The Future Role of Brokers in UK Personal General Insurance 2007

Content

• 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 last five years, as brandassurers and direct providers have grown in importance
  • The broker channel's share of the private motor market has declined by 7 percentage points between 2002 and 2006
  • Brokers have also lost market share in the distribution of household insurance
  • Although brokers view direct writers and banks as the biggest threats, they also have to contend with the growing role of aggregators and brandassurers
  • Personal lines brokers view direct insurers and bancassurers as the biggest threat to their share of the personal market
  • However, brokers also have to face the challenges presented by aggregators and brandassurers
  • In 2005 and 2006 there were signs that the direct channel is reaching a plateau as a result of the rise of aggregators and brandassurers
  • The rise of aggregators, such as confused.com, presents a significant new challenge for brokers
  • Aside from the increased competition from other channels, several key factors have played a role in the decline of the broker channel
  • High levels of price sensitivity among general insurance consumers has allowed other channels to compete effectively with the relatively high cost base of brokers
  • Consumers are relying less on face-to-face advisory sales in general insurance
  • The commoditization of personal general insurance has had an effect on the amount of insurance sold face-to-face and thereby on traditional high street brokers
  • The broker channel has been less successful at harnessing the Internet as a distribution platform and is not capitalizing on the rapid rise in online sales
  • Online distribution of personal insurance has risen substantially over the last five years
  • Traditional high street brokers have not been able to take advantage of the rise of this platform, and many consider the Internet a threat to their business
  • Over two thirds of brokers surveyed have a website, but almost half of those are not generating any online sales
  • While the broker channel as a whole is not harnessing the opportunities of the Internet, some brokers are much more successful than others
  • Most brokers cannot compete with the large advertising budgets of direct insurers and brandassurers
  • In motor insurance, brokers as a group spend the second highest amount on advertising, but this budget is dwarfed by that of direct writers and is spread among a much wider number of companies
  • The broker channel's motor insurance advertising spend declined in 2005, while other distribution channels increased their advertising spend
  • Brokers spent less on advertising household insurance than all other distribution channels in 2005
  • Only one of the top 10 personal lines insurance advertisers was a broker in 2005
  • The broker channel contains many different kinds of brokers, and some brokers are bucking the trend of declining market share
  • FSA regulation continues to be a worry for brokers and may distract from their focus on defending their market share
  • Brokers still view FSA regulation as the most important issue facing their business, ahead of organic growth
  • FSA regulation commonly costs brokers up to 5 per cent of turnover
  • Most brokers think that insurers have been helpful in regards to FSA regulation, but just over one third would have liked to receive more help
• Chapter 3 Broker Strategies For Survival
  • Introduction
  • Many small brokers are not taking any action to counter threats from other distribution channels
  • Almost 50 per cent of respondents to Datamonitor's survey are not taking any actions to counter the threat posed by other distribution channels
  • These brokers are mainly small brokers with a turnover of less than 10 million
  • Some brokers are making changes to their distribution models in order to take advantage of the change in customer behavior
  • Large telebrokers and major high street brokers have developed their distribution model to incorporate an online presence
  • Small brokers are aware of the importance of developing an online presence, but generating sales via a website is not an easy option for small brokers
  • Developing an online presence has several advantages for brokers
  • Large telebrokers have successfully extended their quasi-direct model to sell insurance online
  • Other brokers combine an online presence with a network of high street branches
  • Aggregators offer growth opportunities for brokers which do not have a high brand awareness
  • By appearing on aggregators' sites brokers can extend their market reach
  • Larger brokers should explore the options of launching their own aggregator sites
  • A few brokers have entered the affinity market, taking advantage of other companies' strong brand awareness
  • Affinity deals between brokers and brands hold many advantages for both parties
  • Junction holds a number of major deals including partnerships with Marks & Spencer and the Post Office
  • Junction also holds a deal with Yesinsurance, in an innovative distribution model
  • Equity Group won a number of new affinity deals in 2005 and 2006
  • OutRight controls business worth 55 million
  • Some brokers have arrangement with insurers to pick up their unsuccessful affinity leads
  • Traditional brokers are looking to change their product mix, focusing on niche personal lines or commercial insurance
  • In niche personal lines and commercial lines customers are more inclined to buy face-to-face, thus providing a possible area of focus for smaller brokers
  • As a business plan, avoiding personal lines holds certain drawbacks for brokers, preventing it from being a solution for everyone
  • Some very successful brokers are exclusively commercial or niche brokers, and others are following their example by avoiding certain mass market personal lines
  • However, the strategy is not being adopted by a large number of personal lines brokers
  • Broker opinion is split over whether the proportion of their business made up by personal lines will decrease in the next two to three years
  • Brokers that continue to focus on mass market lines can benefit from targeting older customers and those in lower income brackets
  • The proportion of consumers that arrange their motor insurance face-to-face increases with age
  • However, the proportion of older people buying personal insurance face-to-face has fallen markedly since 2004
  • Lower income consumers are more reliant on face-to-face interaction
  • Increased advertising and marketing exposure is seen as one strategy for brokers to combat the might of large brands in other distribution channels
  • Brokers face strong competition in advertising
  • Among large brokers a few chose to increase their budgets in 2005, while others saw a reduction in expenditure
  • The AA is by far the biggest broker advertiser but the gap between it and its two nearest competitors narrowed in 2005
  • Brokers spent most of their budget advertising motor insurance
  • Direct mail is the preferred advertising medium among brokers, but some have also developed a strong television presence
