Table of Contents
- 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 lastfive years, as
brandassurers and direct providers have grown inimportance
- The broker channel' s share of the private motor markethas declined by
7 percentage points between 2002 and 2006
- Brokers have also lost market share in the distributionof household
insurance
- Although brokers view direct writers and banks as thebiggest threats,
they also have to contend with the growing role ofaggregators and
brandassurers
- Personal lines brokers view direct insurers andbancassurers as the
biggest threat to their share of the personal market
- However, brokers also have to face the challengespresented by
aggregators and brandassurers
- In 2005 and 2006 there were signs that the directchannel is reaching
a plateau as a result of the rise of aggregators andbrandassurers
- The rise of aggregators, such as confused.com, presentsa significant
new challenge for brokers
- Aside from the increased competition from otherchannels, several key
factors have played a role in the decline of thebroker channel
- High levels of price sensitivity among general insuranceconsumers has
allowed other channels to compete effectively with therelatively high cost
base of brokers
- Consumers are relying less on face-to-face advisorysales in general
insurance
- The commoditization of personal general insurance hashad an effect
on the amount of insurance sold face-to-face and therebyon traditional
high street brokers
- The broker channel has been less successful atharnessing the Internet
as a distribution platform and is notcapitalizing on the rapid rise in
online sales
- Online distribution of personal insurance has risensubstantially
over the last five years
- Traditional high street brokers have not been able totake advantage
of the rise of this platform, and many consider theInternet a threat to
their business
- Over two thirds of brokers surveyed have a website, butalmost half
of those are not generating any online sales
- While the broker channel as a whole is not harnessingthe
opportunities of the Internet, some brokers are much more successfulthan
others
- Most brokers cannot compete with the large advertisingbudgets of
direct insurers and brandassurers
- In motor insurance, brokers as a group spend the secondhighest
amount on advertising, but this budget is dwarfed by that ofdirect
writers and is spread among a much wider number of companies
- The broker channel' s motor insurance advertising spenddeclined in
2005, while other distribution channels increased theiradvertising spend
- Brokers spent less on advertising household insurancethan all other
distribution channels in 2005
- Only one of the top 10 personal lines insuranceadvertisers was a
broker in 2005
- The broker channel contains many different kinds ofbrokers, and some
brokers are bucking the trend of declining marketshare
- FSA regulation continues to be a worry for brokers andmay distract from
their focus on defending their market share
- Brokers still view FSA regulation as the most importantissue facing
their business, ahead of organic growth
- FSA regulation commonly costs brokers up to 5 per centof turnover
- Most brokers think that insurers have been helpful inregards to FSA
regulation, but just over one third would have liked toreceive more help
- CHAPTER 3 BROKER STRATEGIES FOR SURVIVAL
- Introduction
- Many small brokers are not taking any action to counterthreats from
other distribution channels
- Almost 50 per cent of respondents to Datamonitor' ssurvey are not
taking any actions to counter the threat posed by otherdistribution
channels
- These brokers are mainly small brokers with a turnoverof less than £10
million
- Some brokers are making changes to their distributionmodels in order to
take advantage of the change in customer behavior
- Large telebrokers and major high street brokers havedeveloped their
distribution model to incorporate an online presence
- Small brokers are aware of the importance of developingan online
presence, but generating sales via a website is not an easyoption for
small brokers
- Developing an online presence has several advantages forbrokers
- Large telebrokers have successfully extended theirquasi-direct model
to sell insurance online
- Other brokers combine an online presence with a networkof high
street branches
- Aggregators offer growth opportunities for brokers whichdo not have a
high brand awareness
- By appearing on aggregators' sites brokers can extendtheir market
reach
- Larger brokers should explore the options of launchingtheir own
aggregator sites
- A few brokers have entered the affinity market, takingadvantage of
