dac-beachcroft-thought-leadership-learning-to-live-with-the-aggregator

BEACHCROFT
THOUGHT LEADERSHIP SERIES
Learning to live with the Aggregator
How insurers and brokers can forge successful commercial
relationships with aggregators

Introduction
Aggregators have grown rapidly in recent years to become important players in the
retail insurance distribution landscape in the UK. After initial enthusiasm, many
insurers and brokers now appear to have an uneasy relationship with aggregators.
Some of the larger insurers have chosen to take the game to the aggregators and
compete head on, rather than collaborate.
For many players in the insurance market, the aggregator offers an opportunity to
reach a wider audience than before. For consumers, the aggregators have driven
down prices and opened up a complex market to greater levels of transparency.
For insurers and brokers, the challenge is how to make money in this environment. It
seems clear that the current, loss-making model is not sustainable.
Aggregators are not likely to fade away in the short or medium term, so insurers
and brokers need to reconsider their strategy for dealing with aggregators. Do
they compete, or do they build stronger relationships, or is the smartest strategy a
combination of the two? Can they adapt their business models to manage the risks
and improve their returns from aggregator-generated business?
This research, part of Beachcroft’s thought leadership programme to understand
strategic issues facing insurers in the UK, seeks to identify strategies for success in an
aggregator-dominated retail marketplace. It also looks at what the future may hold
for aggregators, and considers whether the tide may be turning in favour of insurers.
Eleven interviews were conducted with leading players in major UK and international
insurance groups and aggregators to gather insight into the role of the aggregator in
the shifting retail insurance distribution landscape. Our thanks go to all of those who
participated.
I’m sure that you will find the views of our interviewees offer much food for thought.
David Pollitt
Head, Financial Institutions Group

Contents
Introduction 3
Executive summary 7
The UK personal lines insurance marketplace in figures 8
1: A revolution in online buying habits 9
The rise of the aggregator 9
The appeal for consumers 11
Possible disadvantages for consumers 12
2: Aggregators: here to stay but more evolution to come 14
Future trends for aggregators 14
Consolidation 16
Vertical integration? 18
Regulation and development of the aggregator proposition 18
3: Friend or foe? The pros and cons of using aggregators 20
Price focus 21
Retention rates 22
The implications for brands 23
Delivering the right quote 24
Poor underwriting performance 24
Misaligned systems 26
4: Engaging with aggregators 29
i: Taking on the aggregators 30
ii: Building more successful partnerships with aggregators 31
iii: Acquiring an aggregator 38

Executive summary
Our research focused on how the relationship between personal lines insurers and aggregators is likely to
develop over the next few years. The key messages to come from our research are:
Evolution of the market
„„ The growth of aggregators is likely to plateau, with limited scope to extend beyond personal general
insurance lines
„„ The balance of power appears to be shifting somewhat more towards insurers and away from aggregators –
a trend which insurers should look to take advantage of
„„ Aggregators are here to stay but the market is ripe for shake-out and consolidation
„„ Although the aggregator model is always likely to be price-led, regulatory pressures are requiring aggregators
to provide more information on product features, creating opportunities for ‘value-added’ products
The pros and cons of using aggregators
„„ Aggregators can particularly benefit smaller insurers and those with less brand recognition, providing a
relatively cost-effective route to market, although some customers may be wary of brands that are new to
them even if offered through a well-known aggregator
„„ Large and well-known insurers using aggregators face challenges surrounding the protection of their brand
and their existing customer base
„„ Withdrawing from and competing with the aggregators is a realistic option only for insurers with strong
brands or offering products that can be clearly differentiated
Engaging with aggregators
„„ Many insurers, large and small, would benefit from investment in systems and product design to maximise
returns from sales through aggregators
„„ Some aggregators are actively seeking a more collaborative approach with insurers, suggesting there are
opportunities for successful partnering which insurers should be looking to capitalise on
„„ There are key issues surrounding ownership of the customer base and data protection
„„ Fraud is a major concern for general insurers, particularly in aggregator-generated business – better
engagement could improve the position

The UK personal lines insurance marketplace in figures
2 Percentage of total TV advertising accounted for by aggregators in 2008
9 The number of aggregators advertising on TV in 2008
19 The number of general insurance aggregators in the UK
37 Percentage of home insurance policies sold through the Internet
44 Percentage increase in false claims in the motor insurance industry 2008 on 2007
54 Percentage of motor insurance policies sold through the Internet
58 The number of brands available through Comparethemarket
60 The number of white labelled sites for home and motor insurance in UK
82 The number of brands available through Confused.com
90 Percentage increase in advertising spend by aggregators 2008 on 2007
140 The number of motor insurance providers in the UK
200 The number of motor policies available in the UK
14 million The cost in £s of the Peter Jones MoneySupermarket advertising campaign
13 billion The value in £s of the UK car and home insurance marketplace

