The emergence of online aggregators has revolutionized the distribution of insurance products and services. Distribution in the insurance industry has become increasingly diverse, with online aggregators, direct online sales, agencies, brokers, auction sites and mobile-based distribution. Online aggregators have enabled consumers to access multiple quotes from different insurance service providers, and their presence is spreading across the world, bringing fundamental changes to the insurance industry. This trend is likely to continue until 2020.
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Online aggregators have become a growing phenomenon in the global insurance industry
The online aggregator model is a success story for personal insurance lines in the UK insurance industry. After just a decade of coming into existence, online aggregators now account for 60% of new motor insurance policies and 50% of personal insurance lines. The growth trend is similar in other European markets such as Germany, France, Sweden, Spain, Italy, Ireland and the Netherlands. Although online aggregators are highly successful in the UK and other key European economies, they are yet to achieve similar success in other parts of the world. The American and Asia-Pacific regions provide growth opportunities for online aggregators over the next five to 10 years, and online aggregators have already established footholds in key markets such as the US, Canada, Australia, Hong Kong, Singapore, South Korea and India.
The emergence of online aggregators is one of the largest risks to leading insurers and brokers
The rise of online aggregators has radically changed how personal insurance lines are marketed. The sale of insurance products and services through online aggregators has now become a challenge for leading insurers. Online aggregator model has led to price-based competition and reduced profitability for insurers. Large insurers with well-established brands are the biggest losers in the online aggregator-dominated market, whereas smaller insurers are the biggest beneficiaries. Brand dilution, and falling rates of customer retention, market share and profitability are key challenges faced by leading insurers due to the emergence of online aggregators. Smaller insurers, low-cost providers and new entrants have benefitted from rising price-based competition and access to a wider customer base.
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The addition of a new distribution channel for personal lines of insurance is also a direct threat to insurance brokers. Motor and home insurance in many European markets, including the UK, Germany, France and Italy, have transformed from a decades-old broker-led market to an online aggregator-led market in less than a decade. A similar trend is also expected in other key world economies in the next five to 10 years.
High rates of internet and smartphone penetration driving the growth of online aggregators
More than half the world’s population is expected to have internet access and own smart mobile devices by 2018, and this trend is significantly changing consumer buying behavior. The ever-growing use of social media is also making customers more internet-aware, and consumers are using multiple channels to purchase insurance products, with growing numbers using online channels to make purchase decisions. Online aggregators are particularly attractive to these consumers and their changing buying behaviors. Convenience, ease of use, access to the best deals, and one-stop shopping are key factors that attract consumers to online aggregators.
Fraudulent applications and strong competition are key challenges for online aggregators
Online aggregators are an easy gateway for fraudulent insurance activity, which is a key concern for insurers. Online quote generation makes it easy for customers to understand the impact of different answers on product pricing, encouraging customers to provide inaccurate information to bring prices down. This is resulting in poor underwriting performance.
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The online aggregator market is highly competitive, with low entry barriers. Online aggregators face intense competition from other aggregators, insurers not participating in online aggregator model, and other distribution channels such as direct sales, brokers and agencies. New communication and distribution channels such as social media also offer competitive challenges. Insurers across the world are investing in mobile technology and social media to strengthen their distribution channel; 58% of insurers surveyed by Accenture in 2013 are developing mobile sales and distribution channel, whereas 35% are developing sales and distribution channel through social media.
Insurers can choose either to engage with online aggregators, or tackle them head-on
Insurers can use the rise of online aggregators to increase sales and profitability. Offering products through online aggregators will require insurers to excel at underwriting, and offer products at the right price to remain competitive with adequate margins. Insurers will need to invest in data analytics and technical underwriting, and take advantage of the large quantities of customer data available through online aggregators, to achieve customized prices and product offerings, which are key success factors in an increasingly aggregator-dominated market.
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