dac-beachcroft-thought-leadership-learning-to-live-with-the-aggregator

BEACHCROFTTHOUGHT LEADERSHIP SERIES

Learning to live with the Aggregator

How insurers and brokers can forge successful commercial relationships with aggregators

Introduction

Aggregators have grown rapidly in recent years to become important players in the

retail insurance distribution landscape in the UK. After initial enthusiasm, many

insurers and brokers now appear to have an uneasy relationship with aggregators.

Some of the larger insurers have chosen to take the game to the aggregators and

compete head on, rather than collaborate.

For many players in the insurance market, the aggregator offers an opportunity to

reach a wider audience than before. For consumers, the aggregators have driven

down prices and opened up a complex market to greater levels of transparency.

For insurers and brokers, the challenge is how to make money in this environment. It

seems clear that the current, loss-making model is not sustainable.

Aggregators are not likely to fade away in the short or medium term, so insurers

and brokers need to reconsider their strategy for dealing with aggregators. Do

they compete, or do they build stronger relationships, or is the smartest strategy a

combination of the two? Can they adapt their business models to manage the risks

and improve their returns from aggregator-generated business?

This research, part of Beachcroft’s thought leadership programme to understand

strategic issues facing insurers in the UK, seeks to identify strategies for success in an

aggregator-dominated retail marketplace. It also looks at what the future may hold

for aggregators, and considers whether the tide may be turning in favour of insurers.

Eleven interviews were conducted with leading players in major UK and international

insurance groups and aggregators to gather insight into the role of the aggregator in

the shifting retail insurance distribution landscape. Our thanks go to all of those who

participated.

I’m sure that you will find the views of our interviewees offer much food for thought.

David Pollitt

Head, Financial Institutions Group

Contents

Introduction 3

Executive summary 7

The UK personal lines insurance marketplace in figures 8

1: A revolution in online buying habits 9

The rise of the aggregator 9

The appeal for consumers 11

Possible disadvantages for consumers 12

2: Aggregators: here to stay but more evolution to come 14

Future trends for aggregators 14

Consolidation 16

Vertical integration? 18

Regulation and development of the aggregator proposition 18

3: Friend or foe? The pros and cons of using aggregators 20

Price focus 21

Retention rates 22

The implications for brands 23

Delivering the right quote 24

Poor underwriting performance 24

Misaligned systems 26

4: Engaging with aggregators 29

i: Taking on the aggregators 30

ii: Building more successful partnerships with aggregators 31

iii: Acquiring an aggregator 38

Executive summary

Our research focused on how the relationship between personal lines insurers and aggregators is likely to

develop over the next few years. The key messages to come from our research are:

Evolution of the market

� The growth of aggregators is likely to plateau, with limited scope to extend beyond personal general

insurance lines

� The balance of power appears to be shifting somewhat more towards insurers and away from aggregators –

a trend which insurers should look to take advantage of

� Aggregators are here to stay but the market is ripe for shake-out and consolidation

� Although the aggregator model is always likely to be price-led, regulatory pressures are requiring aggregators

to provide more information on product features, creating opportunities for ‘value-added’ products

The pros and cons of using aggregators

� Aggregators can particularly benefit smaller insurers and those with less brand recognition, providing a

relatively cost-effective route to market, although some customers may be wary of brands that are new to

them even if offered through a well-known aggregator

� Large and well-known insurers using aggregators face challenges surrounding the protection of their brand

and their existing customer base

� Withdrawing from and competing with the aggregators is a realistic option only for insurers with strong

brands or offering products that can be clearly differentiated

Engaging with aggregators

� Many insurers, large and small, would benefit from investment in systems and product design to maximise

returns from sales through aggregators

� Some aggregators are actively seeking a more collaborative approach with insurers, suggesting there are

opportunities for successful partnering which insurers should be looking to capitalise on

� There are key issues surrounding ownership of the customer base and data protection

� Fraud is a major concern for general insurers, particularly in aggregator-generated business – better

engagement could improve the position

The UK personal lines insurance marketplace in figures

2 Percentage of total TV advertising accounted for by aggregators in 2008

9 The number of aggregators advertising on TV in 2008

19 The number of general insurance aggregators in the UK

37 Percentage of home insurance policies sold through the Internet

44 Percentage increase in false claims in the motor insurance industry 2008 on 2007

54 Percentage of motor insurance policies sold through the Internet

58 The number of brands available through Comparethemarket

60 The number of white labelled sites for home and motor insurance in UK

82 The number of brands available through Confused.com

90 Percentage increase in advertising spend by aggregators 2008 on 2007

140 The number of motor insurance providers in the UK

200 The number of motor policies available in the UK

14 million The cost in £s of the Peter Jones MoneySupermarket advertising campaign

13 billion The value in £s of the UK car and home insurance marketplace

1: A revolution in online buying habits

For personal lines, the impact of the aggregator has changed the face

of the marketplace. Consumer behaviour has also changed to shopping

around for what they perceive as a bargain, driven by less time and the

economic situation. Mark Cliff – Managing Director, Fortis Insurance

There has been a convergence of the insurance offering onto common

platforms. This, when added to the speed and convenience of first

telephone and then the internet as a sales channel, has driven the rise

of the aggregator platform.Philippe Maso y Guell Rivet – Chief Executive, AXA Insurance

Perfect access to information from technology and commoditisation are

the two main themes.Andy Homer – Chief Executive, Towergate

The rise of the aggregator

The emergence of the insurance price comparison website – or aggregator – is seen

by the majority of senior insurance stakeholders we spoke with as the single biggest

development in the UK personal lines insurance market in the last five to ten years.

However, it sits within a broader context of a change in consumer purchasing behaviour

which has implications for all insurers whatever distribution channels they use.

The speed of broadband diffusion and the consequent online retail revolution, allied

to an increased availability of information, has caused a step change in consumer

buying behaviour.

The 2009 National Statistics Opinions (Omnibus) survey puts penetration of

broadband internet connection at 63% of UK households or 16.5 million households,

an increase of 6.6 million since 2006. Consumers now have both the capacity and

the confidence to be more autonomous in their purchasing behaviour, choosing to

research, compare and purchase on their terms to a greater extent than ever before.

