Car insurers face up to online threat
Sydney Morning Herald
Monday March 1, 2010
AUSTRALIA'S two biggest car insurers face intensifying competition online, threatening their market share and underwriting profits.Despite having more than 70 per cent of the car insurance business, Suncorp-Metway and Insurance Australia Group are closely watching the likes of Real Insurance, backed by the international Hollard Group, Virgin Car Insurance and Youi with their website offerings.An additional threat is being posed by Progressive Direct, the low-cost online service of the US-based Progressive Corporation, which launched its Australian business out of Melbourne two months ago.Recent surveys of the industry have shown three-quarters of consumers search for car insurance online and that 68 per cent of them buy their cover through the same channels.The development of a website- and mobile-dominated industry is closely following trends seen in other countries such as Britain, where online insurance has effectively wiped out traditional retail offerings.Both Suncorp and IAG have sought to blunt threats by not only putting their own national and regional brands such as AAMI, GIO, NRMA Insurance online but also creating their own web-only offerings.Suncorp has targeted the low-cost and young drivers' markets with Bingle and Just Car while IAG launched The Buzz in conjunction with its partner RACV last May as part of its counter-attack.The two companies have so far seen little erosion of business from their respective customer bases and both of them reported at their half-year results last week that they had pushed through premium increases on their motor insurance offerings.Neither had their online rivals responded with a price war by undercutting the new higher rates. However, they are expected to ramp up their offerings in coming months. "Pricing has remained rational but increased competition for better risks is evident," said IAG.Suncorp's recently appointed chief executive, Patrick Snowball, who was formerly with the British insurer Aviva, said he was well aware of the danger posed by online-only companies."Coming from the UK market, I know better than most the cost of ignoring these threats even when they appear to be more noise than substance," Mr Snowball said at Suncorp's results presentation."Having now comprehensively reviewed our business, I'm confident that we have the brands, the scale and the channels to respond to new competition as it emerges, but let me assure you there'll be no complacency."Suncorp's investors will have to wait until May to be given a detailed rundown on the performance of its website-only businesses but IAG disclosed that The Buzz lost money during the first half of this financial year.The company also gave an indication of the type of customers it is now attracting: The Buzz's average policyholder is 35, lives in better-off suburbs, owns a car which is either new or less than five years old and tends to pay higher premiums.
© 2010 Sydney Morning Herald