Abstract
Overview
Introduction
Insurance brokers have lost market share in UK personal lines insurance, as new distributors have won influence over the market. This report analyzes the current situation and future prospects for personal lines brokers, evaluating strategies for survival and providing unique estimates and forecasts of personal lines distribution in the UK.
Scope
- The results of Datamonitor' s survey of personal lines brokers on issues such as the threat from other distributors and FSA regulation
- Forecast of the market share of the broker channel up to 2010, based on Datamonitor' s model and interviews with industry executives
- Datamonitor' s unique distribution estimates by channel
Report Highlights
According to Datamonitor' s Personal Insurance Broker Survey carried out in Q3 2006, brokers consider direct insurers as the biggest threat to their share of personal general insurance, reflecting the fact that this channel has overtaken brokers to become the largest distribution channel in motor and the second largest in household insurance.
Aggregators offer brokers the option of generating Internet sales without also having to build up strong call center or consumer brand awareness. Instead such brokers can focus simply on winning a share of customers who choose to buy online via aggregators.
Small high street brokers are expected to continue to lose market share in the next five years, as a result of consumers moving away from buying via the face-to-face platform. In contrast large brokers are expected to do better, as a result of the new distribution strategies adopted by such brokers.
Reasons to Purchase
- Obtain a comprehensive understanding of the key trends driving the changes to the role of personal lines brokers in the UK
- Gain knowledge of new and innovative distribution strategies undertaken by personal lines brokers
- Plan your distribution strategy with confidence using Datamonitor' s channel distribution forecasts
Table of Contents
- CHAPTER 1 INTRODUCTION
- What is this report about?
- Who is the target reader?
- How to use this report
- CHAPTER 2 BROKER CHANNEL MARKET CONTEXT
- Introduction
- The broker channel has lost market share over the lastfive years, as
brandassurers and direct providers have grown inimportance
- The broker channel' s share of the private motor markethas declined by 7 percentage points between 2002 and 2006
- Brokers have also lost market share in the distributionof household insurance
- Although brokers view direct writers and banks as thebiggest threats,
they also have to contend with the growing role ofaggregators and
brandassurers
- Personal lines brokers view direct insurers andbancassurers as the biggest threat to their share of the personal market
- However, brokers also have to face the challengespresented by
aggregators and brandassurers
- In 2005 and 2006 there were signs that the directchannel is reaching a plateau as a result of the rise of aggregators andbrandassurers
- The rise of aggregators, such as confused.com, presentsa significant new challenge for brokers
- Aside from the increased competition from otherchannels, several key
factors have played a role in the decline of thebroker channel
- High levels of price sensitivity among general insuranceconsumers has allowed other channels to compete effectively with therelatively high cost base of brokers
- Consumers are relying less on face-to-face advisorysales in general
insurance
- The commoditization of personal general insurance hashad an effect on the amount of insurance sold face-to-face and therebyon traditional high street brokers
- The broker channel has been less successful atharnessing the Internet
as a distribution platform and is notcapitalizing on the rapid rise in
online sales
- Online distribution of personal insurance has risensubstantially over the last five years
- Traditional high street brokers have not been able totake advantage of the rise of this platform, and many consider theInternet a threat to their business
- Over two thirds of brokers surveyed have a website, butalmost half of those are not generating any online sales
- While the broker channel as a whole is not harnessingthe opportunities of the Internet, some brokers are much more successfulthan others
- Most brokers cannot compete with the large advertisingbudgets of
direct insurers and brandassurers
- In motor insurance, brokers as a group spend the secondhighest amount on advertising, but this budget is dwarfed by that ofdirect writers and is spread among a much wider number of companies
- The broker channel' s motor insurance advertising spenddeclined in 2005, while other distribution channels increased theiradvertising spend
- Brokers spent less on advertising household insurancethan all other distribution channels in 2005
- Only one of the top 10 personal lines insuranceadvertisers was a broker in 2005
- The broker channel contains many different kinds ofbrokers, and some brokers are bucking the trend of declining marketshare
- FSA regulation continues to be a worry for brokers andmay distract from
their focus on defending their market share
- Brokers still view FSA regulation as the most importantissue facing their business, ahead of organic growth
- FSA regulation commonly costs brokers up to 5 per centof turnover
- Most brokers think that insurers have been helpful inregards to FSA regulation, but just over one third would have liked toreceive more help
- CHAPTER 3 BROKER STRATEGIES FOR SURVIVAL
- Introduction
- Many small brokers are not taking any action to counterthreats from
other distribution channels
- Almost 50 per cent of respondents to Datamonitor' ssurvey are not taking any actions to counter the threat posed by otherdistribution channels
- These brokers are mainly small brokers with a turnoverof less than £10 million
- Some brokers are making changes to their distributionmodels in order to