The insurance market has offered the perfect platform for the entry of aggregators.

Brands such as Confused.com, Moneysupermarket.com, Comparethemarket.com

and several others launched into this space offering the facility to compare and buy

primarily motor and home retail insurance products online from a wide array of

providers and brokers.

The aggregator brands have established themselves quickly, using TV advertising

as a key marketing component. According to Deloitte1, in 2008 38% of new motor

insurance business was sold through aggregators, with the top 5 aggregator brands’

TV advertising expenditure reaching £80m.

1 Non-Life Insurance Market Update, September 20092 Defaqto’s report entitled ‘Web Aggregators 2009’, December 2009.3 Deloitte’s Non-Life Insurance Market Update, September 2009. 4 Datamonitor’s Aggregators in UK General Insurance 20085 Confused.com’s H1 2009 Financial Results and Moneysupermarket.com’s Q3 2009

Financial Results.6 Datamonitor’s Price Comparison Site Survey7 Deloitte’s Non-Life Insurance Market Update, September 2009.

Table 1: The rise of the aggregator

Number of aggregators as at 2009:

19 major general insurance aggregators60 white-labelled sites across motor and home sectors2

Market penetration 2008: 38% of new motor insurance business sold through aggregators3, up from 25% in 20074

Revenue growth 2009: Half year revenue comparisons to 2008

Confused.com: 10% increaseMoneysupermarket.com 15% increase5

Top 5 aggregators: Confused.comMoneysupermarket.comComparethemarket.comTescocompare.comGoCompare.com6

TV advertising: The Big 5 aggregators spent £80m in 2008 – a 90% increase over 20077

A number of our respondents also believe that the recent financial crisis has played

into the hands of the aggregators, as consumers have felt more inclined to look

around for a good deal at the lowest price.

The appeal for consumers

The UK population is getting used to the notion that it’s a pain to go

around four or five insurers and they just want the cheapest; something

basic that does the hard work for them.Strategy Director, global insurer

It is clear from both market penetration figures and our conversations with the

management of insurance groups that insurance aggregators have been embraced by

consumers. It is easy to appreciate why. The major disincentive to shopping around

for insurance has been overcome by the aggregator and translated into a user-

friendly, time-efficient experience for an increasingly web-savvy target market.

The insurance aggregator removes one of the main obstacles to shopping around:

time. By compelling participating insurers to conform to a single set of questions,

they allow consumers to access a wide range of quotes far more quickly than is

possible by going through each insurer’s website in turn. The aggregator may also

introduce the customer to insurers not previously known to them.

Consumers have bought the aggregator’s message that they are consumer

champions, there to help consumers find the best deal. Consumers enjoy the ability

to view a comparison of products from several brokers and insurers on one site which

obviates the need for lengthy research.

I think the statistic is seventy percent of people who buy from

aggregators go for the number one, so it’s a much more efficient

marketplace, i.e. the market’s transacting at a lower price, to the

customer’s benefit.Strategy Director, global insurer

The entry of the aggregators has also squeezed the price of insurance for consumers

as some insurers have had to adjust products and pricing to make their offerings

more competitive.

Aggregators have improved consumers’ awareness of the variety of products on offer

as a result of the patronage of a large number of insurers and brokers. They have

also played some part in consumer education in regard to product features – the

purchase process shows the features to add or exclude and the price associated with

those features is more transparent than in the past.

The value they’ve added is more transparency, more clarity about what

you are buying and what you might add in.Andy Homer – Chief Executive, Towergate

Possible disadvantages for consumers

There is the cost of an additional layer of distribution and I don’t

think the consumer necessarily understands when they go on the

comparison website, that their use of it will affect the price of the

product in some way.UK CEO, global insurer

The development of the aggregator was not regarded by our respondents as all good

news for consumers. A number of our panel expressed concerns about the lack of

transparency with some aggregators, as well as the concern that an over-riding focus

on price may lead to consumers not buying insurance that best suits their needs.

The Financial Services Authority (FSA) has also expressed concerns in recent years

about some of the claims made by aggregators (some of which are reminiscent of

similar concerns expressed in the past about insurers).

Table 2: Top 4 consumer benefits from using an aggregator

Time-efficient purchasing process

Exposure to larger variety of products

Increased awareness of product features

Competitively-priced insurance

Particular concerns that the FSA has raised surround:

� claims made by aggregators about their market coverage

� whether consumers are encouraged to consider features, other than price, before

purchasing products

� whether consumers understand the basis on which they may achieve savings – for

example, whether the policy being offered is comparable with their existing cover

� clarity over the excesses payable

� the accuracy of any assumptions made in generating the quote

� whether aggregators have appropriate systems and controls in place to ensure

that key product features included within insurers’ policies are correctly listed

on their site and that they correctly relay consumer information to brokers and

insurers.

Since most, if not all, aggregators are FSA-regulated, they are subject to the same

general principles and rules as other insurance intermediaries. In particular, they are

required to ensure that the information they provide is clear, fair and not misleading.

For consumers, aggregators may make assumptions to generate quotes

quickly, and there is a risk that if a consumer is not aware of such

assumptions, they may find that they are unable to make a claim.

Additionally, if information about policy excesses is not provided clearly,

consumers may end up with less cover than they intended to buy and

insurers may fail to treat their customers fairly.FSA Financial Risk Outlook 2009, p58

2: Aggregators: here to stay but more evolution to come

Looking to the next phase of the aggregator/ insurer relationship, we seek to

determine in this section what shape the insurance aggregator sector will take as it

continues to establish itself.

Future trends for aggregators

We presented our respondents with three possible scenarios: continued growth at

current rates, a levelling out, and a significant decline. All but one of our respondents

predicted a levelling out; the one dissenter could foresee significant decline as a

realistic scenario.

Three potential scenarios for aggregators

1. Initial growth of online business

2. Rapid adoption of aggregators by insurers and brokers

3. Assessment of aggregator impact on insurer business model and possible exit

4. Development of sustainable aggregator strategies e.g. compete, collaborate or acquire

number of insurance policies sold through aggregator sites

Continued growth

None of our respondents thought that the current rate of aggregator growth was

sustainable. To be so would require aggregators to continue to expand the number of

insurance lines they feature to deliver growth. This could include the take-up of some

more commoditised commercial lines, for example tradesman insurance, and there

are initial signs that aggregators may move this way.