1: A revolution
in online buying habits
For personal lines, the impact of the aggregator has changed the face
of the marketplace. Consumer behaviour has also changed to shopping
around for what they perceive as a bargain, driven by less time and the
economic situation.
Mark Cliff – Managing Director, Fortis Insurance
There has been a convergence of the insurance offering onto common
platforms. This, when added to the speed and convenience of first
telephone and then the internet as a sales channel, has driven the rise
of the aggregator platform.
Philippe Maso y Guell Rivet – Chief Executive, AXA Insurance
Perfect access to information from technology and commoditisation are
the two main themes.
Andy Homer – Chief Executive, Towergate
The rise of the aggregator
The emergence of the insurance price comparison website – or aggregator – is seen
by the majority of senior insurance stakeholders we spoke with as the single biggest
development in the UK personal lines insurance market in the last five to ten years.
However, it sits within a broader context of a change in consumer purchasing behaviour
which has implications for all insurers whatever distribution channels they use.
The speed of broadband diffusion and the consequent online retail revolution, allied
to an increased availability of information, has caused a step change in consumer
buying behaviour.
The 2009 National Statistics Opinions (Omnibus) survey puts penetration of
broadband internet connection at 63% of UK households or 16.5 million households,
an increase of 6.6 million since 2006. Consumers now have both the capacity and
the confidence to be more autonomous in their purchasing behaviour, choosing to

research, compare and purchase on their terms to a greater extent than ever before.
The insurance market has offered the perfect platform for the entry of aggregators.
Brands such as Confused.com, Moneysupermarket.com, Comparethemarket.com
and several others launched into this space offering the facility to compare and buy
primarily motor and home retail insurance products online from a wide array of
providers and brokers.
The aggregator brands have established themselves quickly, using TV advertising
as a key marketing component. According to Deloitte1
, in 2008 38% of new motor
insurance business was sold through aggregators, with the top 5 aggregator brands’
TV advertising expenditure reaching £80m.
1 Non-Life Insurance Market Update, September 2009
2 Defaqto’s report entitled ‘Web Aggregators 2009’, December 2009.
3 Deloitte’s Non-Life Insurance Market Update, September 2009.
4 Datamonitor’s Aggregators in UK General Insurance 2008
5 Confused.com’s H1 2009 Financial Results and Moneysupermarket.com’s Q3 2009
Financial Results.
6 Datamonitor’s Price Comparison Site Survey
7 Deloitte’s Non-Life Insurance Market Update, September 2009.
Table 1: The rise of the aggregator
Number of aggregators
as at 2009:
19 major general insurance aggregators
60 white-labelled sites across motor and
home sectors2
Market penetration 2008: 38% of new motor insurance business sold
through aggregators3
, up from 25% in 20074
Revenue growth 2009:
Half year revenue
comparisons to 2008
Confused.com: 10% increase
Moneysupermarket.com 15% increase5
Top 5 aggregators: Confused.com
Moneysupermarket.com
Comparethemarket.com
Tescocompare.com
GoCompare.com6
TV advertising: The Big 5 aggregators spent £80m in 2008 –
a 90% increase over 20077

A number of our respondents also believe that the recent financial crisis has played
into the hands of the aggregators, as consumers have felt more inclined to look
around for a good deal at the lowest price.
The appeal for consumers
The UK population is getting used to the notion that it’s a pain to go
around four or five insurers and they just want the cheapest; something
basic that does the hard work for them.
Strategy Director, global insurer
It is clear from both market penetration figures and our conversations with the
management of insurance groups that insurance aggregators have been embraced by
consumers. It is easy to appreciate why. The major disincentive to shopping around
for insurance has been overcome by the aggregator and translated into a user-
friendly, time-efficient experience for an increasingly web-savvy target market.
The insurance aggregator removes one of the main obstacles to shopping around:
time. By compelling participating insurers to conform to a single set of questions,
they allow consumers to access a wide range of quotes far more quickly than is
possible by going through each insurer’s website in turn. The aggregator may also
introduce the customer to insurers not previously known to them.
Consumers have bought the aggregator’s message that they are consumer
champions, there to help consumers find the best deal. Consumers enjoy the ability
to view a comparison of products from several brokers and insurers on one site which
obviates the need for lengthy research.
I think the statistic is seventy percent of people who buy from
aggregators go for the number one, so it’s a much more efficient
marketplace, i.e. the market’s transacting at a lower price, to the
customer’s benefit.
The entry of the aggregators has also squeezed the price of insurance for consumers
as some insurers have had to adjust products and pricing to make their offerings
more competitive.

Aggregators have improved consumers’ awareness of the variety of products on offer
as a result of the patronage of a large number of insurers and brokers. They have
also played some part in consumer education in regard to product features – the
purchase process shows the features to add or exclude and the price associated with
those features is more transparent than in the past.
The value they’ve added is more transparency, more clarity about what
you are buying and what you might add in.
Possible disadvantages for consumers
There is the cost of an additional layer of distribution and I don’t
think the consumer necessarily understands when they go on the
comparison website, that their use of it will affect the price of the
product in some way.
UK CEO, global insurer
The development of the aggregator was not regarded by our respondents as all good
news for consumers. A number of our panel expressed concerns about the lack of
transparency with some aggregators, as well as the concern that an over-riding focus
on price may lead to consumers not buying insurance that best suits their needs.
The Financial Services Authority (FSA) has also expressed concerns in recent years
about some of the claims made by aggregators (some of which are reminiscent of
similar concerns expressed in the past about insurers).
Table 2: Top 4 consumer benefits from using an aggregator
Time-efficient purchasing process
Exposure to larger variety of products
Increased awareness of product features
Competitively-priced insurance

