Aggregation acceleration

Websites offering price comparisons - otherwise known as aggregator websites - are rapidly gaining popularity with the public. Indeed, last month market leader Confused.com was linked with a £700m trade sale. Miles Stone looks at the implications and challenges for both brokers and consumers

Comparison or aggregator websites are having an enormous impact on the marketing of personal lines insurances. Survey after survey confirms extensive and significant growth in the use of these sites by the UK’s burgeoning community of online shoppers. And leading insurers and super brokers have been jostling to win prime on-screen listings for their products.

The aggregators are also surrounded by controversy. Many intermediaries outside the tiny super league - the high-street businesses or specialist motor brokers - are understandably concerned by what seems yet another threat to their existence.

They also tend to be bitter that the undeniable attractions of leading sites such as Confused.com or Moneysupermarket.com - their easy accessibility, speedy results and, particularly, a focus on rock-bottom premiums - are an unwelcome distortion of the professional insurance advice customers really need. Moreover, large numbers of consumers would agree with them that price comparison is by no means the same as product comparison, and customers can be misled despite the convenience of the service.

Seismic implications

The massive growth of online activity has indeed had seismic strategic implications for all in the industry, but brokers should not feel singled out once more for a kicking by the cut-price, volume-chasing big battalions. Aggregators can offer a powerful tool in a new environment of opportunity, and a growing number of forward-looking broking firms are gearing up to the challenge.

Research organisation Foolproof conducted an online shopping study in 2006, which showed that 69% of all online shoppers used a comparison or aggregator site in their search for a motor or home insurance policy. People want to avoid trawling through the many individual insurance sites, whether they are a supermarket brand, direct insurer or broker. Over 80% of those surveyed use the internet as the primary source of insurance information, and 28% of shoppers’ time online was shown to be spent on aggregator sites - a massive growth from the 5% spent in 2005.

With shopping also comes buying. Consumers - not only the young and the technophiles, but also increasingly the huge ‘grey’ market - see the benefits of avoiding long, frustrating phone calls for quotes, and of proceeding to insure online. Two-thirds of those surveyed by Foolproof planned to buy their next motor insurance policy online, compared with 32% who currently do so. The study predicted that, at this rate, 82% of insurance products are expected to be purchased online by 2016.

As aggregator sites grow in number, it is mainly at the expense of direct web channels, which, ironically, tend to ask fewer questions of the customer and give more accurate quotes. The Foolproof study also shows that the average quotation from Confused.com took 13 minutes to complete, which is way off the standard set by direct insurers or large brokers. Only three brands - Tesco, Norwich Union and Direct Line - were sought out by consumers directly in the study, illustrating the measure of brand power required to counter the risky odds of the comparison route.

Visibility on both search engines and aggregator sites is of major importance for insurance providers that see the new sites as an attractive alternative to traditional advertising and costly brand promotion. Pay-per-click routes arguably offer fast and tangible measures of performance, and the sites provides an open door to the savings from increasing e-commerce - first motor, then increasingly household and small business cover.

Pros and cons

The public’s appetite for easy price comparison is, however, tempered by a healthy scepticism by some users over ‘what you see not being what you get’. There is little doubt that, in their present form, the information on the sites sometimes causes confusion. People looking for a good motor or home insurance deal can find that the best price displayed is misleading, as there is often various conditions attached to it. In order to appear at the top of the aggregator lists, some providers strip the cover of benefits and assume a high excess simply to display a low premium.

Iain Hatfield, chief executive officer of Blyth Valley Insurance Brokers, which maintains a range of specialist websites catering to the small to medium-sized enterprise market, is critical that, to date, aggregators have delivered comparative prices, then provided a link to the site of the chosen vendor. "They don’t provide essential policy information upfront and support this with advice at the end of a phone," he says. "Who helps customers identify areas they should be thinking about insuring, or explains how the cover works?"

He resents the power of the web aggregators, which illustrate "the insurance industry’s blinkered approach to providing insurance as a commodity product sold only on price".

Shona Robertson, director of motorcycle market specialists H and R Insurance, says that since using comparison sites for the first time 18 months ago, business introduced through this route has risen to represent 70% of total business. However, she is far from blinkered to aggregators’ shortcomings, citing the practice where, once the customer data is loaded and accessible, there can be a free-for-all among providers offline to offer the policyholder the lowest rate, thus contributing to a downward spiral in premiums and commission earnings.

Despite some spirited efforts by providers like NU to stiffen rates, declining loyalty levels in online markets (as well as relatively lower renewal rates) make these measures less influential than in the past.

Ms Robertson points out that aggregators alter the normal client relationship in that it is the site that owns the captured client data, and will almost certainly mail the customer regularly to revisit the site.