  • The AA dominates in terms of consumers' awareness of brokers
  • Consolidation through acquisition and broker networks are key to building strength in the broker channel
  • Combining with other personal lines brokers, either through acquisitions or by joining a network promises advantages associated with scale
  • The broker market is very fragmented, but consolidation is taking place
  • The strongest consolidation can be found among commercial brokers, however, 2006 also saw some deals involving personal brokers taking place
  • Equity Insurance Brokers acquired a number of brokers in 2006
  • 1 Answer Network focus on personal lines and was launched in 2005
  • Personal lines brokers show continued appetite for acquisitions
  • Broker networks have been another popular method of gaining scale, though the group of brokers that are not already part of one value their independence
  • Some brokers join forces with insurers, while others choose to have fewer insurers on their panels
  • 2006 saw several brokers bought up by insurers, offering them advantages in scale but threatening their independent image
  • Hastings, Equity Insurance Brokers, Carole Nash and Endsleigh were all bought up by insurers in 2006
  • Acquisition by insurers offers the broker channel the opportunity to boost its size, but brokers also run the risk of losing part of their appeal and ultimately risk being transformed into direct agents
  • Some brokers move towards having fewer insurers on their panels
• Chapter 4 The Future Decoded
  • Introduction
  • The broker channel is forecast to continue to decline in personal lines insurance
  • The largest decline in market share is expected among small high street brokers while the large brokers are expected to do better
  • The broker channel is forecast to continue to lose market share in the private motor market between 2006 and 2010
  • The broker channel is also expected to lose market share in household insurance, losing out to direct insurers and corporate partnerships
• Chapter 5 Appendix
  • Definitions
  • Premium income measures
  • Earned premiums
  • Gross Premium
  • Net Premium
  • Written premiums
  • Distribution terms
  • Channel
  • Platform
  • 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
• 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 by platform, 2001-6
  • Table 4: Distribution of household insurance, by platform, 2001-6
  • Table 5: Motor insurance advertising spend by provider, 2005
  • Table 6: Combined buildings and contents advertising spend by provider, 2005
  • Table 7: Top 10 general insurance advertisers, 2003-5
  • Table 8: Consumers buying motor and household insurance face-to-face, by age group, 2004-6
  • Table 9: Percentage of consumers purchasing motor and household 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 brokers and intermediaries, 2006
  • Table 14: Private motor insurance distribution forecast by channel, 2006-10
  • Table 15: Household insurance distribution forecast by channel, 2006-10
• List Of Figures
  • Figure 1: The broker channel's share of the private motor market dropped significantly between 2002 and 2006
  • Figure 2: The broker channel lost market share in the household market between 2002 and 2006
  • Figure 3: Brokers see direct insurers as the biggest threat to their personal lines business
  • Figure 4: The face-to-face platform within motor insurance has decreased significantly over the last five years
  • Figure 5: The influence of the phone and the Internet have increased at the expense of face-to-face distribution in the household sector
  • Figure 6: The Internet is seen as a significant threat by brokers
  • Figure 7: While many of the surveyed brokers have a website, most of them do not generate any online sales
  • Figure 8: Most of the companies that do not have a website either believe that they do not need one, or they have simply not developed one yet
  • Figure 9: Brokers think regulation and compliance is the biggest issue facing their business
  • Figure 10: Slightly more respondents think that FSA regulation has had a positive rather than a negative impact on the market
  • Figure 11: Most respondents think that FSA regulation requires too much work
  • Figure 12: FSA regulation commonly costs brokers' up to 10 per cent of their turnover
  • Figure 13: A quarter of respondents do not have any strategies for replacing profit margins due to FSA costs
  • Figure 14: Most respondents think that insurers have been helpful or very helpful in helping them meet FSA requirements
  • Figure 15: However, 35.5 per cent of respondents would have liked even more help with compliance
  • Figure 16: Many brokers are not taking any steps to adapt to threats from other distribution channels
  • Figure 17: 11.8 per cent of personal brokers are developing or strengthening their online presence to deal with the threat from other distribution channels
  • Figure 18: Over half of the personal brokers that do not currently have a website plan to develop one
  • Figure 19: Most brokers prefer to combine an online presence with other distribution platforms
  • Figure 20: Brokers such as People's Choice, Budget and Endsleigh sell insurance via aggregators
  • Figure 21: Comparethemarket.com searches the following insurance providers, which include insurers, brokers and brandassurers
  • Figure 22: A significant proportion of SMEs would consider buying insurance online
  • Figure 23: Only a few brokers say that they are currently focusing on niche or commercial lines as a response to the threat they face from other distribution channels
  • Figure 24: Half of brokers think that the split of their book between personal and commercial insurance will change
  • Figure 25: The likelihood of purchasing motor insurance face-to-face increased with age in 2006
  • Figure 26: Consumers on lower incomes were most likely to purchase personal insurance face-to-face in 2006
  • Figure 27: A few brokers are making changes to advertising or marketing in order to deal with the threat posed by other distribution platforms
  • Figure 28: The AA had the largest advertising budget among brokers in 2005
  • Figure 29: Brokers spent nearly three quarters of their budgets advertising motor insurance products in 2005
  • Figure 30: Direct mail was the most important advertising medium for brokers in 2006
  • Figure 31: The AA was the most widely recognized broker in 2006
  • Figure 32: Nearly 17 per cent of personal brokers hope to make acquisitions in the next 12 months, with the aim of growing their business
  • Figure 33: Most brokers are not interested in joining a broker network, because they want to retain their independence, or are already part of one
  • Figure 34: Several personal lines brokers were acquired by insurers in 2006
  • Figure 35: The broker channel is forecast to continue to lose share in the distribution of private motor insurance between 2006 and 2010
  • Figure 36: The broker channel will also continue to lose market share in the household market
  • Figure 37: Most of the personal brokers surveyed by Datamonitor have a premium income turnover of less than 10 million