In response to the article 'Internet brands bid for insurance space' (PM, 23 March 2006, p40), I would like to assert that while there is a sizeable, and possibly growing, tranche of consumers wishing to buy insurance on the Internet (approximately 30%), they are not the only customers and this will always be so.
If insurers are to resist the drive towards a commoditised general insurance environment characterised by stalemate price-based competition, they must develop specific propositions for each type of customer segment. Insurance providers must decide what segments they wish to focus on, and then tailor suitable product offerings to the appropriate distribution channels for the chosen customer segments.
There are Internet-savvy consumers who surf online for the cheapest deal, and insurers must be able to capture significant volumes of this low-margin commoditised business if they are to make a return.
Not all customers have the time or the inclination to surf the Internet for great deals, and many will pay a modest premium for the right proposition. Insurers must work creatively to understand what customers want, and deliver propositions that are motivatingly attractive.
Admiral Insurance has enjoyed success by tailoring product offerings to specific customer segments, such as female drivers and the family unit. Similarly, NFU Mutual is targeting rural communities, especially farmers.
Their success can be measured in terms of premiums written and achieving customer retention levels that are above the industry norm - despite charging a price premium over other low-cost providers.
The entry of Internet affinity brands will not kill off traditional insurers and intermediaries, as not every consumer wants to purchase insurance over the internet and many are willing to pay a price premium for something of value.
Insurers must think from the perspective of their customers, and deliver motivatingly attractive propositions or risk the demise of personal lines insurance to that of a commoditised product environment. The fate of traditional insurers is in their own hands.