Particular concerns that the FSA has raised surround:
„„ claims made by aggregators about their market coverage
„„ whether consumers are encouraged to consider features, other than price, before
purchasing products
„„ whether consumers understand the basis on which they may achieve savings – for
example, whether the policy being offered is comparable with their existing cover
„„ clarity over the excesses payable
„„ the accuracy of any assumptions made in generating the quote
„„ whether aggregators have appropriate systems and controls in place to ensure
that key product features included within insurers’ policies are correctly listed
on their site and that they correctly relay consumer information to brokers and
insurers.
Since most, if not all, aggregators are FSA-regulated, they are subject to the same
general principles and rules as other insurance intermediaries. In particular, they are
required to ensure that the information they provide is clear, fair and not misleading.
For consumers, aggregators may make assumptions to generate quotes
quickly, and there is a risk that if a consumer is not aware of such
assumptions, they may find that they are unable to make a claim.
Additionally, if information about policy excesses is not provided clearly,
consumers may end up with less cover than they intended to buy and
insurers may fail to treat their customers fairly.
FSA Financial Risk Outlook 2009, p58

2: Aggregators: here to stay but more
evolution to come
Looking to the next phase of the aggregator/ insurer relationship, we seek to
determine in this section what shape the insurance aggregator sector will take as it
continues to establish itself.
Future trends for aggregators
We presented our respondents with three possible scenarios: continued growth at
current rates, a levelling out, and a significant decline. All but one of our respondents
predicted a levelling out; the one dissenter could foresee significant decline as a
realistic scenario.
Three potential scenarios for aggregators
1. Initial growth of
online business
2. Rapid adoption
of aggregators by
insurers and brokers
3. Assessment of
aggregator impact
on insurer business
model and
possible exit
4. Development of
sustainable aggregator
strategies e.g.
compete, collaborate
or acquire
number of insurance policies
sold through aggregator sites

Continued growth
None of our respondents thought that the current rate of aggregator growth was
sustainable. To be so would require aggregators to continue to expand the number of
insurance lines they feature to deliver growth. This could include the take-up of some
more commoditised commercial lines, for example tradesman insurance, and there
are initial signs that aggregators may move this way.
Growth levelling out
Their advertising message has been “we will save you £150” … now you
can’t do that year on year. They may be able to do that for two years,
but come the third year the customer is going to think “actually you’re
not saving me money, I am going to look somewhere else”, … so it could
be that the comparison sites lose some of their sheen.
The consensus view of our panel was that the growth rate in the percentage of insurance
business distributed through aggregators will slow and start to plateau. It is estimated, for
example, that the ceiling on the amount of motor insurance business that can be secured
via aggregators is approximately 60%. Aggregators’ share of the motor insurance market
increased from 27% in 20078
to 38% in 20089
and if this growth profile were to continue
the 60% ceiling would be reached in the next two years.
The aggregator business model relies on a high volume of throughput to sustain the
huge levels of advertising spend required to attract and retain consumers. This high
level of advertising spend is likely to be unsustainable for all but the largest aggregators,
and as revenues plateau, this may lead to fall-out, consolidation and diversification.
8 Datamonitor’s Aggregators in UK General Insurance 2008
9 Deloitte’s Non-Life Insurance Market Update 2009

The view that growth is likely to flatten out also appears to be shared by the FSA:
In recent years the growth of insurance aggregator (or price
comparison) websites has posed a particular threat to established
intermediaries, particularly on home and motor business. Now firmly
established in the UK market, they will continue to place the general
insurance intermediary sector under competitive pressure. But the
growth of aggregator businesses has moderated and the level of threat
they pose appears to have stabilised.
FSA Financial Risk Outlook 2009, pp60-61
Significant decline
Unless the aggregators start to provide a broader offering than just a
price-led proposition, unless they offer more of an affinity, unless they
create in the minds of the customers that they are a trusted adviser, I
think they’ve had it.
A less-favoured scenario is the decline of the aggregator. This was mentioned on the
basis of a possible loss in confidence in the aggregator’s ability to provide the best
price, or if a significant number of insurers decide to move away from aggregators.
This could happen if consumers begin to see the aggregator as a costly intermediary
demanding a commission or if insurance groups withdraw business from the
aggregators due to brand dilution or unmet business objectives.
To prevent this, aggregators need to ensure that their consumer proposition is built
around value add and becoming a trusted adviser to consumers. A recent survey
by Which? Money among Which? members10
found that only three in ten said they
trusted aggregators to find the best price available, while two thirds thought they
would be presented with products that make the websites the most commission.
This suggests that there may be more work to be done by aggregators to build trust
in their own brands.3
10 Comparison sites leave us unimpressed.com, Which?, 18 November 2009

Consolidation
I don’t think there’s going to be much more room in the market than
two or three or four aggregators.
It is exactly the same service in nature as the search engines have
brought to the internet world in general. You don’t have five successful
search engines, you have one or two. So the likelihood that this
aggregator landscape converges is high.
The majority of those we spoke with felt that the sector was ripe for consolidation
among aggregators. There are two inter-related reasons, first, the contention that
aggregators’ revenue growth will plateau and, second, the need for aggregators to
generate large revenue streams to fund advertising. The acquisition of a competitor or a
merger of aggregators will deliver economies of scale benefits which can be channelled
into refining the proposition and advertising to compete against direct insurers like
Aviva and Direct Line and other aggregators.
It was felt that the shake out will result in between two to five major aggregators and
a range of other niche players. Precedents for niche aggregators have been set for the
sector by organisations like ScreenTrade.com which provides motor insurance only and
Coverzones.com, an SME specialist for commercial lines.
The existing aggregator market looks to have evolved to a point where
it is ripe for shake-out, including through consolidation. The trick for
insurers and brokers may well be to identify which are the most likely to
survive, and therefore in which ones it makes sense to invest time and
money in to improve returns.
Nick Gibbon, corporate finance partner, Beachcroft LLP
However, this does not preclude the arrival of new aggregators, particularly those
with an established and trusted consumer brand, as demonstrated by Tesco.
There have also been reports that Google is looking to break into this market. The
possibility of one or more major new players taking the market to a new level should
not be ruled out.