Growth levelling out

Their advertising message has been “we will save you £150” … now you

can’t do that year on year. They may be able to do that for two years,

but come the third year the customer is going to think “actually you’re

not saving me money, I am going to look somewhere else”, … so it could

be that the comparison sites lose some of their sheen.Mark Cliff – Managing Director, Fortis Insurance

The consensus view of our panel was that the growth rate in the percentage of insurance

business distributed through aggregators will slow and start to plateau. It is estimated, for

example, that the ceiling on the amount of motor insurance business that can be secured

via aggregators is approximately 60%. Aggregators’ share of the motor insurance market

increased from 27% in 20078 to 38% in 20089 and if this growth profile were to continue

the 60% ceiling would be reached in the next two years.

The aggregator business model relies on a high volume of throughput to sustain the

huge levels of advertising spend required to attract and retain consumers. This high

level of advertising spend is likely to be unsustainable for all but the largest aggregators,

and as revenues plateau, this may lead to fall-out, consolidation and diversification.

8 Datamonitor’s Aggregators in UK General Insurance 20089 Deloitte’s Non-Life Insurance Market Update 2009

The view that growth is likely to flatten out also appears to be shared by the FSA:

In recent years the growth of insurance aggregator (or price

comparison) websites has posed a particular threat to established

intermediaries, particularly on home and motor business. Now firmly

established in the UK market, they will continue to place the general

insurance intermediary sector under competitive pressure. But the

growth of aggregator businesses has moderated and the level of threat

they pose appears to have stabilised.FSA Financial Risk Outlook 2009, pp60-61

Significant decline

Unless the aggregators start to provide a broader offering than just a

price-led proposition, unless they offer more of an affinity, unless they

create in the minds of the customers that they are a trusted adviser, I

think they’ve had it.Andy Homer – Chief Executive, Towergate

A less-favoured scenario is the decline of the aggregator. This was mentioned on the

basis of a possible loss in confidence in the aggregator’s ability to provide the best

price, or if a significant number of insurers decide to move away from aggregators.

This could happen if consumers begin to see the aggregator as a costly intermediary

demanding a commission or if insurance groups withdraw business from the

aggregators due to brand dilution or unmet business objectives.

To prevent this, aggregators need to ensure that their consumer proposition is built

around value add and becoming a trusted adviser to consumers. A recent survey

by Which? Money among Which? members10 found that only three in ten said they

trusted aggregators to find the best price available, while two thirds thought they

would be presented with products that make the websites the most commission.

This suggests that there may be more work to be done by aggregators to build trust

in their own brands.3

10 Comparison sites leave us unimpressed.com, Which?, 18 November 2009

Consolidation

I don’t think there’s going to be much more room in the market than

two or three or four aggregators.Andy Homer – Chief Executive, Towergate

It is exactly the same service in nature as the search engines have

brought to the internet world in general. You don’t have five successful

search engines, you have one or two. So the likelihood that this

aggregator landscape converges is high.Philippe Maso y Guell Rivet – Chief Executive, AXA Insurance

The majority of those we spoke with felt that the sector was ripe for consolidation

among aggregators. There are two inter-related reasons, first, the contention that

aggregators’ revenue growth will plateau and, second, the need for aggregators to

generate large revenue streams to fund advertising. The acquisition of a competitor or a

merger of aggregators will deliver economies of scale benefits which can be channelled

into refining the proposition and advertising to compete against direct insurers like

Aviva and Direct Line and other aggregators.

It was felt that the shake out will result in between two to five major aggregators and

a range of other niche players. Precedents for niche aggregators have been set for the

sector by organisations like ScreenTrade.com which provides motor insurance only and

Coverzones.com, an SME specialist for commercial lines.

The existing aggregator market looks to have evolved to a point where

it is ripe for shake-out, including through consolidation. The trick for

insurers and brokers may well be to identify which are the most likely to

survive, and therefore in which ones it makes sense to invest time and

money in to improve returns. Nick Gibbon, corporate finance partner, Beachcroft LLP

However, this does not preclude the arrival of new aggregators, particularly those

with an established and trusted consumer brand, as demonstrated by Tesco.

There have also been reports that Google is looking to break into this market. The

possibility of one or more major new players taking the market to a new level should

not be ruled out.

Tesco are likely to emerge as one of the trusted price checks sites for

all products and so if you’re going to compete against Tesco who don’t

have to spend a lot of time on brand recognition and values, if you’re an

upstart aggregator you’re going to have to throw a lot of money at it.Andy Homer – Chief Executive, Towergate

Vertical integration?

Unless the aggregators are delivering a better underwriting result, better

claims ratios over time then the insurers will move away from them so

the aggregators will be constantly seeking new capacity and as I say my

prediction is eventually they’ll have to get their own capacity by going

to Lloyd’s or going offshore and writing it to their own book because

they will run out of friends.Andy Homer – Chief Executive, Towergate

They may move to being almost superbrokers because why wouldn’t

they have more control of the value chain and there is talk that they

could vertically integrate with an insurer. Mark Cliff – Managing Director, Fortis Insurance

Aggregators could choose to write their own insurance to open up new revenue

streams. This could also be a protection measure if insurance groups withdraw their

products from their websites. It may be easier to increase profit for the aggregator

in the medium term by creating a new insurance brand rather through refining the

current aggregator proposition. Acquisition by an insurance broker or underwriter is

another possibility, which we consider further on page 27.

This would be a controversial step to take, as it would change the dynamics of

the aggregators’ relationship with consumers. While some aggregators build

brand loyalty with consumers for being impartial consumer champions, this may

not stretch and in fact could be damaged as providers of insurance. Having said

that, existing aggregators with such links, such as Confused.com, a wholly-owned

subsidiary of Admiral plc, do not appear to suffer any loss of credibility with the

consumer as a result of such links, so it may be that the risks associated with such

links can be overplayed.

However, the skills an aggregator would need to do this are very different from

those most currently have. The capital required would also be significant. There are

certainly grounds for scepticism about such a strategy.

