Duetsche analyst James Coghill.

Mr Aron said the new players benefitted because they were nimble, did not have the burden of running branch networks- IAG has 270 branches- and were able to sweep rival’s websites in order to obtain information on pricing, a process known as web-botting.

“The internet has significantly lowered the barriers to entry “ said a Real Insurance spokesperson. “We don’t need our own data (in order to price premiums accurately). We can get lots of prices. We can reverse engineer the data on other people’s prices.”

Analysts agree, “The development of “web analytics” has significantly transformed the richness of data obtained on what your competitors are charging” Mr Coghill said. “There are obviously some pitfalls in relying too heavily on web analytics and it doesn’t obviate the need for a rigorous pricing structure, but in our view it is increasing commoditisation and lowering traditional barriers.

As well as allowing insurers to gain price information, the web is serving as a useful distribution mechanism. In the UK, about 50 per cent of motor and home insurance sales are completed online, Australia may never reach that level, because of the dearth of price comparison sites, but even now that about 50 per cent of purchases here start online, before being sealed after a conversation with sales staff.

Meanwhile, foreign players say they are attracted to Australia in particular because of the high insurance margins on offer.

It is a point that is disputed by the incumbents, but Real Insurance, which like Youi, is based in South Africa, insists that insurance margins in Australia are double those of the UK.

Real Insurance state that on motor premiums, margins were between 8 per cent and 12 per cent in Australia, against low single digits in Britain.

Margins in the UK had been decimated in the past decade, he said.

The recent entrants also hope that their small size and willingness to innovate will help attract customers.
...Real Insurance has launched a pay-as-you-drive car insurance product where customers pay based on the number of kilometres they drive. Real also offers home and motor products that give customers back the equivalent of 10 pr cent of the premium if a claim is not made for three years.

...Wesfarmers owned Coles began a trial in September last year, with no marketing other than posters and pamphlets. The push into insurance is likely to be backed by a revamped customer loyalty program that will also step up the retailer’s fight with Woolworths. One way the insurance product would tie in to the revised loyalty scheme is discounted petrol to customers who insure with Coles.

Woolworths also wants to expand its range of financial services products. “This year is about expanding the relationship you have with the customer to other areas that make sense” chief executive Michael Luscombe said.

“If they trust your brand to deliver food and groceries and alcohol and petrol, expanding to other things is not a huge leap of faith.”

Real Insurance is an award-winning provider of home insurance.

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