Insurance aggregators: the race to the bottom price only has losers
Mar 9, 2016
Insurers and aggregators are to some extent competitors and they always will be. However, both have an obvious mutual interest in maintaining a healthy insurance market. Christian van Leeuwen gives a rundown of the developments and, on the whole, sees win-win opportunities.
Comparison is here to stay
Nowadays, it is impossible to imagine a world without comparison websites for consumers. This also applies to the insurance industry. Price will always be an important factor when making purchase decisions. Whether it is a new fridge, a holiday or an insurance policy, nobody wants to pay too much. In our industry, aggregators in particular focus on insurances that require little advice and where comparison can simply be based on price. These policies mainly concern health and P&C products such as vehicles, travel and home, whereas, for example, disability insurances are less suitable. If we take a look at the developments in this field, we see different types of aggregators:
Comparison only – the site is paid for referrals;
Comparison and intermediary – the main business is selling policies;
Owned by insurer – an independent site that (mainly) compares its own labels;
Comparison module on the site of insurer – keeps (potential) clients on the insurer’s own site, but offers the option of comparison.
The aggregator market shows huge differences per country. This is mainly due to the internet availability in a region and the possibility of taking out insurance policies online. Besides, insurers need to be willing to publicize their prices. In the UK the aggregator market is enormous: it accounts for around 70% of the premium income. This means there is a lot of competition and an aggressive mergers and acquisitions policy. However, in the US, insurance companies have decided to keep acquisition in their own hands. This makes setting up aggregators more difficult. Besides, they also have to deal with different rules and regulations across various states. In comparison, the Netherlands stands somewhere in between. There are various aggregators of which Independer is market leader. However, Independer is a combination of an aggregator and intermediary and is owned by an insurer.
In general, it continues to be a turbulent market in which new parties regularly appear or successful parties quite literally cross the borders to other countries and regions - both with varying success. Analyst Celent has seen a 400%-growth of the market over the past four years. In a recent report Accenture signals an increase in the number of products, such as pet insurances and other relatively simple products.
Whose client is it?
This is an interesting question; both aggregators and insurers consider the consumer who takes out a policy with them as their client. While insurers thrive on retention and continuity, aggregators do not really appear to have an eye for this. Aggregators focus on the drivers that are important to the consumer, in particular price. By only opting for the lowest price, a consumer might eventually harm his own interest. The coverage and conditions may not suffice.
In the name of client interest, aggregators and insurers primarily seem to regard each other as rivals. When it is time for renewal, aggregators approach the client again with the option that is cheapest at that moment. Insurers on the other hand often perceive traffic coming from aggregators as expensive and not very reliable. For the consumer disappointment and annoyance lurk when it finally comes to taking out the policy and the conditions, coverage or even price turn out to be different than expected. And neither party benefits from disappointed clients. In addition, insurers feel pressure to take higher risks to bring down their prices. It conflicts with the need for healthy and profitable product portfolios. As aggregators offer more anonymity, it is easier and more tempting for consumers to provide untruthful information. This leads to an increase in the number of fraud cases with insurance applications.
Everyone a winner
We can conclude that the need for transparency and comparison will remain. Focusing on short-term advantages turns out disadvantageous for all parties in the long run. So how can we optimize the benefits for all parties: for the insurer, the aggregator and the client? I believe the answer lies in more cooperation on the following four points:
Preselection of the risk – the aggregator focuses more on which client best matches which profile of which insurer. This increases the acceptance rate. Meaning the aggregator will have more satisfied clients and the insurer is more willing to pay the relatively high provision. Of course, the level of preselection should be in line with the current privacy laws.
Bringing administrative processes into line - insurers are increasingly automating and digitizing their processes. Closer collaboration with aggregators can lead to transferring information that has already been filled in. The client does not have to do this over and over again. This saves time and prevents mistakes.
Reward retention - the aggregator can take a look at different factors than price which might be important for the client. By doing this it may come with an attractive offer in collaboration with the current insurer. The premium might be a bit higher, but include a reward for the continuation of the relation in the form of a lower own risk or more extensive coverage.
Fraud prevention – at FRISS we see a lot of fraud arise at the beginning of the application and underwriting process; consumers trying out various variables to see if the premium can be brought down even further. An aggregator can signal this behavior. If, for example, someone suddenly changes the region or claims history, while taking out an insurance it may indicate misuse. The strength of aggregators is that they have a broader insight into the behavior of an applicant. This is useful to reduce risks and misuse.
Insurers and aggregators don't always have the same interests. Although in the end everyone - even the client - benefits from a healthy insurance market. It would be great if the parties could agree that cooperation in certain fields indeed is beneficial to everyone. Work together where possible and separate where necessary.