Online insurance ‘supermarkets’ will emerge to dominate sales in the UK as consumers tire of filling in endless forms to buy online, according to a new Report from Forrester Research Ltd. (Nasdaq: FORR). By 2005, about 20% of all general insurance sold to personal customers will be sold online, much of it through supermarkets, creating an online market worth £3.1 billion.
“Consumers’ desire to comparison-shop is driving the creation of supermarkets in funds, mortgages, and insurance,” comments Benjamin Ensor, analyst at Forrester’s UK Research Centre. “Built by a mix of startups, software houses, and insurance brokers, supermarkets will undercut traditional insurance brokers by taking smaller commissions. They will distribute through Web sites related to cars, homes, holidays, and health, displacing partnerships with individual insurance companies as they do so.”
Forrester has identified the emergence of two types of insurance supermarket in the UK. Independent supermarkets will build new brands for the Web and interactive TV, using advertising and branded partnerships with other sites. White-label supermarket operators will partner with portals, financial services companies, and other Web sites keen to help customers find low-cost insurance while keeping them loyal. In exchange for commission on transactions, these white-label operators will supply the insurance quotation engine and manage relationships with the insurance companies, but leave branding to their partners.
“Supermarkets will help consumers to the best deal by pooling quotations from a large number of insurers and competing with each other on commission levels,” Ensor ontinues. “Supermarkets will drive insurers to shorten the application process by simplifying their underwriting criteria, and help customers understand their insurance needs and the different kinds of policies available by providing editorial content, coverage-needs calculators, and simple decision trees for advice.”
Motor insurance will grow fastest, as consumers transfer their annual renewal searches online, and Web buying will quickly spread to other policies like buildings, contents, travel, and health. Life-assurance sales will move online much more slowly, hindered by regulation and product complexity. Because policies are bought infrequently and rarely renewed, premiums from term-life policies acquired online will only reach £170 million a year by 2005.
Ensor adds, “The growth of price-driven comparison-shopping will put further pressure on margins and drive more consolidation among insurers.”
For the Report “UK Insurance Supermarkets Arrive,” Forrester spoke to 25 companies in the UK general-insurance and life-assurance markets, in addition to working with the Association of British Insurers on a survey of 65 of its members.