Price competition threatened by insurer reluctance to work with aggregators

Price competition threatened by insurer reluctance to work with aggregators

Price competition threatened by insurer reluctance to work with aggregators The Financial System Inquiry panel has come up with two options as to how aggregators and insurers can work together without stifling competition after the interim report found that underwriters are reluctant to share product information with them.

The interim report, released yesterday, found that the main issue in the submissions relates to aggregator access to information.  It says: “Insurers in the home and contents and car insurance markets have been reluctant to share their product information with aggregators, slowing their growth. As a result, consumers in these markets must compare products without the assistance of aggregators, which may reduce price competition.”

The panel suggests one option is to ensure aggregators can use automated processes to obtain quotes from general insurance websites. It notes this “would not give aggregators access to direct pricing models but may provide a route to discover them”.

Another option is to develop representative consumer categories based on key consumer characteristics: “Insurers could disclose their policy premia for each category and consumers could then, potentially with the assistance of aggregator services, compare premiums from different insurers for the category that best represents their characteristics.”

The panel notes that just enough categories would be needed to ensure that the majority of consumers fall within a category. Too many categories could create complexity for consumers and compliance costs for insurers.

It adds that with both these options consumers may struggle to compare coverage and overall value.
The inquiry is appealing to the industry for its thoughts on how these issues could be managed. It also wants to know the costs, benefits and trade-offs of either not changing current arrangements with aggregators, ensuring aggregators can use automated processes to seek quotes from general insurance websites, or  creating comparison categories for insurance products that aggregators could use to compare the value of different products.

In their submissions, insurers argue it is more complex to aggregate insurance products than other financial products because they are tailored to individual circumstance. It is also wary of sharing pricing models with aggregators for fear that they could identify sensitive pricing information.

The inquiry is also looking for further industry input on whether opening up state and territory-based statutory insurance schemes to competition would improve value for money. The interim report says that submissions from insurers and brokers note that statutory workers compensation and personal injury motor accident schemes are not open to the private sector.

The submissions state that opening up the schemes would enhance consumer value through greater competition. The inquiry is also seeking further information on this.

The ICA welcomed the release of the interim report and the opportunity to provide further evidence to support improvements to Australia’s financial system. It said it will consult its members on the aggregator issues, noting that the inquiry was aware of the pitfalls when consumers shop for insurance based on price.

ICA CEO Rob Whelan added: “The Financial System Inquiry interim report has taken into account the ICA’s submission on behalf of general insurers, and little fine-tuning is required. We conclude that with the appropriate regulatory and policy settings, a greater allocation of risk can be intermediated through general insurance, including that risk currently borne by governments.

To read the full interim report, click here.
 
8 Comments
  • Anthony K 16/07/2014 9:49:20 AM
    A race to the bottom driven by the aggregators will do nothing to keep the sector sustainable. Pay peanuts, get monkeys is the old saying. There will be little to no value to any stakeholder as a result. Be careful what you wish for...
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  • broker 16/07/2014 9:55:30 AM
    We already have aggregators, they are called Brokers and compare price and product forcconsumers.
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  • Mark Dalton 16/07/2014 10:02:21 AM
    Seems to miss that aggregator business models generally require financial payment from insurers - for leads and/or clip of premium
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