The rise of the so-called “aggregator” insurance distribution model in the United Kingdom has been nothing short of remarkable. Since roughly 2006, there has been a marked increase in consumers' use of the online channel to buy insurance.

By 2009, online purchases accounted for over half of total private automobile insurance sales in the United Kingdom, and for 36 percent of home insurance sales.

In fact, the Internet has now replaced the telephone as the key growth platform for personal general insurance distribution in the United Kingdom.

Direct insurers, brokers, and other distributors have developed increasingly sophisticated websites for quote and purchase, either through Internet-only brands, or through multi-channel offerings.

There are a number of reasons why the United Kingdom has been so quick to embrace the Internet as a venue for insurance sales. U.K. consumers are highly price-sensitive and view the Internet as a low-cost channel.

Price is widely regarded as the single most important factor for the majority of U.K. consumers when choosing an insurance provider, regardless of product and channel. In addition, U.K. consumers are open to new insurance brands, and have relatively low levels of brand loyalty.

Insurance aggregators—who collect comparative insurance quotes and allow consumers to price-shop and buy online— tap into many of the factors behind the success of the online channel.

Aggregators appeal to price-sensitive customers who are used to purchasing insurance without advice, and they benefit from the openness to new brands of U.K. insurance consumers.

U.K. aggregators have also invested heavily in marketing. In 2009, for example, three of the 10 largest advertising spenders in the general insurance market in the United Kingdom were aggregators. They have established strong, consumer-friendly brands that have won consumer trust—recent Datamonitor research has shown that U.K. consumers trust price comparison sites more than any other financial services provider—and they have invested heavily in online systems to optimize user experience, customer insight and search engine performance.

The success of aggregator distribution has challenged some of the assumptions that have been implicit within the insurer business model for many years. As aggregators gain share in the United States, we can expect similar impact on insurers here, leading to structural change within the industry.

Based on the U.K. experience, insurers in the United States will have to come to grips with providing new and different propositions for online consumers. People who buy through the Web often have higher expectations for multi-channel access, self-service facilities and more interactive, dynamic content. The aggregators have recognized this, and have invested heavily in enhancing their online “shop window” with more user-oriented services, richer experiences and content designed to facilitate repeat visits and encourage “stickiness.”

Some U.K. market leaders have adopted different brand strategies in relation to aggregators, deciding which of their brands to preserve for direct business (and to target for heavy investment) and which to deploy via the aggregator channel. Insurers with strong price optimization and customer segmentation capabilities are able to benefit from aggregator growth by acquiring their target customers while maintaining control of their loss and expense ratios.

U.S. insurers are increasing their deployment of customer analytics, but as aggregators gain ground they will put additional pressure on the relationship between customer and insurer. Analytics designed to develop churn prediction and propensity models will be essential; so will a single customer view across products and channels, as customers increasingly diversify their use of channels at different points in the product lifecycle.

Leading practices in these areas include the use of CRM (customer relationship management) solutions, transaction monitoring tools, price elasticity models, dynamic rating algorithms and proactive/reactive “save” initiatives (initiatives designed to prevent customers from leaving, either through active outreach or in response to customer comments or inquiries).

Tailored sales and service blueprints are needed for different customer segments, with predictive profiling aiding targeted pricing, sales and service interventions. If insurers are to cross-sell, they must be able to bring the right product to the right customer at the right time and, through the right channel.

U.S. insurers have more work to do to be successful through the aggregator channel. Their systems must have the capacity to accept in-bound quotation messages and respond within a strict time limit in order to appear on aggregator lists. They also need the flexibility to adapt to changes in aggregator functionality—such as new questions or option wizards— to avoid being uncompetitive, or selected against.

Overall, their infrastructure, architecture and back-office capabilities should be able to cope with rapidly changing distribution and market dynamics.

Aggregators have grown rapidly in the United Kingdom, and the aggregator model is gaining acceptance in Europe. There is no doubt that the model will eventually take hold in the United States. However, no matter how quickly the aggregator model becomes established here, U.S. insurers will need to do additional work to address changing consumer behavior and incorporate new technologies. Those that move ahead on these fronts will have a significant competitive advantage in any market environment.

Special Reports /

Rise Of U.K. Insurance Aggregators Suggests Change Is Ahead For U.S. Insurers

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