Tesco are likely to emerge as one of the trusted price checks sites for
all products and so if you’re going to compete against Tesco who don’t
have to spend a lot of time on brand recognition and values, if you’re an
upstart aggregator you’re going to have to throw a lot of money at it.
Vertical integration?
Unless the aggregators are delivering a better underwriting result, better
claims ratios over time then the insurers will move away from them so
the aggregators will be constantly seeking new capacity and as I say my
prediction is eventually they’ll have to get their own capacity by going
to Lloyd’s or going offshore and writing it to their own book because
they will run out of friends.
They may move to being almost superbrokers because why wouldn’t
they have more control of the value chain and there is talk that they
could vertically integrate with an insurer.
Aggregators could choose to write their own insurance to open up new revenue
streams. This could also be a protection measure if insurance groups withdraw their
products from their websites. It may be easier to increase profit for the aggregator
in the medium term by creating a new insurance brand rather through refining the
current aggregator proposition. Acquisition by an insurance broker or underwriter is
another possibility, which we consider further on page 27.
This would be a controversial step to take, as it would change the dynamics of
the aggregators’ relationship with consumers. While some aggregators build
brand loyalty with consumers for being impartial consumer champions, this may
not stretch and in fact could be damaged as providers of insurance. Having said
that, existing aggregators with such links, such as Confused.com, a wholly-owned
subsidiary of Admiral plc, do not appear to suffer any loss of credibility with the
consumer as a result of such links, so it may be that the risks associated with such
links can be overplayed.

However, the skills an aggregator would need to do this are very different from
those most currently have. The capital required would also be significant. There are
certainly grounds for scepticism about such a strategy.
Regulation and development of the aggregator proposition
Over the years, aggregators’ websites have become more sophisticated, as a result of
a number of factors. These include technological advances (including the fact that
faster broadband rates permit the use of more complex technology) and competitive
pressures to improve the customer offer and differentiate from competitors.
However, regulatory pressures have also been an important driver of change.
Aggregators have faced some of the same regulatory challenges that
insurers faced over a price-led proposition. They have been required to
substantiate claims of cost savings, and make clearer to the customer
the basis on which those savings can be made.
On the whole, aggregators appear to have responded well to these
challenges, but they are a reminder of the regulatory environment in
which aggregators operate, and of how the regulator can have a direct
effect on the customer’s experience.
Mathew Rutter, financial services partner, Beachcroft
Following the FSA’s two reviews of aggregator websites in 2008, a number have
improved the level of detail provided about the products on offer, for example by
enabling comparison of features, rather than focusing purely on price. The FSA has also
recently obtained undertakings from four aggregators relating to their terms of business
with consumers. In regulatory terms, therefore, there appears to be a level playing field
between aggregators on the one hand, and insurers and brokers on the other.
The FSA has provided a number of examples of good and poor practice in general
insurance comparison websites11
. Although these are directed at aggregators, insurers
and brokers who market their products through aggregators also need to take them
on board. For example, the FSA found that “in most cases” aggregators were unable
to show the split between compulsory and voluntary excesses - often because the
relevant information had not been supplied by the provider.
11 www.fsa.gov.uk/pages/Doing/Regulated/Promo/thematic/practice_gi_comparison.shtml

The FSA makes it clear that it expects aggregators and insurers to work together in
making this information available. This is also reflected in the ABI’s recently-published
Good Practice Guide12
, which states, for example, that “insurers and brokers should
provide comparison websites with sufficient information to allow them to comply
with … good practice on excess levels”. Clearly, therefore, both sides have a role to
play in ensuring that these requirements are fulfilled.
12 Ensuring Positive Customer Experiences of Buying Insurance Online: a Good Practice Guide,
Association of British Insurers, December 2009

3: Friend or foe? The pros and cons of
using aggregators
There has been this view that the aggregator has been the big bad
wolf, which I don’t agree with. The aggregator is a function of consumer
behaviour which would have happened anyway.
The aggregator type buyer is a bit of an anathema to a lot of the
distributors and manufacturers as the more the market is segmented
and commoditised the less attractive it is.
The main advantage of the aggregator site is that they are immensely
popular so they attract a lot of viewers. And that is their value.
The aggregator makes the whole market a lot more competitive. And
therefore the cases that you write are generally going to be the cases
where you are absolutely the cheapest in the market.
Malcolm Smith – Commercial Director, Groupama Insurances
I think the big, established players hate aggregators. If you’re not a big,
established player, I think at the moment they are quite a nice partner.
The enthusiasm of consumers for aggregators is not shared by some of the larger
insurance groups. In many respects, the same factors which attract consumers to
aggregators are those which have caused concern on the part of insurers, principally
because they tend to erode the profitability of the business delivered through the
aggregator channel.
Initially, insurers were keen to utilise the new channel to secure new business.
However, some insurers, most notably Aviva, have now pulled out of the aggregator

marketplace, while others, such as Direct Line, have refused to join in at all (although
both Aviva and Direct Line have other brands within their group, such as RAC and
Churchill, which continue to participate). The willingness of some of the biggest
players to go it alone suggests that the dominance of the aggregator in personal lines
insurance is far from being inevitable.
We have gone in and out; the fact is manufacturers don’t make a great
return on their business.
Price focus
Consumers are not thinking about the quality of the cover or the nature
of the service, whether their claim is going to be paid, they are only
focusing on the price.
Steve Wood – Managing Director, UK Ireland, Ecclesiastical
There are people out there that will spend time surfing the net for the
cheapest deal and those people will do exactly the same next year.
As time has gone on the insurance groups have come to believe that the price focus, a
key theme of much of the aggregators’ advertising, pushes consumers to fixate on the
price variable exclusively. While there are signs that aggregators have started to put a
greater emphasis on factors other than price, it is inherent in their business model that
they will do all they can to encourage consumers to shop around on renewal. Price is
always likely to be the most compelling motivator to achieve that goal.
Retention rates
The aggregator business model requires a consumer to churn every year
and the way to make money in the motor insurance market is to hold
on to clients for years. The break-even point doesn’t come in year one
because of the marketing spend.

