It is no secret that consumers want choice and convenience whenshopping for car insurance. Whether they work through a local agentor directly with a company, many prefer to obtain multiple quotesand options to ensure they are getting the best value.

It appears when it comes to auto insurance specifically, thedecision to initiate the process online has already been decided.Mirroring trends in other industries, recent statistics show that alarge number of consumers begin their search for insurance online.However, all these shoppers are not necessarily buying online -many consumers still prefer to speak with a local agent or directlyto the insurer before closing on their purchase.

As consumers have turned to the internet for more informationand/or obtain quotes on auto insurance, comparison shopping siteshave become increasingly important. Most online comparison shoppingsites remain oriented toward auto insurance but there are someindications we will see an increase of activity in homeowners andpossibly small business – although both are still relativelysmall.

To gain more insights into this marketplace, Neil Rekhi, founderof Premium Intel, a P&C market intelligence company, sat downwith Andrew Rose, CEO of Comparenow, a leading onlineinsurance comparison site. With the rise of “non-traditional”companies entering this market, it has become increasinglyimportant to understand this bourgeoning area of the P&Cindustry. Here are some questions and answers from ourdiscussion.

In my research on the P&C industry, I have comeacross a plethora of car insurance comparison sites – can you helpus understand this business model a little better?

Comparenow: Thereappears to be a lot of confusion among consumers as well as inindustry on this marketplace. Not all “comparison shopping sites”operate the same– some sites truly offer a quote online whileothers simply provide leads to agents and insurers. Generallyspeaking, we categorize online comparison shopping sites into threemajor categories.

First, there are “aggregators” – this term is widely used (andoften times incorrectly) to describe the entire online shoppingmarketplace. As we define it, aggregators are essentially leadgenerators – they ask a series of 10-15 questions but rarely, ifever, generate an online quote for the consumer. Agents orinsurance companies who buy these leads from the aggregator sitefollow up with the consumer with an email or phone call to providea final quote and seek to close the transaction outside of theaggregator site.

Second, there are online agencies, who work with a select groupof carriers and occasionally offer final, bindable quotes online.Consumers might be required to speak with someone on the phone orthrough email to obtain a final quote and close the transaction,after answering some additional questions or providing theagent/insurer more information.

And finally, there are what we call “European Style ComparisonSites”, which is Comparenow’s business model. Once the consumerenters the requested information, it is rated and transferred – inreal time – to the insurer or agent to obtain an accurate, bindablequote. Consumers are able to complete the process directly on theinsurer’s website or work with an agent to bind the policy.

There are several other nuances among these three types ofbusiness models, all offering differing value propositions toconsumers, agents and insurers.

What are some factors consumers, agents and insurersshould consider when working with an online comparison shoppingsite online for auto and/or home insurance?

Comparenow: In our view,online comparison sites provide a lot of value to all theseconstituents in the insurance value chain. Consumers are alreadyshopping online for auto insurance, seeking a variety of quotes andinformation, so comparison sites are simply meeting this demandhead on. Going to individual sites takes too much time, so there isinstant value for consumers in procuring information and/or quotesfrom online comparison sites.

As for agents and insurers, comparison sites are building anonline presence and advertising heavily – so online comparisonsites can help alleviate this expense and effort required by agentsand insurers. Most auto insurance advertising spend is concentratedin the top direct insurers – so working with a comparison site canlevel the playing field among large and small agents andinsurers. Essentially, comparison sites allow agents andinsurers to leverage existing online marketing efforts. There isalso opportunity for agents and insurers to cross sell other linesto potential or newly acquired customers.

For all constituents, as alluded to in a previous question, itis important to recognize the differences among the “onlineshopping sites” to ensure you are getting your desired outcome.

There is often a lot of talk in the industry regardingthe online comparison marketplace in Europe and itssimilarities/differences from the U.S - can you discuss this inmore detail?

Comparenow: We oftenhear the UK used as a corollary to the U.S market. However, wethink that associations between the UK and U.S are flawed and offera poor analogy. The UK is less complicated in many ways – it has areduced amount of regulation, there is less of an agency presenceand the market has demonstrated a greater propensity to shoppingand buying car insurance direct vs. through an agent in general.Here is one data point that speaks to the UK market: in the past 12years, auto comparison shopping sites in the UK have gone from 0%to 75% marketshare – quite staggering.

I would say that Spain and France are fairer comparisons to theU.S market. Both countries are very agent centric and highlyregulated – similar to the U.S. Also, both of these countries,which substantially started online comparison shopping in 2010,have seen strong market share gains in a short period of time. InSpain, the percent of the market’s new business sales viacomparison sites was 4% in 2010 – in 2013 it jumped to 13%.Similarly in France, the percent of the market’s new business salesvia comparison sites was 3% 2010 and was 11% 2013. This trend willlikely continue.

The U.S market is still in the very early stages of “true”comparison shopping and buying so very little of the direct marketshare (and new business) is driven by comparison shopping at thispoint.

Given the number of companies competing in comparisonshopping market, do you see potential forconsolidation?

Comparenow: When itcomes to “European Style” online comparison shopping, I actuallythink we are still in the early stages and we will likely see anexplosion of new entrants in the coming years. There will likely bemore startups, private equity backed initiatives or even largecompanies that form joint ventures or white label their onlinecomparison sites – similar to what we’ve seen fromWalmart.

It may seem strange but we actually welcome more entrants as webelieve that as more players enter this market, there will be moreawareness brought to consumers, which should help promote thisbusiness model overall.

As of now, it seems most activity is centered on autoinsurance and personal risk in general - do you see potential formore activity in commercial risks?

Comparenow: While we donot participate in the commercial market, we do believe there ispotential for growth in commercial lines but the marketing approachwould have to be different. Where the approach in personal lineshas to be consumer centric and involve TV and mass media,commercial lines spend must be more targeted through direct mail,magazines, trade communications, or the like. A more sophisticatedcomparison shopping experience will likely be brought to commercialenterprises, particularly small businesses.

Neil K. Rekhi, MBA, CPCU is the founder of Premium Intel, aP&C-focused market intelligence company that serves as astrategic research and analyst partner to its clients. Contact himat [email protected].