other companies' strong brand awareness
- Affinity deals between brokers and brands hold manyadvantages for
both parties
- Junction holds a number of major deals includingpartnerships with
Marks & Spencer and the Post Office
- Junction also holds a deal with Yesinsurance, in aninnovative
distribution model
- Equity Group won a number of new affinity deals in 2005and 2006
- OutRight controls business worth £55 million
- Some brokers have arrangement with insurers to pick uptheir
unsuccessful affinity leads
- Traditional brokers are looking to change their productmix, focusing on
niche personal lines or commercial insurance
- In niche personal lines and commercial lines customersare more
inclined to buy face-to-face, thus providing a possible area offocus for
smaller brokers
- As a business plan, avoiding personal lines holdscertain drawbacks for
brokers, preventing it from being a solution foreveryone
- Some very successful brokers are exclusively commercialor niche
brokers, and others are following their example by avoidingcertain mass
market personal lines
- However, the strategy is not being adopted by a largenumber of
personal lines brokers
- Broker opinion is split over whether the proportion oftheir business
made up by personal lines will decrease in the next twoto three years
- Brokers that continue to focus on mass market lines canbenefit from
targeting older customers and those in lower incomebrackets
- The proportion of consumers that arrange their motorinsurance
face-to-face increases with age
- However, the proportion of older people buying personalinsurance
face-to-face has fallen markedly since 2004
- Lower income consumers are more reliant on face-to-faceinteraction
- Increased advertising and marketing exposure is seen asone strategy for
brokers to combat the might of large brands in otherdistribution channels
- Brokers face strong competition in advertising
- Among large brokers a few chose to increase theirbudgets in 2005,
while others saw a reduction in expenditure
- The AA is by far the biggest broker advertiser but thegap between it
and its two nearest competitors narrowed in 2005
- Brokers spent most of their budget advertising motorinsurance
- Direct mail is the preferred advertising medium amongbrokers, but
some have also developed a strong television presence
- The AA dominates in terms of consumers' awareness ofbrokers
- Consolidation through acquisition and broker networksare key to building
strength in the broker channel
- Combining with other personal lines brokers, eitherthrough
acquisitions or by joining a network promises advantagesassociated with
scale
- The broker market is very fragmented, but consolidationis taking place
- The strongest consolidation can be found amongcommercial brokers,
however, 2006 also saw some deals involving personalbrokers taking place
- Equity Insurance Brokers acquired a number of brokers in2006
- 1 Answer Network focus on personal lines and waslaunched in 2005
- Personal lines brokers show continued appetite foracquisitions
- Broker networks have been another popular method ofgaining scale,
though the group of brokers that are not already part ofone value their
independence
- Some brokers join forces with insurers, while otherschoose to have fewer
insurers on their panels
- 2006 saw several brokers bought up by insurers, offeringthem
advantages in scale but threatening their independent image
- Hastings, Equity Insurance Brokers, Carole Nash andEndsleigh were
all bought up by insurers in 2006
- Acquisition by insurers offers the broker channel theopportunity to
boost its size, but brokers also run the risk of losingpart of their
appeal and ultimately risk being transformed into directagents
- Some brokers move towards having fewer insurers on theirpanels
- CHAPTER 4 THE FUTURE DECODED
- Introduction
- The broker channel is forecast to continue to decline inpersonal lines
insurance
- The largest decline in market share is expected amongsmall high street
brokers while the large brokers are expected to dobetter
- The broker channel is forecast to continue to losemarket share in the
private motor market between 2006 and 2010
- The broker channel is also expected to lose market sharein household
insurance, losing out to direct insurers and corporatepartnerships
- CHAPTER 5 APPENDIX
- Definitions
- Premium income measures
- Earned premiums
- Gross Premium
- Net Premium
- Written premiums
- Distribution terms
- 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 byplatform, 2001-6
- Table 4: Distribution of household insurance, byplatform, 2001-6
- Table 5: Motor insurance advertising spend byprovider, 2005