People are lazy … so retention must deteriorate, but it is easy to over-
estimate how bad that deterioration will be.
Most consumers are promiscuous for commodity products. And I think
the frictional cost of transferring business is reducing, so people will
move for a smaller amount.
The emphasis on price and shopping around at each renewal does not complement
the traditional insurer’s business model, which typically relies on consumer retention
beyond one year to recoup client acquisition costs. While many insurers and brokers
also focus heavily on price in their direct offer, they have traditionally also been able
to look to build a longer-term relationship with their customers, as well as relying on
inertia, as a means of retaining customers.
The combination of the much weaker customer relationship resulting from
aggregator-derived business, as well as the encouragement from the aggregator
to shop around on renewal, can significantly reduce retention rates for insurers.
However, some of our respondents thought that this risk could be overstated.
Some aggregators contest the ‘over promotion of price’ tag. Gocompare.com, for
example, claims that 50% of its consumers do not opt for the cheapest policy and
provides more, relevant detail on each policy.
The implications for brands
The growth of price comparison sites is good as for forty-five pounds
[insurers and brokers] can be on the aggregator site, whereas previously
they would have been asked to compete in a direct advertising space.
Being on the aggregator risks damage to our brand loyalty. Ultimately
if you are going to invest money in brand why not invest in your own
brand in the long term and take the aggregator on at that level rather
than invest effectively in their brand?

If you’ve got a low profile brand the aggregator might be a cheaper
way of getting business compared with building your own brand, but if
you’re AXA or Aviva or Allianz why would you do that I ask?
There’s a very big chunk of the UK population who hates buying car
insurance, doesn’t care a bleep about the insurer they’re getting it from,
and just wants something that’s broadly ok and is cheap. So if insurers
want to spend £40 million, £50 million trying to persuade those people
that there’s something special about their insurer or their service, then
to my mind they’re just throwing money down the drain.
The growth of aggregators has offered particular opportunities for less well-
recognised insurance brands. Aggregators offer smaller insurance players with low
marketing budgets a less expensive channel to consumers, as they can to some extent
ride on the coat-tails of the aggregators’ brands. However, while aggregators may
offer the chance to achieve scale cost-effectively, making money requires a good deal
of ongoing resource which many smaller players may lack.
In addition, research conducted by YouGov on behalf of Deloitte13
found that 66%
of consumers would not purchase insurance online from an unknown brand. This
suggests that smaller players cannot rely entirely on the brand of the aggregator
to bring in business – some element of brand investment may also be required to
obtain a return from the aggregator channel.
For larger insurers and brokers with more established brands the concern may be
that aggregator sites can do damage to their brand, particularly where their product
consistently appears lower down in the aggregators’ rankings. Even if their product
performs well, the aggregators’ emphasis on price may well discourage purchasing
decisions based on brand recognition, diluting the value of insurers’ brands.
13 Non-Life Insurance Market Update, September 2009

Delivering the right quote
A further worry for some insurers is around the method used by aggregators’ websites
to calculate premiums. Aggregators impose a single set of questions to gather details
of a prospective customer and his/her requirements , in order for the aggregator’s
insurer partners to generate quotes. There is also pressure to keep the questions as
brief as possible (although the same pressure is no doubt also felt by direct insurers as
well). Inevitably, with this Procrustean solution, there is a risk that some of the nuances
inherent in an insurer’s own underwriting model may not be picked up. This may result
in quotes being issued that are incorrectly priced for the risk.
Poor underwriting performance
Undoubtedly underwriting performance by the aggregators is worse
than underwriting performance by other channels.
Ultimately the potential for customers to buy the correct product and
to answer the questions correctly is better if they have had some oral
contact with the broker or the insurer.
Malcolm Smith – Commercial Director, Groupama Insurances
There is often manipulation of the customer journey particularly
around the question set (eg excess) to enable the cheapest price. This
can work to the detriment of a customer in the event of a claim raising
fundamental TCF issues.
Derek Plummer – Commercial Director, MMA Insurance
One company found that 20% of the people had lied about their NCD
… on the basis that people seem to find it easier to do it online than
face to face.