Regulation and development of the aggregator proposition

Over the years, aggregators’ websites have become more sophisticated, as a result of

a number of factors. These include technological advances (including the fact that

faster broadband rates permit the use of more complex technology) and competitive

pressures to improve the customer offer and differentiate from competitors.

However, regulatory pressures have also been an important driver of change.

Aggregators have faced some of the same regulatory challenges that

insurers faced over a price-led proposition. They have been required to

substantiate claims of cost savings, and make clearer to the customer

the basis on which those savings can be made.

On the whole, aggregators appear to have responded well to these

challenges, but they are a reminder of the regulatory environment in

which aggregators operate, and of how the regulator can have a direct

effect on the customer’s experience.Mathew Rutter, financial services partner, Beachcroft

Following the FSA’s two reviews of aggregator websites in 2008, a number have

improved the level of detail provided about the products on offer, for example by

enabling comparison of features, rather than focusing purely on price. The FSA has also

recently obtained undertakings from four aggregators relating to their terms of business

with consumers. In regulatory terms, therefore, there appears to be a level playing field

between aggregators on the one hand, and insurers and brokers on the other.

The FSA has provided a number of examples of good and poor practice in general

insurance comparison websites11. Although these are directed at aggregators, insurers

and brokers who market their products through aggregators also need to take them

on board. For example, the FSA found that “in most cases” aggregators were unable

to show the split between compulsory and voluntary excesses - often because the

relevant information had not been supplied by the provider.

11 www.fsa.gov.uk/pages/Doing/Regulated/Promo/thematic/practice_gi_comparison.shtml

The FSA makes it clear that it expects aggregators and insurers to work together in

making this information available. This is also reflected in the ABI’s recently-published

Good Practice Guide12, which states, for example, that “insurers and brokers should

provide comparison websites with sufficient information to allow them to comply

with … good practice on excess levels”. Clearly, therefore, both sides have a role to

play in ensuring that these requirements are fulfilled.

12 Ensuring Positive Customer Experiences of Buying Insurance Online: a Good Practice Guide, Association of British Insurers, December 2009

3: Friend or foe? The pros and cons of using aggregators

There has been this view that the aggregator has been the big bad

wolf, which I don’t agree with. The aggregator is a function of consumer

behaviour which would have happened anyway.Mark Cliff – Managing Director, Fortis Insurance

The aggregator type buyer is a bit of an anathema to a lot of the

distributors and manufacturers as the more the market is segmented

and commoditised the less attractive it is.Andy Homer – Chief Executive, Towergate

The main advantage of the aggregator site is that they are immensely

popular so they attract a lot of viewers. And that is their value. Philippe Maso y Guell Rivet – Chief Executive, AXA Insurance

The aggregator makes the whole market a lot more competitive. And

therefore the cases that you write are generally going to be the cases

where you are absolutely the cheapest in the market. Malcolm Smith – Commercial Director, Groupama Insurances

I think the big, established players hate aggregators. If you’re not a big,

established player, I think at the moment they are quite a nice partner.Strategy Director, global insurer

The enthusiasm of consumers for aggregators is not shared by some of the larger

insurance groups. In many respects, the same factors which attract consumers to

aggregators are those which have caused concern on the part of insurers, principally

because they tend to erode the profitability of the business delivered through the

aggregator channel.

Initially, insurers were keen to utilise the new channel to secure new business.

However, some insurers, most notably Aviva, have now pulled out of the aggregator

marketplace, while others, such as Direct Line, have refused to join in at all (although

both Aviva and Direct Line have other brands within their group, such as RAC and

Churchill, which continue to participate). The willingness of some of the biggest

players to go it alone suggests that the dominance of the aggregator in personal lines

insurance is far from being inevitable.

We have gone in and out; the fact is manufacturers don’t make a great

return on their business.UK CEO, global insurer

Price focus

Consumers are not thinking about the quality of the cover or the nature

of the service, whether their claim is going to be paid, they are only

focusing on the price.Steve Wood – Managing Director, UK & Ireland, Ecclesiastical

There are people out there that will spend time surfing the net for the

cheapest deal and those people will do exactly the same next year.Andy Homer – Chief Executive, Towergate

As time has gone on the insurance groups have come to believe that the price focus, a

key theme of much of the aggregators’ advertising, pushes consumers to fixate on the

price variable exclusively. While there are signs that aggregators have started to put a

greater emphasis on factors other than price, it is inherent in their business model that

they will do all they can to encourage consumers to shop around on renewal. Price is

always likely to be the most compelling motivator to achieve that goal.

Retention rates

The aggregator business model requires a consumer to churn every year

and the way to make money in the motor insurance market is to hold

on to clients for years. The break-even point doesn’t come in year one

because of the marketing spend.

UK CEO, global insurer

People are lazy … so retention must deteriorate, but it is easy to over-

estimate how bad that deterioration will be.Strategy Director, global insurer

Most consumers are promiscuous for commodity products. And I think

the frictional cost of transferring business is reducing, so people will

move for a smaller amount.Steve Wood – Managing Director, UK & Ireland, Ecclesiastical

The emphasis on price and shopping around at each renewal does not complement

the traditional insurer’s business model, which typically relies on consumer retention

beyond one year to recoup client acquisition costs. While many insurers and brokers

also focus heavily on price in their direct offer, they have traditionally also been able

to look to build a longer-term relationship with their customers, as well as relying on

inertia, as a means of retaining customers.

The combination of the much weaker customer relationship resulting from

aggregator-derived business, as well as the encouragement from the aggregator

to shop around on renewal, can significantly reduce retention rates for insurers.

However, some of our respondents thought that this risk could be overstated.

Some aggregators contest the ‘over promotion of price’ tag. Gocompare.com, for

example, claims that 50% of its consumers do not opt for the cheapest policy and

provides more, relevant detail on each policy.

