The Future Role of Brokers in UK Personal General Insurance 2007

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.



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.


[Studien Infos ausblenden]

CHAPTER 1 INTRODUCTION 6
What is this report about? 6
Who is the target reader? 6
How to use this report 7
CHAPTER 2 BROKER CHANNEL MARKET CONTEXT 8
Introduction 8
The broker channel has lost market share over the last five years, as brandassurers and direct providers have grown in importance 8
The broker channel's share of the private motor market has declined by 7 percentage points between 2002 and 2006 8
Brokers have also lost market share in the distribution of household insurance 10
Although brokers view direct writers and banks as the biggest threats, they also have to contend with the growing role of aggregators and brandassurers 11
Personal lines brokers view direct insurers and bancassurers as the biggest threat to their share of the personal market 11
However, brokers also have to face the challenges presented by aggregators and brandassurers 13
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 13
The rise of aggregators, such as confused.com, presents a significant new challenge for brokers 13
Aside from the increased competition from other channels, several key factors have played a role in the decline of the broker channel 14
High levels of price sensitivity among general insurance consumers has allowed other channels to compete effectively with the relatively high cost base of brokers 14
Consumers are relying less on face-to-face advisory sales in general insurance 14
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 14
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 17
Online distribution of personal insurance has risen substantially over the last five years 17
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 17
Over two thirds of brokers surveyed have a website, but almost half of those are not generating any online sales 18
While the broker channel as a whole is not harnessing the opportunities of the Internet, some brokers are much more successful than others 19
Most brokers cannot compete with the large advertising budgets of direct insurers and brandassurers 20
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 20
The broker channel's motor insurance advertising spend declined in 2005, while other distribution channels increased their advertising spend 21
Brokers spent less on advertising household insurance than all other distribution channels in 2005 23
Only one of the top 10 personal lines insurance advertisers was a broker in 2005 25
The broker channel contains many different kinds of brokers, and some brokers are bucking the trend of declining market share 25
FSA regulation continues to be a worry for brokers and may distract from their focus on defending their market share 26
Brokers still view FSA regulation as the most important issue facing their business, ahead of organic growth 26
FSA regulation commonly costs brokers up to 5 per cent of turnover 29
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 31
CHAPTER 3 BROKER STRATEGIES FOR SURVIVAL 33
Introduction 33
Many small brokers are not taking any action to counter threats from other distribution channels 33
Almost 50 per cent of respondents to Datamonitor's survey are not taking any actions to counter the threat posed by other distribution channels 33
These brokers are mainly small brokers with a turnover of less than £10 million 33
Some brokers are making changes to their distribution models in order to take advantage of the change in customer behavior 35
Large telebrokers and major high street brokers have developed their distribution model to incorporate an online presence 35
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 35
Developing an online presence has several advantages for brokers 37
Large telebrokers have successfully extended their quasi-direct model to sell insurance online 37
Other brokers combine an online presence with a network of high street branches 38
Aggregators offer growth opportunities for brokers which do not have a high brand awareness 39
By appearing on aggregators' sites brokers can extend their market reach 39
Larger brokers should explore the options of launching their own aggregator sites 42
A few brokers have entered the affinity market, taking advantage of other companies' strong brand awareness 43
Affinity deals between brokers and brands hold many advantages for both parties 43
Junction holds a number of major deals including partnerships with Marks & Spencer and the Post Office 44
Junction also holds a deal with Yesinsurance, in an innovative distribution model 45
Equity Group won a number of new affinity deals in 2005 and 2006 45
OutRight controls business worth £55 million 46
Some brokers have arrangement with insurers to pick up their unsuccessful affinity leads 46
Traditional brokers are looking to change their product mix, focusing on niche personal lines or commercial insurance 46
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 47
As a business plan, avoiding personal lines holds certain drawbacks for brokers, preventing it from being a solution for everyone 47
Some very successful brokers are exclusively commercial or niche brokers, and others are following their example by avoiding certain mass market personal lines 48
However, the strategy is not being adopted by a large number of personal lines brokers 49
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 49
Brokers that continue to focus on mass market lines can benefit from targeting older customers and those in lower income brackets 51
The proportion of consumers that arrange their motor insurance face-to-face increases with age 51
However, the proportion of older people buying personal insurance face-to-face has fallen markedly since 2004 51
Lower income consumers are more reliant on face-to-face interaction 53
Increased advertising and marketing exposure is seen as one strategy for brokers to combat the might of large brands in other distribution channels 54
Brokers face strong competition in advertising 54
Among large brokers a few chose to increase their budgets in 2005, while others saw a reduction in expenditure 55
The AA is by far the biggest broker advertiser but the gap between it and its two nearest competitors narrowed in 2005 55
Brokers spent most of their budget advertising motor insurance 57
Direct mail is the preferred advertising medium among brokers, but some have also developed a strong television presence 59
The AA dominates in terms of consumers' awareness of brokers 61
Consolidation through acquisition and broker networks are key to building strength in the broker channel 62
Combining with other personal lines brokers, either through acquisitions or by joining a network promises advantages associated with scale 62
The broker market is very fragmented, but consolidation is taking place 62
The strongest consolidation can be found among commercial brokers, however, 2006 also saw some deals involving personal brokers taking place 63
Equity Insurance Brokers acquired a number of brokers in 2006 63
1 Answer Network focus on personal lines and was launched in 2005 63
Personal lines brokers show continued appetite for acquisitions 63
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 64
Some brokers join forces with insurers, while others choose to have fewer insurers on their panels 66
2006 saw several brokers bought up by insurers, offering them advantages in scale but threatening their independent image 66
Hastings, Equity Insurance Brokers, Carole Nash and Endsleigh were all bought up by insurers in 2006 66
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 68
Some brokers move towards having fewer insurers on their panels 68
CHAPTER 4 THE FUTURE DECODED 70
Introduction 70
The broker channel is forecast to continue to decline in personal lines insurance 70
The largest decline in market share is expected among small high street brokers while the large brokers are expected to do better 70
The broker channel is forecast to continue to lose market share in the private motor market between 2006 and 2010 70
The broker channel is also expected to lose market share in household insurance, losing out to direct insurers and corporate partnerships 72
CHAPTER 5 APPENDIX 74
Definitions 74
Premium income measures 74
Earned premiums 74
Gross Premium 74
Net Premium 74
Written premiums 74
Distribution terms 74
Channel 74
Platform 74
Research methodology 75
Primary and secondary research 75
Distribution estimates and forecast methodology 75
Datamonitor's Personal Broker Survey 76
Ipsos MORI methodology and contacts 76
Current readings 78
Future readings 78
Do you need more information? 79
Datamonitor Financial Services Consulting 79
SPP writing team 80