We have very high loyalty levels and very low fraud levels, and I think
the two things are related.
A number of respondents were of the view that the quality of customers delivered by
the aggregators was worse than that delivered through other channels. In particular,
concerns about customers inputting inaccurate information – whether carelessly or
fraudulently – were highlighted.
Another concern is the fact that the online questionnaire format enables consumers to
see the impact on premiums of alternative answers to certain questions: for example,
whether a vehicle is garaged. This may give rise to consumers, having been exposed to
the premium calculation process, submitting inaccurate answers in the pursuit of the
lowest premiums. While this is a feature of online purchasing generally, rather than being
unique to aggregators, there is a feeling that the nature of the customers using aggregator
websites, being particularly price-focused, and a failure on the part of some aggregators to
emphasise sufficiently the consequences of inputting inaccurate information, may make
aggregator-sourced business particularly vulnerable in this respect.
There are also suggestions that aggregator websites may themselves have played
some part in directing customers towards choosing options which result in a
lower price. The recently-published ABI Good Practice Guide contains examples
of “unacceptable” helpful hints, which it rather coyly suggests “can encourage
the customer to purchase the wrong type of policy”. These include encouraging
customers to enter lower mileage, or to switch the main driver (fronting).
The existence and growth of aggregators in the market will almost
certainly lead to an increased risk of fraudulent claims for insurers. Any
form of internet or electronic-based customer acceptance removes a
number of layers of potential fraud detection at the underwriting stage,
particularly in personal lines. An increase in the frequency of use of
stolen credit card information, dead letter box addresses and identity
fraud to lure insurers into incepting policies in good faith (to then be
used, for example, to stage accidents) may be inevitable as fraudsters
look to take advantage of the use of technology and reduced due
diligence at policy inception.
Lorraine Carolan, Partner and Head of Claims Validation Team, Beachcroft

Misaligned systems
Anything that is fundamentally based on the lowest price will identify
the weaknesses in your rating structure and you will not generate good
margins.
Another cause for unease is the suitability of some insurers’ and brokers’ internal
systems for working with aggregators. Engaging successfully with an aggregator
requires commitment to a certain level of resource and systems to ensure that the
insurer is represented in the best possible light and obtains maximum leverage from
the data available from the aggregator.
Aggregators can offer a continuous stream of performance data for insurers to access
to assist them in presentation, pricing and ratings optimisation. The evidence from
our respondents suggests that many of the opportunities offered by this data are not
being capitalised on.
The level of proactivity from the insurance industry is quite poor in
terms of asking for this information. In many cases, because of the way
their systems and the pricing works, they are unable to do anything
with it anyway.
Managing Director of insurance, top 5 aggregator

Table 3: Pros and cons for a broker or insurer in using an aggregator
Pros Cons
Ability to leverage off the
aggregator's brand
Potential dilution or harm to
insurer's brand
Access to a large pool of potential
customers
Single simplified question set
may not correspond to insurer's
underwriting model
Suits insurers whose proposition is
price-led
Greater exposure to fraud
Weaker customer relationship and
reliance by aggregators on annual
churn
Leakage resulting from misaligned
systems (or investment cost of
aligning systems)

4: Engaging with aggregators
It is brand against brand. But if you want to know what is going to
happen, look at the brand … and that probably gives a good proxy for
how the industry is going to be shaped in the future.
The insurance challenge is, how do we manage it and how do we deal
with it, how do we price it, so I think there is some way to go for insurers
and aggregators to be working more effectively together.
I think the aggregators are in quite a weak space. I think they need to
behave themselves and look after their insurance partners.
Across the industry, you’ve got people who are looking at this business
at the moment and saying: “what are the things that we can do to
change the way that we’re presenting ourselves, and thereby turn this
thing around so that it is making a satisfactory level of return?” And
one of the things that is going to come under scrutiny inevitably is the
nature of the relationship with the aggregator sites themselves.
Andrew Torrance – Chief Executive, Allianz Insurance
Insurers and brokers are faced with a difficult situation. Unpalatable though the
aggregator may be to many, nearly all of our respondents regard them as likely to be a
permanent fixture in the personal lines insurance market for the foreseeable future.
However, it is self-evident that a model where insurers and brokers are struggling to
make a return is not sustainable. Insurers and brokers must therefore think carefully
about their strategy for successfully co-existing with aggregators. Do they cease
participating on aggregator websites and instead compete head-on, ramping-up
marketing and brand spend and ask consumers to come to them direct? Or do they
seek to build partnerships which are more mutually rewarding for both their brand
and their financial performance? For larger insurance groups in particular, these
strategies need not be mutually exclusive.

The impact of the aggregator on each stakeholder:
Aggregator Consumer
Insurer /
broker
Brand and marketing
strategy generally based
around lowest price rather
than what provides most
value to the consumer
Expects to save a
substantial amount in
premium costs each year
on renewal
Faces pressure on prices
and margins
Limited functionality
to allow customer to
compare policy features,
and little or no ability for
the customer to gauge the
quality of those features
(eg ease of claims process)
Focuses on price more
than the value of the
policy and the cover it
provides
Retention rates from
price-driven customers
are lower, reducing return
on marketing spend and
aggregator fees
Interaction with
consumers purely online
with no telephone or face-
to-face contact
May come to regard
product as a commodity,
resulting in less brand
loyalty
Brand damaged as product
compared mostly on price
or a limited number of
features; less scope to
upsell
One-size-fits-all question
sets for calculating
premiums
Benefits from quick and
easy access to a range of
quotes
Pricing less accurate
Lack of tests for reliability
of information entered
(e.g. whether car garaged)
More likely to
misrepresent to drive
down premium
Potential for fraud higher
Gains first contact with
consumer and retains that
relationship
Builds relationship with
aggregator rather than
broker / insurer
Loses grip on customer
relationship and ability to
sell other products

