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Direct Insurance Market Report 2007
Key Note Publications Ltd, April 2007
Increasingly, direct insurance is the preferred method used by large financial services companies to deliver personal-lines general insurance. Before the arrival of direct-distribution models, insurance brokers and other intermediaries formed the main distribution channels for personal-lines insurance. This still applies to commercial lines, but personal-lines direct insurance is rapidly taking market share.
Direct Line set up the first dedicated direct insurance operation in the UK in 1985. The market share taken by direct players has increased steadily ever since, partly at the expense of companies' own sales staff and agents, and partly at the expense of intermediaries. This trend has intensified since 1999, when retailers also entered the market.
The obvious success of direct insurance companies prompted traditional insurance players to set up their own distinct direct insurance brands. New entrants have also been attracted to the direct insurance market, as a result of the lower operating costs made possible by call-centre and Internet-based operations. The new entrants include utilities, retailers and affinity groups.
There has also been specialisation in the distribution chain, as distributors of personal-lines insurance are increasingly separated from underwriters, with each tackling their specialist cost bases. Many market participants have established partnerships with firms that are able to offer economies of scale in terms of expertise, or which have access to a large number of customers.
Direct insurance companies have developed strong brand names to differentiate them from their fiercely competitive rivals. The publicity of these companies — such as `Quote me happy' from Norwich Union Direct or `Just AAsk' from the AA — reinforces the differences from their rivals, as well as their `no-nonsense' approach towards customer needs.
The direct insurance industry is aggressively innovative in using technology to gain speed in obtaining competitive quotations. Direct insurers invest heavily in IT, and make great use of customer relationship management (CRM) techniques to supplement their call-centre and Internet sales opportunities.
Our exclusive consumer research indicates that clients are more likely to select an insurer based on convenience, rather than on price or even on reputation. The research also shows that usage of the Internet to buy insurance policies direct is now high, rivalling other remote channels, such as the telephone. However, broker- or branch-mediated purchases remain important. Despite the rise in direct insurance, the ability to purchase insurance from a branch office remains important to many customers.
The development of websites and of broadband Internet access is likely to lead to more integrated insurance purchase, as consumers research the Web and then choose a direct supplier either online or through a retail outlet. The introduction of more IT and consolidation of brokers is still inevitable, as brokers face heavy regulatory burdens and higher demands from customers, who expect high-quality service and solutions to their insurance problems that direct insurers do not necessarily want to consider.
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