The implications for brands

The growth of price comparison sites is good as for forty-five pounds

[insurers and brokers] can be on the aggregator site, whereas previously

they would have been asked to compete in a direct advertising space.Mark Cliff – Managing Director, Fortis Insurance

Being on the aggregator risks damage to our brand loyalty. Ultimately

if you are going to invest money in brand why not invest in your own

brand in the long term and take the aggregator on at that level rather

than invest effectively in their brand?UK CEO, global insurer

If you’ve got a low profile brand the aggregator might be a cheaper

way of getting business compared with building your own brand, but if

you’re AXA or Aviva or Allianz why would you do that I ask?Andy Homer – Chief Executive, Towergate

There’s a very big chunk of the UK population who hates buying car

insurance, doesn’t care a bleep about the insurer they’re getting it from,

and just wants something that’s broadly ok and is cheap. So if insurers

want to spend £40 million, £50 million trying to persuade those people

that there’s something special about their insurer or their service, then

to my mind they’re just throwing money down the drain. Strategy Director, global insurer

The growth of aggregators has offered particular opportunities for less well-

recognised insurance brands. Aggregators offer smaller insurance players with low

marketing budgets a less expensive channel to consumers, as they can to some extent

ride on the coat-tails of the aggregators’ brands. However, while aggregators may

offer the chance to achieve scale cost-effectively, making money requires a good deal

of ongoing resource which many smaller players may lack.

In addition, research conducted by YouGov on behalf of Deloitte13 found that 66%

of consumers would not purchase insurance online from an unknown brand. This

suggests that smaller players cannot rely entirely on the brand of the aggregator

to bring in business – some element of brand investment may also be required to

obtain a return from the aggregator channel.

For larger insurers and brokers with more established brands the concern may be

that aggregator sites can do damage to their brand, particularly where their product

consistently appears lower down in the aggregators’ rankings. Even if their product

performs well, the aggregators’ emphasis on price may well discourage purchasing

decisions based on brand recognition, diluting the value of insurers’ brands.

13 Non-Life Insurance Market Update, September 2009

Delivering the right quote

A further worry for some insurers is around the method used by aggregators’ websites

to calculate premiums. Aggregators impose a single set of questions to gather details

of a prospective customer and his/her requirements , in order for the aggregator’s

insurer partners to generate quotes. There is also pressure to keep the questions as

brief as possible (although the same pressure is no doubt also felt by direct insurers as

well). Inevitably, with this Procrustean solution, there is a risk that some of the nuances

inherent in an insurer’s own underwriting model may not be picked up. This may result

in quotes being issued that are incorrectly priced for the risk.

Poor underwriting performance

Undoubtedly underwriting performance by the aggregators is worse

than underwriting performance by other channels.Mark Cliff – Managing Director, Fortis Insurance

Ultimately the potential for customers to buy the correct product and

to answer the questions correctly is better if they have had some oral

contact with the broker or the insurer.Malcolm Smith – Commercial Director, Groupama Insurances

There is often manipulation of the customer journey particularly

around the question set (eg excess) to enable the cheapest price. This

can work to the detriment of a customer in the event of a claim raising

fundamental TCF issues.Derek Plummer – Commercial Director, MMA Insurance

One company found that 20% of the people had lied about their NCD

… on the basis that people seem to find it easier to do it online than

face to face.Mark Cliff – Managing Director, Fortis Insurance

We have very high loyalty levels and very low fraud levels, and I think

the two things are related.Steve Wood – Managing Director, UK & Ireland, Ecclesiastical

A number of respondents were of the view that the quality of customers delivered by

the aggregators was worse than that delivered through other channels. In particular,

concerns about customers inputting inaccurate information – whether carelessly or

fraudulently – were highlighted.

Another concern is the fact that the online questionnaire format enables consumers to

see the impact on premiums of alternative answers to certain questions: for example,

whether a vehicle is garaged. This may give rise to consumers, having been exposed to

the premium calculation process, submitting inaccurate answers in the pursuit of the

lowest premiums. While this is a feature of online purchasing generally, rather than being

unique to aggregators, there is a feeling that the nature of the customers using aggregator

websites, being particularly price-focused, and a failure on the part of some aggregators to

emphasise sufficiently the consequences of inputting inaccurate information, may make

aggregator-sourced business particularly vulnerable in this respect.

There are also suggestions that aggregator websites may themselves have played

some part in directing customers towards choosing options which result in a

lower price. The recently-published ABI Good Practice Guide contains examples

of “unacceptable” helpful hints, which it rather coyly suggests “can encourage

the customer to purchase the wrong type of policy”. These include encouraging

customers to enter lower mileage, or to switch the main driver (fronting).

The existence and growth of aggregators in the market will almost

certainly lead to an increased risk of fraudulent claims for insurers. Any

form of internet or electronic-based customer acceptance removes a

number of layers of potential fraud detection at the underwriting stage,

particularly in personal lines. An increase in the frequency of use of

stolen credit card information, dead letter box addresses and identity

fraud to lure insurers into incepting policies in good faith (to then be

used, for example, to stage accidents) may be inevitable as fraudsters

look to take advantage of the use of technology and reduced due

diligence at policy inception.Lorraine Carolan, Partner and Head of Claims Validation Team, Beachcroft

Misaligned systems

Anything that is fundamentally based on the lowest price will identify

the weaknesses in your rating structure and you will not generate good

margins.

Steve Wood – Managing Director, UK & Ireland, Ecclesiastical

Another cause for unease is the suitability of some insurers’ and brokers’ internal

systems for working with aggregators. Engaging successfully with an aggregator

requires commitment to a certain level of resource and systems to ensure that the

insurer is represented in the best possible light and obtains maximum leverage from

the data available from the aggregator.

Aggregators can offer a continuous stream of performance data for insurers to access

to assist them in presentation, pricing and ratings optimisation. The evidence from

our respondents suggests that many of the opportunities offered by this data are not

being capitalised on.

