In a recent article at Insurance Post, Henry Engelhardt, Admiral CEO celebrates his company’s recent growth while glossing over the fact their flagship profit generator, Confused.com, shrunk for what I believe is the first time in its history.
Like every other industry, insurance has suffered through the recession. Price comparison sites, on the other side, kept growing as people sought ways to save money including changing insurance provider before their policies run out. However, it seems recession-proofing was quite short lived and now Confused, the leading price comparison site in the UK, has started to go backwards.
Part of this particular recession will be due to competitive pressure: CompareTheMarket keeps creaming the success of Aleksandr Orlov the Meerkat. But I believe deeper forces are at work here and the whole category of insurance price comparison may be about to enter a very difficult time indeed. A perfect storm of price efficiency, quality, consumer sophistication and external competition could hit them hard.
Partly due to the success of these price comparison sites, insurance prices in the UK have tended to equilibrate, removing one of the key reasons for consumers to use these sites: the ability to make real savings on their insurance. As aggregators created total price transparency, insurance providers were forced to compete for every customer, losing profitable pricing advantage but gaining insight on huge numbers of applications that better informed their prices, accelerating a tendency to perfect pricing for every case and removing the very price differences that aggregators used to exploit. Cheaper products still exist, but again consumer experience and a culture of online reviews have helped identify the reasons for that lower price as dangerous cutting of corners in many levels. While many drivers still see car insurance as little more than a tax on driving, nobody wants to pay for a service that won’t be delivered at a time of need. As prices from reputable suppliers evolve to better reflect customer needs, low quality cheaper brands are squeezed out, once again impacting the aggregator’s main consumer benefit.
Consumers are also getting more savvy. Aggregators’ initial claims of big savings benefitted from a culture of loyalty that insurers took advantage of to increase prices year after year in a dated business model that is now all but gone. The current trend for switching providers on a yearly basis again eliminates most of the potential savings as customers haven’t accumulated years of stealth premium hikes. In this scenario, the very high commission demanded by aggregators in the event of a sale mediated by them plays against them – in a world with little profit and very low loyalty it is too expensive to pay an intermediary for business so insurers have started to turn away from price comparison -some like Direct Line were never present- denying the price comparison sites their most necessary asset: prices and brands to show on their results pages. Finally, the current weakness may be seized by much more sophisticated external players with deeper pockets and lots more ability to innovate. I wouldn’t be surprised if Google, Bing and brands like that would launch their own insurance comparison very soon. They’ll be forced to if aggregators’ growth is halted. Aggregators spend millions of pounds in PPC advertising. If they lose the ability to generate revenue for the gatekeepers of the Internet they’ll be tossed to the side and replaced by better offers from the global powerhouses.