- Table 6: Combined buildings and contents advertisingspend by provider,
2005
- Table 7: Top 10 general insurance advertisers, 2003-5
- Table 8: Consumers buying motor and householdinsurance face-to-face, by
age group, 2004-6
- Table 9: Percentage of consumers purchasing motor andhousehold 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 brokersand intermediaries,
2006
- Table 14: Private motor insurance distributionforecast by channel,
2006-10
- Table 15: Household insurance distribution forecast bychannel, 2006-10
- List of Figures
- Figure 1: The broker channel' s share of the privatemotor market dropped
significantly between 2002 and 2006
- Figure 2: The broker channel lost market share in thehousehold market
between 2002 and 2006
- Figure 3: Brokers see direct insurers as the biggestthreat to their
personal lines business
- Figure 4: The face-to-face platform within motorinsurance has decreased
significantly over the last five years
- Figure 5: The influence of the phone and the Internethave increased at
the expense of face-to-face distribution in thehousehold sector
- Figure 6: The Internet is seen as a significant threatby brokers
- Figure 7: While many of the surveyed brokers have awebsite, most of them
do not generate any online sales
- Figure 8: Most of the companies that do not have awebsite either believe
that they do not need one, or they have simplynot developed one yet
- Figure 9: Brokers think regulation and compliance isthe biggest issue
facing their business
- Figure 10: Slightly more respondents think that FSAregulation has had a
positive rather than a negative impact on themarket
- Figure 11: Most respondents think that FSA regulationrequires too much
work
- Figure 12: FSA regulation commonly costs brokers' upto 10 per cent of
their turnover
- Figure 13: A quarter of respondents do not have anystrategies for
replacing profit margins due to FSA costs
- Figure 14: Most respondents think that insurers havebeen helpful or very
helpful in helping them meet FSA requirements
- Figure 15: However, 35.5 per cent of respondents wouldhave liked even
more help with compliance
- Figure 16: Many brokers are not taking any steps toadapt to threats from
other distribution channels
- Figure 17: 11.8 per cent of personal brokers aredeveloping or
strengthening their online presence to deal with thethreat from other
distribution channels
- Figure 18: Over half of the personal brokers that donot currently have a
website plan to develop one
- Figure 19: Most brokers prefer to combine an onlinepresence with other
distribution platforms
- Figure 20: Brokers such as People' s Choice, Budget andEndsleigh sell
insurance via aggregators
- Figure 21: Comparethemarket.com searches the followinginsurance
providers, which include insurers, brokers and brandassurers
- Figure 22: A significant proportion of SMEs wouldconsider buying
insurance online
- Figure 23: Only a few brokers say that they arecurrently focusing on
niche or commercial lines as a response to thethreat they face from other
distribution channels
- Figure 24: Half of brokers think that the split oftheir book between
personal and commercial insurance will change
- Figure 25: The likelihood of purchasing motorinsurance face-to-face
increased with age in 2006
- Figure 26: Consumers on lower incomes were most likelyto purchase
personal insurance face-to-face in 2006
- Figure 27: A few brokers are making changes toadvertising or marketing
in order to deal with the threat posed by otherdistribution platforms
- Figure 28: The AA had the largest advertising budgetamong brokers in 2005
- Figure 29: Brokers spent nearly three quarters oftheir budgets
advertising motor insurance products in 2005
- Figure 30: Direct mail was the most importantadvertising medium for
brokers in 2006
- Figure 31: The AA was the most widely recognizedbroker in 2006
- Figure 32: Nearly 17 per cent of personal brokers hopeto make
acquisitions in the next 12 months, with the aim of growingtheir business
- Figure 33: Most brokers are not interested in joininga broker network,
because they want to retain their independence, or arealready part of one
- Figure 34: Several personal lines brokers wereacquired by insurers in
2006
- Figure 35: The broker channel is forecast to continueto lose share in
the distribution of private motor insurance between2006 and 2010
- Figure 36: The broker channel will also continue tolose market share in
the household market
- Figure 37: Most of the personal brokers surveyed byDatamonitor have a
premium income turnover of less than £10 million
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