take advantage of the change in customer behavior
- Large telebrokers and major high street brokers havedeveloped their
distribution model to incorporate an online presence
- Small brokers are aware of the importance of developingan online presence, but generating sales via a website is not an easyoption for small brokers
- Developing an online presence has several advantages forbrokers
- Large telebrokers have successfully extended theirquasi-direct model to sell insurance online
- Other brokers combine an online presence with a networkof high street branches
- Aggregators offer growth opportunities for brokers whichdo not have a
high brand awareness
- By appearing on aggregators' sites brokers can extendtheir market reach
- Larger brokers should explore the options of launchingtheir own aggregator sites
- A few brokers have entered the affinity market, takingadvantage of
other companies' strong brand awareness
- Affinity deals between brokers and brands hold manyadvantages for both parties
- Junction holds a number of major deals includingpartnerships with Marks & Spencer and the Post Office
- Junction also holds a deal with Yesinsurance, in aninnovative distribution model
- Equity Group won a number of new affinity deals in 2005and 2006
- OutRight controls business worth £55 million
- Some brokers have arrangement with insurers to pick uptheir unsuccessful affinity leads
- Large telebrokers and major high street brokers havedeveloped their
distribution model to incorporate an online presence
- Traditional brokers are looking to change their productmix, focusing on
niche personal lines or commercial insurance
- In niche personal lines and commercial lines customersare more inclined to buy face-to-face, thus providing a possible area offocus for smaller brokers
- As a business plan, avoiding personal lines holdscertain drawbacks for brokers, preventing it from being a solution foreveryone
- Some very successful brokers are exclusively commercialor niche brokers, and others are following their example by avoidingcertain mass market personal lines
- However, the strategy is not being adopted by a largenumber of
personal lines brokers
- Broker opinion is split over whether the proportion oftheir business made up by personal lines will decrease in the next twoto three years
- Brokers that continue to focus on mass market lines canbenefit from
targeting older customers and those in lower incomebrackets
- The proportion of consumers that arrange their motorinsurance face-to-face increases with age
- However, the proportion of older people buying personalinsurance face-to-face has fallen markedly since 2004
- Lower income consumers are more reliant on face-to-faceinteraction
- Increased advertising and marketing exposure is seen asone strategy for
brokers to combat the might of large brands in otherdistribution channels
- Brokers face strong competition in advertising
- Among large brokers a few chose to increase theirbudgets in 2005,
while others saw a reduction in expenditure
- The AA is by far the biggest broker advertiser but thegap between it and its two nearest competitors narrowed in 2005
- Brokers spent most of their budget advertising motorinsurance
- Direct mail is the preferred advertising medium amongbrokers, but some have also developed a strong television presence
- The AA dominates in terms of consumers' awareness ofbrokers
- Consolidation through acquisition and broker networksare key to building
strength in the broker channel
- Combining with other personal lines brokers, eitherthrough acquisitions or by joining a network promises advantagesassociated with scale
- The broker market is very fragmented, but consolidationis taking place
- The strongest consolidation can be found amongcommercial brokers,
however, 2006 also saw some deals involving personalbrokers taking place
- Equity Insurance Brokers acquired a number of brokers in2006
- 1 Answer Network focus on personal lines and waslaunched in 2005
- Personal lines brokers show continued appetite foracquisitions
- Broker networks have been another popular method ofgaining scale, though the group of brokers that are not already part ofone value their independence
- Some brokers join forces with insurers, while otherschoose to have fewer
insurers on their panels
- 2006 saw several brokers bought up by insurers, offeringthem
advantages in scale but threatening their independent image
- Hastings, Equity Insurance Brokers, Carole Nash andEndsleigh were all bought up by insurers in 2006
- Acquisition by insurers offers the broker channel theopportunity to boost its size, but brokers also run the risk of losingpart of their appeal and ultimately risk being transformed into directagents
- Some brokers move towards having fewer insurers on theirpanels
- 2006 saw several brokers bought up by insurers, offeringthem
advantages in scale but threatening their independent image
- CHAPTER 4 THE FUTURE DECODED
- Introduction
- The broker channel is forecast to continue to decline inpersonal lines
insurance
- The largest decline in market share is expected amongsmall high street brokers while the large brokers are expected to dobetter
- The broker channel is forecast to continue to losemarket share in the private motor market between 2006 and 2010
- The broker channel is also expected to lose market sharein household insurance, losing out to direct insurers and corporatepartnerships
- CHAPTER 5 APPENDIX
- Definitions
- Premium income measures
- Earned premiums
- Gross Premium
- Net Premium
- Written premiums
- Distribution terms
- Channel
- Platform
- Premium income measures
- Research methodology
- Primary and secondary research
- Distribution estimates and forecast methodology
- Datamonitor' s Personal Broker Survey
- Ipsos MORI methodology and contacts
- Current readings
- Future readings
- Do you need more information?