[Inhaltsverzeichnis ausblenden]

Table 1: Distribution of private motor insurance, 2002-6 9
Table 2: Distribution of household insurance, 2001-6 11
Table 3: Distribution of private motor insurance by platform, 2001-6 15
Table 4: Distribution of household insurance, by platform, 2001-6 16
Table 5: Motor insurance advertising spend by provider, 2005 22
Table 6: Combined buildings and contents advertising spend by provider, 2005 24
Table 7: Top 10 general insurance advertisers, 2003-5 25
Table 8: Consumers buying motor and household insurance face-to-face, by age group, 2004-6 52
Table 9: Percentage of consumers purchasing motor and household insurance face-to-face, by income, 2004-6 54
Table 10: Top broker advertisers, 2003-5 57
Table 11: Brokers' advertising spend by product, 2004-5 59
Table 12: Brokers' advertising spend by medium, 2004-5 60
Table 13: Spontaneous consumer awareness of brokers and intermediaries, 2006 62
Table 14: Private motor insurance distribution forecast by channel, 2006-10 72
Table 15: Household insurance distribution forecast by channel, 2006-10 73


Figure 1: The broker channel's share of the private motor market dropped significantly between 2002 and 2006 9
Figure 2: The broker channel lost market share in the household market between 2002 and 2006 10
Figure 3: Brokers see direct insurers as the biggest threat to their personal lines business 12
Figure 4: The face-to-face platform within motor insurance has decreased significantly over the last five years 15
Figure 5: The influence of the phone and the Internet have increased at the expense of face-to-face distribution in the household sector 16
Figure 6: The Internet is seen as a significant threat by brokers 18
Figure 7: While many of the surveyed brokers have a website, most of them do not generate any online sales 19
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 20
Figure 9: Brokers think regulation and compliance is the biggest issue facing their business 27
Figure 10: Slightly more respondents think that FSA regulation has had a positive rather than a negative impact on the market 28
Figure 11: Most respondents think that FSA regulation requires too much work 29
Figure 12: FSA regulation commonly costs brokers' up to 10 per cent of their turnover 30
Figure 13: A quarter of respondents do not have any strategies for replacing profit margins due to FSA costs 31
Figure 14: Most respondents think that insurers have been helpful or very helpful in helping them meet FSA requirements 32
Figure 15: However, 35.5 per cent of respondents would have liked even more help with compliance 32
Figure 16: Many brokers are not taking any steps to adapt to threats from other distribution channels 34
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 36
Figure 18: Over half of the personal brokers that do not currently have a website plan to develop one 37
Figure 19: Most brokers prefer to combine an online presence with other distribution platforms 39
Figure 20: Brokers such as People's Choice, Budget and Endsleigh sell insurance via aggregators 41
Figure 21: Comparethemarket.com searches the following insurance providers, which include insurers, brokers and brandassurers 43
Figure 22: A significant proportion of SMEs would consider buying insurance online 48
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 50
Figure 24: Half of brokers think that the split of their book between personal and commercial insurance will change 51
Figure 25: The likelihood of purchasing motor insurance face-to-face increased with age in 2006 52
Figure 26: Consumers on lower incomes were most likely to purchase personal insurance face-to-face in 2006 53
Figure 27: A few brokers are making changes to advertising or marketing in order to deal with the threat posed by other distribution platforms 55
Figure 28: The AA had the largest advertising budget among brokers in 2005 56
Figure 29: Brokers spent nearly three quarters of their budgets advertising motor insurance products in 2005 58
Figure 30: Direct mail was the most important advertising medium for brokers in 2006 60
Figure 31: The AA was the most widely recognized broker in 2006 61
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 64
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 65
Figure 34: Several personal lines brokers were acquired by insurers in 2006 67
Figure 35: The broker channel is forecast to continue to lose share in the distribution of private motor insurance between 2006 and 2010 71
Figure 36: The broker channel will also continue to lose market share in the household market 73
Figure 37: Most of the personal brokers surveyed by Datamonitor have a premium income turnover of less than £10 million 76

[Tabellenverzeichnis ausblenden]