What impact the emergence of comparison sites will have upon the broking community remains to be seen. Many firms have been slow to react because they believe that their business model - local strength, niche or commercial bias - will not be challenged by the impact aggregation is having on personal lines. In any case how can they hope to compete on equal terms?

Broker impact

Extreme predictions foretell the dominance of the aggregator market by a handful of super league, big brand players with limitless marketing budgets and scalable operations - a ‘dictatorship’ of high volume and low price. Fortunately, customer needs and preferences are not so easily dictated to.

It is inevitable that aggregator sites will not always have all the necessary information required by some specialist and niche brokers, although obviously they can work satisfactorily for customers with standard insurance needs. In this case, there will be a proportion of customers that will go directly to the niche broker to obtain quotations or else the intermediary can target risks from the large volumes of un-quoted proposals the system produces. This is provided, of course, that they have suitable web capability.

Rick Slater, general manager at intermediary software specialists CDL, explains: "While there is an argument that niche providers would be poorly served by the transparent, ‘commoditised’ environment in which many comparison sites operate, there is no reason why the aggregators’ model should not adjust in time to accommodate a wider range of niche products.

"There is also much to be said for the ‘democracy’ of the media, which allows the smallest player to associate with the industry’s most powerful brands on the same web page."

There are clear signs that this is in fact the case. The aggregator model is set on a road of continuous change to meet wider customer needs and, at the same time, many intermediaries are reviewing their proposition to offer compatible solutions.

A pioneer in aggregator developments who helped set up one of the first aggregators - Confused.com - Hayley Parsons (now managing director at Go Compare) confirms that the company works extensively with niche brokers. The service features extended quote criteria and call-centre advisory support to enhance customer awareness and choice.

Ms Parsons believes that in the past, the leading aggregators have been slow to respond to customer needs. She blames legacy IT issues involving the need to connect the systems messaging format from the old screenscaping to back-office to back-office, e-commerce friendly XML and a little "arrogance".

Response to pressure

Whatever the case, aggregators are beginning to respond to pressure. Peter Gerrard, sales manager, Moneysupermarket.com, confirms that the site, which introduced XML at the beginning of the year, is adding as many as 15 additional questions to its quotation format from this month, as well as offering customers telephone advice where required.

Imperatives of price and speed have not been overlooked by the growing aggregator sector, however. Since March, Only Insurance, from the financial services aggregator Only Group, has built a 35-strong panel of providers offering motor, home and travel cover and, latterly, private medical insurance quotations with a two-minute time guarantee - achieved by providing quotes direct rather than via a click-through link.

Many intermediaries are already developing major opportunities by committing themselves to a successful role in these new conditions. Personal lines broker MCE Insurance recently launched a fully interactive e-commerce site for private motor and motorcycle business. The operation works alongside an existing busy call centre.

Director Julian Edwards explains that in addition to providing service 24/7 and ensuring the latest rates are installed on the web server, the new £100,000 cost centre, which is managed by trained staff, is able to target new areas of the market, such as a growing sector of ‘non-enthusiast’ motorcycle users. He says the new site is quick to use and easy to navigate, with good facilities for incepting and amending policies, and aims to provide online renewals to cut costs even further.

Mr Edwards explains: "MCE Insurance is very much a marketing-driven operation and our online presence represents a major distribution channel. We expect the site to contribute as much as 50% of the company’s new business in 2008. He adds: "Web trading should not be approached by brokers as just a complement to their existing business. Build a dedicated team with adequate resources. Set strategic goals and employ proven technology that can deliver integrated solutions."

Intermediary Budget Insurance has embraced the opportunities from comparison sites - with comparethemarket.com - without losing sight of the need to bring something attractive to the table. Its director, Matthew Donaldson, believes that for brokers the challenge does not end with capable IT. They must make a number of pressured decisions to reassess their proposition, aim to add value and compete successfully.

He believes brokers can gain confidence in the media through dealing with more complex products than have been marketed online to date - in home covers and smaller commercial packages, particularly. He suggests that aggregator models are maturing, and perhaps changing to brokers’ advantage. Internet acquisition costs for providers are likely to rise at the same time.

The experience of rapid technological change within the industry shows existing models tend to transmute rather than destruct. Increasingly, insurance customers will enjoy multi-route, multi-media access to quotation, purchase and service. Some will prefer online communications; others, face-to-face interaction. Admittedly, opportunities for the latter have diminished dramatically over the last 20 years, but resurgence is not unthinkable. Customers need change.

Many brokers, concerned that their business models cannot survive the radical changes taking place or that their IT cannot hack it, could focus more on their managerial flexibility and thus still have a valid place in the aggregator world.