- Datamonitor Financial Services Consulting
- SPP writing team
- Definitions
- List of Tables
- Table 1: Distribution of private motor insurance,2002-6
- Table 2: Distribution of household insurance, 2001-6
- Table 3: Distribution of private motor insurance byplatform, 2001-6
- Table 4: Distribution of household insurance, byplatform, 2001-6
- Table 5: Motor insurance advertising spend byprovider, 2005
- Table 6: Combined buildings and contents advertisingspend by provider, 2005
- Table 7: Top 10 general insurance advertisers, 2003-5
- Table 8: Consumers buying motor and householdinsurance face-to-face, by age group, 2004-6
- Table 9: Percentage of consumers purchasing motor andhousehold insurance face-to-face, by income, 2004-6
- Table 10: Top broker advertisers, 2003-5
- Table 11: Brokers' advertising spend by product,2004-5
- Table 12: Brokers' advertising spend by medium, 2004-5
- Table 13: Spontaneous consumer awareness of brokersand intermediaries, 2006
- Table 14: Private motor insurance distributionforecast by channel, 2006-10
- Table 15: Household insurance distribution forecast bychannel, 2006-10
- List of Figures
- Figure 1: The broker channel' s share of the privatemotor market dropped significantly between 2002 and 2006
- Figure 2: The broker channel lost market share in thehousehold market between 2002 and 2006
- Figure 3: Brokers see direct insurers as the biggestthreat to their personal lines business
- Figure 4: The face-to-face platform within motorinsurance has decreased significantly over the last five years
- Figure 5: The influence of the phone and the Internethave increased at the expense of face-to-face distribution in thehousehold sector
- Figure 6: The Internet is seen as a significant threatby brokers
- Figure 7: While many of the surveyed brokers have awebsite, most of them do not generate any online sales
- Figure 8: Most of the companies that do not have awebsite either believe that they do not need one, or they have simplynot developed one yet
- Figure 9: Brokers think regulation and compliance isthe biggest issue facing their business
- Figure 10: Slightly more respondents think that FSAregulation has had a positive rather than a negative impact on themarket
- Figure 11: Most respondents think that FSA regulationrequires too much work
- Figure 12: FSA regulation commonly costs brokers' upto 10 per cent of their turnover
- Figure 13: A quarter of respondents do not have anystrategies for replacing profit margins due to FSA costs
- Figure 14: Most respondents think that insurers havebeen helpful or very helpful in helping them meet FSA requirements
- Figure 15: However, 35.5 per cent of respondents wouldhave liked even more help with compliance
- Figure 16: Many brokers are not taking any steps toadapt to threats from other distribution channels
- Figure 17: 11.8 per cent of personal brokers aredeveloping or strengthening their online presence to deal with thethreat from other distribution channels
- Figure 18: Over half of the personal brokers that donot currently have a website plan to develop one
- Figure 19: Most brokers prefer to combine an onlinepresence with other distribution platforms
- Figure 20: Brokers such as People' s Choice, Budget andEndsleigh sell insurance via aggregators
- Figure 21: Comparethemarket.com searches the followinginsurance providers, which include insurers, brokers and brandassurers
- Figure 22: A significant proportion of SMEs wouldconsider buying insurance online
- Figure 23: Only a few brokers say that they arecurrently focusing on niche or commercial lines as a response to thethreat they face from other distribution channels
- Figure 24: Half of brokers think that the split oftheir book between personal and commercial insurance will change
- Figure 25: The likelihood of purchasing motorinsurance face-to-face increased with age in 2006
- Figure 26: Consumers on lower incomes were most likelyto purchase personal insurance face-to-face in 2006
- Figure 27: A few brokers are making changes toadvertising or marketing in order to deal with the threat posed by otherdistribution platforms
- Figure 28: The AA had the largest advertising budgetamong brokers in 2005
- Figure 29: Brokers spent nearly three quarters oftheir budgets advertising motor insurance products in 2005
- Figure 30: Direct mail was the most importantadvertising medium for brokers in 2006
- Figure 31: The AA was the most widely recognizedbroker in 2006
- Figure 32: Nearly 17 per cent of personal brokers hopeto make acquisitions in the next 12 months, with the aim of growingtheir business
- Figure 33: Most brokers are not interested in joininga broker network, because they want to retain their independence, or arealready part of one
- Figure 34: Several personal lines brokers wereacquired by insurers in 2006
- Figure 35: The broker channel is forecast to continueto lose share in the distribution of private motor insurance between2006 and 2010
- Figure 36: The broker channel will also continue tolose market share in the household market
- Figure 37: Most of the personal brokers surveyed byDatamonitor have a premium income turnover of less than £10 million