The level of proactivity from the insurance industry is quite poor in

terms of asking for this information. In many cases, because of the way

their systems and the pricing works, they are unable to do anything

with it anyway. Managing Director of insurance, top 5 aggregator

Table 3: Pros and cons for a broker or insurer in using an aggregator

Pros ConsAbility to leverage off the aggregator's brand

Potential dilution or harm to insurer's brand

Access to a large pool of potential customers

Single simplified question set may not correspond to insurer's underwriting model

Suits insurers whose proposition is price-led

Greater exposure to fraud

Weaker customer relationship and reliance by aggregators on annual churn

Leakage resulting from misaligned systems (or investment cost of aligning systems)

4: Engaging with aggregators

It is brand against brand. But if you want to know what is going to

happen, look at the brand … and that probably gives a good proxy for

how the industry is going to be shaped in the future.Philippe Maso y Guell Rivet – Chief Executive, AXA Insurance

The insurance challenge is, how do we manage it and how do we deal

with it, how do we price it, so I think there is some way to go for insurers

and aggregators to be working more effectively together.Mark Cliff – Managing Director, Fortis Insurance

I think the aggregators are in quite a weak space. I think they need to

behave themselves and look after their insurance partners. Strategy Director, global insurer

Across the industry, you’ve got people who are looking at this business

at the moment and saying: “what are the things that we can do to

change the way that we’re presenting ourselves, and thereby turn this

thing around so that it is making a satisfactory level of return?” And

one of the things that is going to come under scrutiny inevitably is the

nature of the relationship with the aggregator sites themselves. Andrew Torrance – Chief Executive, Allianz Insurance

Insurers and brokers are faced with a difficult situation. Unpalatable though the

aggregator may be to many, nearly all of our respondents regard them as likely to be a

permanent fixture in the personal lines insurance market for the foreseeable future.

However, it is self-evident that a model where insurers and brokers are struggling to

make a return is not sustainable. Insurers and brokers must therefore think carefully

about their strategy for successfully co-existing with aggregators. Do they cease

participating on aggregator websites and instead compete head-on, ramping-up

marketing and brand spend and ask consumers to come to them direct? Or do they

seek to build partnerships which are more mutually rewarding for both their brand

and their financial performance? For larger insurance groups in particular, these

strategies need not be mutually exclusive.

The impact of the aggregator on each stakeholder:

Aggregator Consumer Insurer / broker

Brand and marketing strategy generally based around lowest price rather than what provides most value to the consumer

Expects to save a substantial amount in premium costs each year on renewal

Faces pressure on prices and margins

Limited functionality to allow customer to compare policy features, and little or no ability for the customer to gauge the quality of those features (eg ease of claims process)

Focuses on price more than the value of the policy and the cover it provides

Retention rates from price-driven customers are lower, reducing return on marketing spend and aggregator fees

Interaction with consumers purely online with no telephone or face-to-face contact

May come to regard product as a commodity, resulting in less brand loyalty

Brand damaged as product compared mostly on price or a limited number of features; less scope to upsell

One-size-fits-all question sets for calculating premiums

Benefits from quick and easy access to a range of quotes

Pricing less accurate

Lack of tests for reliability of information entered (e.g. whether car garaged)

More likely to misrepresent to drive down premium

Potential for fraud higher

Gains first contact with consumer and retains that relationship

Builds relationship with aggregator rather than broker / insurer

Loses grip on customer relationship and ability to sell other products

i: Taking on the aggregators

We as a company went into the aggregator space fairly early; now we

have pulled our brand off the aggregator sites and we advertise that

you will only get our best price if you come directly to us. Effectively we

are now in a direct brand fight with them. UK CEO, global insurer

Personally, I’m really quite sceptical of the notion that you’re going to

see a wholesale withdrawal of insurers from aggregator sites, because

customers have demonstrated that they want to buy over these sites.Andrew Torrance – Chief Executive, Allianz Insurance

Large insurance groups like Aviva and Direct Line have adopted the strategy of

withdrawing their brands from aggregators and instead competing with them

directly. Aviva offers consumers a price comparison facility on its website to compare

its quotes with those of a number of competitors. Direct Line’s consumer messages

have said, in short, do not pay aggregators’ commissions and go direct instead.

However, the advertising costs of direct competition are high, supportable only by

the larger insurance groups with well-established brands.

Insurers are wary of withdrawing because the size of the client is

absolutely massive. So if you embark on this journey and you want to

fight that battle to compete, you must be ready to put a lot of money

for a long time behind it.Philippe Maso y Guell Rivet – Chief Executive, AXA Insurance

It is quite interesting that a strong brand can enable you to have the

credibility to enter into market places that you had no experience of

before and weren’t established in. That again illustrates the power of the

brand over the situation.General Insurance MD, UK insurer

Our respondents agreed that only the strongest brokers and insurers are in a position

to take on the aggregators head-on. However, none doubted the ability of the largest

and best-known insurers and brokers to succeed in that battle. This suggests that

it would not take many to follow the example of Aviva and Direct Line to make a

serious impact on aggregators’ business volumes.

ii: Building more successful partnerships with aggregators

You need to have the right processes, the right technology in your

hand to have a chance to preserve your margins and be competitive.

Then whatever you can improve in your service or in your product

proposition can make a difference with your competitors. So whatever

the environment, there is always a way to distinguish yourself.Philippe Maso y Guell Rivet – Chief Executive, AXA Insurance

As a manufacturer, scale is good, so having a multi-channel strategy

is good, because it gives you more scale into your model. The separate

question is, what sort of distribution channel is going to win and do

insurers have the capability to win in that? So playing across different

distribution channels makes sense.Strategy Director, global insurer

The real issue from the viewpoint of insurers is to say, how do we

configure ourselves and our products and the way we present ourselves

so that business as presented by aggregators is profitable for us?Andrew Torrance – Chief Executive, Allianz Insurance

Many insurers appear committed to a multi-channel approach to product

distribution. The challenge is therefore not so much a question of whether to

participate or compete, but how to do both successfully.

Many of our respondents believe that the key to getting more from the aggregator

channel is to build more effective partnerships. This message is echoed by the aggregators.

The future of the aggregator that will win is the aggregator that

understands exactly what our partner needs are and what our

customer needs are and moves the model beyond pure price

aggregation into more value aggregation. Managing Director of insurance, top 5 aggregator

It is clear from our research that while insurance groups choose to partner with

aggregators to access new customers, some have not yet engaged with the critical

success factors. There is no doubt that to deliver a great service and enhance the

brands of both, insurance groups need to build effective working relationships with

aggregators. For example, initial commitment to work together is required to address

the challenges raised by the ‘one size fits all’ question set for generating quotes.