i: Taking on the aggregators
We as a company went into the aggregator space fairly early; now we
have pulled our brand off the aggregator sites and we advertise that
you will only get our best price if you come directly to us. Effectively we
are now in a direct brand fight with them.
Personally, I’m really quite sceptical of the notion that you’re going to
see a wholesale withdrawal of insurers from aggregator sites, because
customers have demonstrated that they want to buy over these sites.
Large insurance groups like Aviva and Direct Line have adopted the strategy of
withdrawing their brands from aggregators and instead competing with them
directly. Aviva offers consumers a price comparison facility on its website to compare
its quotes with those of a number of competitors. Direct Line’s consumer messages
have said, in short, do not pay aggregators’ commissions and go direct instead.
However, the advertising costs of direct competition are high, supportable only by
the larger insurance groups with well-established brands.
Insurers are wary of withdrawing because the size of the client is
absolutely massive. So if you embark on this journey and you want to
fight that battle to compete, you must be ready to put a lot of money
for a long time behind it.
It is quite interesting that a strong brand can enable you to have the
credibility to enter into market places that you had no experience of
before and weren’t established in. That again illustrates the power of the
brand over the situation.
General Insurance MD, UK insurer

Our respondents agreed that only the strongest brokers and insurers are in a position
to take on the aggregators head-on. However, none doubted the ability of the largest
and best-known insurers and brokers to succeed in that battle. This suggests that
it would not take many to follow the example of Aviva and Direct Line to make a
serious impact on aggregators’ business volumes.
ii: Building more successful partnerships with aggregators
You need to have the right processes, the right technology in your
hand to have a chance to preserve your margins and be competitive.
Then whatever you can improve in your service or in your product
proposition can make a difference with your competitors. So whatever
the environment, there is always a way to distinguish yourself.
As a manufacturer, scale is good, so having a multi-channel strategy
is good, because it gives you more scale into your model. The separate
question is, what sort of distribution channel is going to win and do
insurers have the capability to win in that? So playing across different
distribution channels makes sense.
The real issue from the viewpoint of insurers is to say, how do we
configure ourselves and our products and the way we present ourselves
so that business as presented by aggregators is profitable for us?

Many insurers appear committed to a multi-channel approach to product
distribution. The challenge is therefore not so much a question of whether to
participate or compete, but how to do both successfully.
Many of our respondents believe that the key to getting more from the aggregator
channel is to build more effective partnerships. This message is echoed by the aggregators.
The future of the aggregator that will win is the aggregator that
understands exactly what our partner needs are and what our
customer needs are and moves the model beyond pure price
aggregation into more value aggregation.
It is clear from our research that while insurance groups choose to partner with
aggregators to access new customers, some have not yet engaged with the critical
success factors. There is no doubt that to deliver a great service and enhance the
brands of both, insurance groups need to build effective working relationships with
aggregators. For example, initial commitment to work together is required to address
the challenges raised by the ‘one size fits all’ question set for generating quotes.
The fact that they bring a service is one thing, but it does not mean that
they have to control the client and with that the value. This will be key
to the debate between aggregator and insurance groups in the next few
years. Some of these aggregators will try and get better control of the
client and although they provide a service that is absolutely valuable
it is important to make sure that there is no confusion between the
comparison service and client ownership.
Some of the sales models which are being successful with aggregators
actually demand that the organisations involved have access to
ancillary income through selling add-on products or services. The value
per customer in terms of selling add on products is much greater in a
telephone context than online.

Our respondents highlighted a number of issues that insurers and brokers need to
tackle if they are to get more out of their relationship with aggregators. These were:
„„ Getting greater clarity and control over customer ownership
„„ Sharing data, both to reduce fraud and also to identify additional opportunities
„„ Improving the pricing model
„„ Managing business risk
„„ Technical improvements.
Table 4: Where it goes wrong and how to address it
Where do brokers and insurers fall
down?
How could they do it better?
Failing to obtain MI of sufficient
granularity
Track business being written more
closely. Share, collect and analyse
data with and from aggregators
better
Inability to alter underwriting
model rapidly
Price daily rather than monthly or
even annually
Increased likelihood of fraud Work with aggregators to develop
better fraud prevention and
detection strategies. Share data
to improve identification of
inaccurate proposal forms
Standard question set does not fit
in with underwriting model
Design and segment policies
specifically for aggregators, with an
underwriting model that reflects the
question set
Difficulty in retaining business on
renewal
Selling on brand, not just price,
may improve retention rates. Look
to collaborate more closely with
aggregators on renewal and rights
to develop client relationship more
broadly, to strengthen brand loyalty

Understandably, when they first signed up to them, many insurers
and brokers were unsure how aggregators would evolve, and what the
challenges of doing business through aggregators would be. Now that
these issues are clearer, it is time for insurers and brokers to look to
redefine their relationships with aggregators, so as to address these issues
and ensure that the relationship is more evenly balanced than in the past.
Mark Neville, commercial services partner, Beachcroft
Customer ownership
Customer ownership is always a key issue in any intermediated relationship.
Aggregators will always fight to ensure that they maintain the primary relationship
with the customer, so that they can market other products and services, as well as
encouraging the customer to return to their website on renewal.
Insurers and brokers who sell through aggregators need to be clear about what they
can and cannot do within the confines of their agreements with aggregators and
ensure that this fits with their business model.
Getting clarity over customer ownership is important commercially and
legally, because that is where the value lies, and because consumers are
increasingly aware of their legal rights in controlling the use of their data.
Emma Bate, commercial services partner, Beachcroft
Sharing data
Aggregators have a wealth of data that hopefully we should be able to
share between us, in order that we can ensure that we cut down on fraud.

