David vs Goliath: How new insurers are competing with incumbents

David vs Goliath: How new insurers are competing with incumbents | Insurance Business New Zealand

David vs Goliath: How new insurers are competing with incumbents

New Zealand’s insurance market is highly consolidated and competition has historically been scarce, with two key players – IAG and Suncorp – owning approximately 70% of the market. This has often left brokers with limited choice as to where to go for cover – however, this has started to change with the rise of new, specialist insurers and underwriting players who have shaken up the market and started the insurance offering afresh.

Being a newer player in a shrinking market has its advantages, but it also means standing against incumbents who have dominated the market for a very long time – and who may not be all too happy with the new competition. However, according to both the brokers and the new players, the future of this area is bright as it ultimately gives customers more flexibility and choice, and toughening competition will push all players to raise the bar of service.

According to Ando Insurance, an underwriter backed by Hollard which launched its services in 2016, the New Zealand insurance market is ripe for competition in areas which have traditionally been either monopolised or under-serviced.

“We are a new player in the market, but the team itself has actually been around for quite a long time,” Lyon told Insurance Business.

“You’re always going to get pushback when you launch a new business into an established market, and we certainly had to stand up to some of the incumbent market players who didn’t want us there. But we’ve been very successful in carving out our niche and proving the value that we can bring.”

“There is definitely scope for more competition in the New Zealand market, and our view is that the more competitors, the better,” Lyon explained.  “Competition provides more challenges to the bigger established companies, and that’s a good thing.”

Lyon says that in a market where two large players hold the lion’s share, competing against them is inevitable – however, new businesses must also look for segments where customers have limited choice and create a strong value proposition around that.

“We compete where we see opportunity – we look at different segments, and we see an area that is over-consolidated, under-serviced or where brokers are looking for more choice, then we’ll look at servicing it,” Lyon said.

“But the difference between us and other specialist underwriting agencies is that we think of ourselves as an insurance company, and we’re building a broad-based, multi-segment approach. We don’t try to be all things to all people, but we are looking to work closely with the brokers who have an aligned view of the customer proposition.”

“One of the things that the industry needs to work hard at is getting a better brand sentiment from consumers, and one of the goals we have is to change the insurance conversation in New Zealand,” he continued.

“There is opportunity to shift it into the positive, but in order to do that you need to have the technology, the culture and the desire to shift into a new way of thinking. The insurance industry has historically lagged behind others in this sense.”

Paul Munton, executive general manager – broking branches at Rothbury, says that new or specialist players like Ando, Delta or Star Insurance have presented them with a much wider product range, as well as access to niche specialists with in-depth knowledge of the risks of their market segment.

“We’ve had a handful of players dominating our market for a long time, typically Australia-based insurers,” Munton explained.

“The dynamic of more underwriting agencies coming into the market means there is now a significant number of alternate markets to go to, and a lot of these underwriters will focus on handling a particular product range and doing it well, as opposed to being a generalist. We’ve also seen larger players face challenges in the form of restructurings, redundancies and a shifting risk landscape.”

“I think the new underwriting agencies have given us a lot more choice, and that’s been a real win for clients,” Munton said. “But the downside is that many are also English-based Lloyd’s agencies, and Lloyd’s has had a change itself in terms of reviewing their business plans and risk appetite especially NZ natural disaster exposures.”

Munton says that the full-service offering of companies like Ando has been a significant advantage, and the claims performance of niche specialists such as Delta is also above average, as its niche focus and in-depth expertise has allowed for a more efficient claim turnaround.

“As brokers, this trend gives us a lot more choice and gives us the chance to get around the table with the new underwriters, which is great,” Munton said. “We’re also seeing a better claims performance because many of them are writing to a niche, and they are also attracting specialist talent – Delta, for example, has some great tech liability experts working for them.

“I don’t think the traditional players can compete in this space to the same extent that they used to given pressures to restore profitability to underperforming portfolios.”