The fact that they bring a service is one thing, but it does not mean that

they have to control the client and with that the value. This will be key

to the debate between aggregator and insurance groups in the next few

years. Some of these aggregators will try and get better control of the

client and although they provide a service that is absolutely valuable

it is important to make sure that there is no confusion between the

comparison service and client ownership.Philippe Maso y Guell Rivet – Chief Executive, AXA Insurance

Some of the sales models which are being successful with aggregators

actually demand that the organisations involved have access to

ancillary income through selling add-on products or services. The value

per customer in terms of selling add on products is much greater in a

telephone context than online.Derek Plummer – Commercial Director, MMA Insurance

Our respondents highlighted a number of issues that insurers and brokers need to

tackle if they are to get more out of their relationship with aggregators. These were:

� Getting greater clarity and control over customer ownership

� Sharing data, both to reduce fraud and also to identify additional opportunities

� Improving the pricing model

� Managing business risk

� Technical improvements.

Table 4: Where it goes wrong and how to address it

Where do brokers and insurers fall down?

How could they do it better?

Failing to obtain MI of sufficient granularity

Track business being written more closely. Share, collect and analyse data with and from aggregators better

Inability to alter underwriting model rapidly

Price daily rather than monthly or even annually

Increased likelihood of fraud Work with aggregators to develop better fraud prevention and detection strategies. Share data to improve identification of inaccurate proposal forms

Standard question set does not fit in with underwriting model

Design and segment policies specifically for aggregators, with an underwriting model that reflects the question set

Difficulty in retaining business on renewal

Selling on brand, not just price, may improve retention rates. Look to collaborate more closely with aggregators on renewal and rights to develop client relationship more broadly, to strengthen brand loyalty

Understandably, when they first signed up to them, many insurers

and brokers were unsure how aggregators would evolve, and what the

challenges of doing business through aggregators would be. Now that

these issues are clearer, it is time for insurers and brokers to look to

redefine their relationships with aggregators, so as to address these issues

and ensure that the relationship is more evenly balanced than in the past.Mark Neville, commercial services partner, Beachcroft

Customer ownership

Customer ownership is always a key issue in any intermediated relationship.

Aggregators will always fight to ensure that they maintain the primary relationship

with the customer, so that they can market other products and services, as well as

encouraging the customer to return to their website on renewal.

Insurers and brokers who sell through aggregators need to be clear about what they

can and cannot do within the confines of their agreements with aggregators and

ensure that this fits with their business model.

Getting clarity over customer ownership is important commercially and

legally, because that is where the value lies, and because consumers are

increasingly aware of their legal rights in controlling the use of their data.Emma Bate, commercial services partner, Beachcroft

Sharing data

Aggregators have a wealth of data that hopefully we should be able to

share between us, in order that we can ensure that we cut down on fraud. Mark Cliff – Managing Director, Fortis Insurance

Sharing the information for us is about how do you get your quote rate

up? How do we get more of your business? How do we help you win?

What are your pressures? What do your loss ratios look like? How do we

help you reintroduce the customer you know so if you have just sold a

home policy how do we help you introduce that customer to a motor

policy via us? Managing Director of insurance, top 5 aggregator

The online platform enables aggregators to collect large quantities of consumer

data around website visits and consumer browsing patterns. From the aggregator’s

perspective, the view was expressed that insurance companies are not proactive in

asking for this data, although aggregators would be happy to share it. This data could

be used by insurers to enhance their profile of their customers and help them build

up a better picture of the risk.

Data sharing is also suggested as one possible means for improving fraud control,

with particular emphasis on building in checks before the insurer goes on risk – or at

least before the claim comes in.

Pricing

Smarter insurance companies are the ones that seem to have the best

technology and are actually able to price pretty much day-by-day but

there are many insurance companies out there that take two, three,

four months to do price changes. Managing Director of insurance, top 5 aggregator

Pricing is also important if the insurer wants to hold onto the customer

relationship but it depends upon your organisation and how strictly

customers believe in you being able to deliver a sustainable price in the

long term.General Insurance MD, UK insurer

The only way you can get your fingers burnt is if you get your pricing

wrong. Strategy Director, global insurer

Unless insurers use a different pricing model for aggregator sourced

business, they will get badly bruised. That is now crystal clear. Andy Homer – Chief Executive, Towergate

Some intermediaries are actually working with negative commission to

get the customer in the first place, and the business model is very much

predicated on selling other products and services … On the telephone,

you can persuade people to buy more whereas online it is easy just to

put a cross and say “no thanks”.Derek Plummer – Commercial Director, MMA Insurance

The key message coming from our respondents was that price is always likely to be

the dominant factor for business coming through aggregators. Insurers and brokers

therefore need to get their pricing right for their aggregator-sourced business, which

may well mean refining their business model to create one better adapted to the fast-

moving aggregator environment.

Some respondents pointed out the profit can lie not just in the underwriting, but

in the opportunity to sell other products and services. This may include breakdown

and legal expenses cover, or looking to make money on the claims side. However,

upselling is considered more of a challenge over the internet than via the telephone.

Those whose business model puts reliance on upselling therefore need to ensure that

they are permitted under their agreements with aggregators to approach customers

to try to sell further products and services.

Managing business risk

We need to work with aggregators, to understand how we put more

checks and balances at point of sale, for example, no claims bonus

validation or checks on certain questions where individuals are less

likely to tell the truth. Mark Cliff – Managing Director, Fortis Insurance

In regard to the shortcomings of the aggregator platform and its vulnerability to

non-disclosure and fraud, respondents from both the insurer and aggregator side

suggested that there was scope to work more closely together to identify cases of

fraud.

In particular, improved use of data collected by aggregators was identified as a route

to combating fraud. Commercial solutions may also exist, including insurers trying

to put a greater onus on aggregators to verify information provided by customers.

Working with aggregators, for example in reviewing the answers set by default, may

also help reduce instances of unintended misrepresentation by customers.

Getting the wiring right

The internal systems of aggregators and insurance groups need to be designed to

facilitate continuous improvement of the aggregator / insurance group offer as

perceived by the consumer. Appropriate systems are required for aggregators to relay

data to their partners in a user friendly and timely manner and for insurance groups

to receive the data, analyse it, authorise changes internally and review and approve

these changes on the aggregator website.

