Euro brokers feel the heat from direct insurers

Online sales fastest growing distribution channel in six countries but churn rates climb

Insurance News

By Chinwe Akomah

Direct insurers continue to take large bites out of insurance sales with more than 40 per cent of motor or household policies purchased online across six European countries - France, Germany, Italy, Poland, Spain and the UK.

The combined average for consumers switching a motor or household insurance policy or buying one for the first time via online channels accounted for an average of 42.3% of insurance transactions in 2012, up nearly 10% since 2008.

However the UK easily claimed the largest share of online purchases with 69% of new and switched motor and household policies acquired online in 2012, well ahead of France with the lowest levels of online purchases at 25.2%.

“All the countries we examined showed clear growth in the use of online methods to purchase insurance,” said Edward Wilford, consultant at Finaccord, a UK based market research group covering financial services which surveyed consumers in the six countries.

“In both countries in which consumers had previously shown a strong preference for online channels and in countries in which consumers had previously been less inclined to go online for insurance products, there is an increasing trend for buying cover via the internet.”

This fits in with information regarding consumer attitudes towards online tools and purchasing insurance products online. Respondents in the UK were far more likely to use the internet for to purchase insurance than those in other countries, with 32.4% reporting that they always researched insurance online and 24.2% saying that they always bought online. In contrast, France had the lowest proportion of consumers willing to go online in this way, with 66.8% of respondents in France stated that they never bought online.

However brokers should note that it has not all been good news for insurers with churn rates increasing in line with direct sales. Churn rates in the UK for motor cover were 39.3% and 35.1% for household insurance in 2012.

“By contrast, France had the fewest consumers buying online, the lowest percentage of direct sales use, and experienced the least market volatility, with only 14.2% switching insurers for motor insurance and 16.8% for household insurance during 2012,” Wilford says.

These statistics reflect a similar situation in Australia with the Australian Prudential Regulatory Authority (APRA) releasing figures in late 2012 which stated that direct insurers earned $33 billion of gross premium inside Australia for the 12 months to June 2012

While these statistics may be impressive in terms of sales brokers can point to the low level of complaints directed towards them as a further reason to seek advice when buying insurance.

The Financial Ombudsman Service 2011-2012 annual review reported that of the 25,298 disputes handled in that 12 month period, insurance brokers are responsible for only a very small percentage compared with general insurers and other advice professionals.

When broken into sectors, general insurers were responsible for 7,591 while life insurers also had 851 complaints with general insurance brokers responsible for only 123 complaints and life insurance brokers for only 13 complaints. As a percentage general and life brokers combined accounted for just 0.5% of all complaints received, while general insurers were responsible for 30%.

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