We have just rebuilt our motor website and we built that website by

speaking to our customers and insurance group partners every single

week. We sat down with them and the web designers and we got the

underwriters in. We talked about our question set and we understood

what they rated on each type of question and we built it together. Managing Director of insurance, top 5 aggregator

Encouragingly, we found evidence that aggregators may be willing to start moving

in this direction, working with insurers to improve the quality of the underwriting

as well as focusing on an improved service to customers. It seems clear that there is

potential for insurers and brokers to get much more out of their relationships with

aggregators. There is also evidence that aggregators now realise that it is in their

interests to focus more on building partnerships with insurers and brokers.

The time seems ripe for insurers and brokers to look again at aggregators, determine their strategy for the future, and look to develop a more

sustainable and rewarding business relationship with aggregators if that is the route they decide on.

David Pollitt, Partner and Head of Financial Institutions Group, Beachcroft

iii: Acquiring an aggregator

In the present climate I just can’t see that someone is going to come in

and buy an aggregator because it is not growing their core business.Mark Cliff – Managing Director, Fortis Insurance

It’s difficult to see where massive synergies are from insurers buying

aggregatorsStrategy Director, global insurer

We also asked whether any of our insurer or broker respondents could see merit

in either they or a competitor acquiring a consolidator. None of our respondents

suggested that they had any intention to acquire an aggregator in the current

climate.

Many considered that the budget required to continue to build these relatively

young brands and maintain growth was too onerous. In addition our research

concluded that aggregators do not offer a book of business but a delivery platform to

run and so are not compatible with many insurers’ business structure.

For further information please contact:

David Pollitt

Partner and Sector Head, Financial Institutions

Tel: +44 (0) 117 918 2226

Email: [email protected]

David is Head of our Financial Institutions sector. He has been advising financial

institutions for a number of years on contentious and regulatory matters. He

combines his practice of advising financial institutions with his role as sector head,

which involves him spending time speaking to clients about their business and their

legal requirements, so as to ensure that our service delivery is perfectly aligned.

His commitment to clients’ businesses is unquestioned; “I genuinely think he knows

my business better than I do” observed one.

Emma Bate

Partner

Tel: +44 (0) 20 7894 6740


Emma has extensive experience of advising our insurance clients on all contractual

and commercial issues including negotiating aggregator agreements.

In particular she has spent the last 2 years on secondments to Zurich (both UK

and international businesses) and Bupa International. She has experience of both

specialist insurance contracts as well as general procurement, outsourcing and

e-commerce.

Emma has a particular interest in data protection and other consumer regulatory

issues. She led a team that reviewed a major UK insurer’s policies under the Unfair

Terms in Consumer Contracts Regulations, as well as guided clients through OFT,

ASA and Information Commissioner complaints.

Mark Neville

Partner

Tel: +44 (0) 20 7894 6356


Mark has considerable experience in advising major UK insurers on insurance

distribution arrangements, including agreements with brokers and corporate

partnership or affinity agreements with high street banks, major retail chains, car

manufacturers, charities and other intermediaries.

He has been on a number of secondments throughout his career (including at AXA,

CGNU (now Aviva) and RAC). In 2008, Mark spent 6 months as Acting Head of Legal

Services at Allianz Insurance.

Mathew Rutter

Partner

Tel: +44 (0) 20 7894 6322


Mathew has experience of a wide range of non-contentious regulatory issues as

they affect insurers, banks, asset managers and other financial institutions. His areas

of expertise include financial promotions, consumer credit, TCF, unfair terms in

consumer contracts, market abuse and insider dealing issues, money laundering,

MiFID, conduct of business issues and corporate governance.

Mathew regularly advises on transactions in the regulated sector, including change

of control issues. He also advises on new authorisations and perimeter issues over

whether authorisation is required.

Mathew also advises regulated firms on corporate and commercial matters, such as

outsourcing arrangements, joint ventures, and shareholders or LLP agreements.

Mathew regularly writes articles and gives talks on regulatory issues, and has

appeared on radio and television discussing regulatory developments.

James MacNish-Porter

Partner

Tel: +44 (0) 20 7894 6601


James specialises in financial services law. A company mergers and acquisitions lawyer

by background, James’ skills include non-contentious financial services regulatory

advice and distribution agreements. James has a detailed knowledge of the Financial

Services and Markets Act and other financial services regulation. He has a particular

interest in insurance and wealth management businesses as well as the regulatory

perimeter. James is part of Beachcroft’s discrimination team, dealing with the Equality

Bill proposals for age factors in financial services.

Recently, James has provided training on conflict and governance, financial promotions

and unfair contract terms in financial services and spent time on secondment with a

major insurer. He is company secretary of the Association of Independent Financial

Advisers and has set up industry schemes to assist financial advisers.

Nick Gibbon

Partner

Tel: +44 (0) 20 7894 6308


Nick has over 20 years’ experience, with Beachcroft and Allen & Overy, of leading

teams acting for insurers and other financial institutions including RSA, Allianz, AXA

and Ansbacher. Nick is recognised as a leading expert in the Legal Experts 2009 guide,

and leads Beachcroft’s non-claims Financial Institutions Group in London.

Nick’s background is in corporate law and he has extensive experience of mergers,

acquisitions, disposals, IPOs (and other share issues), joint ventures (and other co-

investment arrangements) and reorganisations, as well as of other corporate finance

work. Nick is also used to advising financial institutions and their management on the

myriad company law and other issues that confront them on a daily basis.

If you would like this document in a different format please email [email protected] or phone +44 (0) 20 7894 6663.

design 3 fish in a tree > ww

w.3fishinatree.com

We use the word ‘partner’ to refer to a member of the LLP, or an employee or consultant with equivalent standing and qualifications. Beachcroft LLP is a limited liability partnership registered in England and Wales (registered number OC317852) which is regulated by the Solicitors Regulation Authority. A list of the names of our members is available for inspection at our registered office, 100 Fetter Lane London EC4A 1BN.

Beachcroft LLP is a full-service commercial law firm with offices across the UK and in Ireland

To find out more about us go to www.beachcroft.com

© Beachcroft LLP 2010

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Documents

introduction aggregators

growth of aggregators

aggregator proposition

favour of insurers

larger insurers

personal lines insurers

aggregatorgenerated

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