Sharing the information for us is about how do you get your quote rate
up? How do we get more of your business? How do we help you win?
What are your pressures? What do your loss ratios look like? How do we
help you reintroduce the customer you know so if you have just sold a
home policy how do we help you introduce that customer to a motor
policy via us?
The online platform enables aggregators to collect large quantities of consumer
data around website visits and consumer browsing patterns. From the aggregator’s
perspective, the view was expressed that insurance companies are not proactive in
asking for this data, although aggregators would be happy to share it. This data could
be used by insurers to enhance their profile of their customers and help them build
up a better picture of the risk.
Data sharing is also suggested as one possible means for improving fraud control,
with particular emphasis on building in checks before the insurer goes on risk – or at
least before the claim comes in.
Pricing
Smarter insurance companies are the ones that seem to have the best
technology and are actually able to price pretty much day-by-day but
there are many insurance companies out there that take two, three,
four months to do price changes.
Pricing is also important if the insurer wants to hold onto the customer
relationship but it depends upon your organisation and how strictly
customers believe in you being able to deliver a sustainable price in the
long term.
General Insurance MD, UK insurer
The only way you can get your fingers burnt is if you get your pricing
wrong.

Unless insurers use a different pricing model for aggregator sourced
business, they will get badly bruised. That is now crystal clear.
Some intermediaries are actually working with negative commission to
get the customer in the first place, and the business model is very much
predicated on selling other products and services … On the telephone,
you can persuade people to buy more whereas online it is easy just to
put a cross and say “no thanks”.
The key message coming from our respondents was that price is always likely to be
the dominant factor for business coming through aggregators. Insurers and brokers
therefore need to get their pricing right for their aggregator-sourced business, which
may well mean refining their business model to create one better adapted to the fast-
moving aggregator environment.
Some respondents pointed out the profit can lie not just in the underwriting, but
in the opportunity to sell other products and services. This may include breakdown
and legal expenses cover, or looking to make money on the claims side. However,
upselling is considered more of a challenge over the internet than via the telephone.
Those whose business model puts reliance on upselling therefore need to ensure that
they are permitted under their agreements with aggregators to approach customers
to try to sell further products and services.
Managing business risk
We need to work with aggregators, to understand how we put more
checks and balances at point of sale, for example, no claims bonus
validation or checks on certain questions where individuals are less
likely to tell the truth.
In regard to the shortcomings of the aggregator platform and its vulnerability to
non-disclosure and fraud, respondents from both the insurer and aggregator side
suggested that there was scope to work more closely together to identify cases of
fraud.

In particular, improved use of data collected by aggregators was identified as a route
to combating fraud. Commercial solutions may also exist, including insurers trying
to put a greater onus on aggregators to verify information provided by customers.
Working with aggregators, for example in reviewing the answers set by default, may
also help reduce instances of unintended misrepresentation by customers.
Getting the wiring right
The internal systems of aggregators and insurance groups need to be designed to
facilitate continuous improvement of the aggregator / insurance group offer as
perceived by the consumer. Appropriate systems are required for aggregators to relay
data to their partners in a user friendly and timely manner and for insurance groups
to receive the data, analyse it, authorise changes internally and review and approve
these changes on the aggregator website.
We have just rebuilt our motor website and we built that website by
speaking to our customers and insurance group partners every single
week. We sat down with them and the web designers and we got the
underwriters in. We talked about our question set and we understood
what they rated on each type of question and we built it together.
Encouragingly, we found evidence that aggregators may be willing to start moving
in this direction, working with insurers to improve the quality of the underwriting
as well as focusing on an improved service to customers. It seems clear that there is
potential for insurers and brokers to get much more out of their relationships with
aggregators. There is also evidence that aggregators now realise that it is in their
interests to focus more on building partnerships with insurers and brokers.

The time seems ripe for insurers and brokers to look again at aggregators,
determine their strategy for the future, and look to develop a more
sustainable and rewarding business relationship with aggregators if that is
the route they decide on.
David Pollitt, Partner and Head of
Financial Institutions Group, Beachcroft
iii: Acquiring an aggregator
In the present climate I just can’t see that someone is going to come in
and buy an aggregator because it is not growing their core business.
It’s difficult to see where massive synergies are from insurers buying
aggregators
We also asked whether any of our insurer or broker respondents could see merit
in either they or a competitor acquiring a consolidator. None of our respondents
suggested that they had any intention to acquire an aggregator in the current
climate.
Many considered that the budget required to continue to build these relatively
young brands and maintain growth was too onerous. In addition our research
concluded that aggregators do not offer a book of business but a delivery platform to
run and so are not compatible with many insurers’ business structure.

For further information please contact:
David Pollitt
Partner and Sector Head, Financial Institutions
Tel: +44 (0) 117 918 2226
Email: dpollitt@beachcroft.com
David is Head of our Financial Institutions sector. He has been advising financial
institutions for a number of years on contentious and regulatory matters. He
combines his practice of advising financial institutions with his role as sector head,
which involves him spending time speaking to clients about their business and their
legal requirements, so as to ensure that our service delivery is perfectly aligned.
His commitment to clients’ businesses is unquestioned; “I genuinely think he knows
my business better than I do” observed one.
Emma Bate
Partner
Tel: +44 (0) 20 7894 6740
Email: ebate@beachcroft.com
Emma has extensive experience of advising our insurance clients on all contractual
and commercial issues including negotiating aggregator agreements.
In particular she has spent the last 2 years on secondments to Zurich (both UK
and international businesses) and Bupa International. She has experience of both
specialist insurance contracts as well as general procurement, outsourcing and
e-commerce.
Emma has a particular interest in data protection and other consumer regulatory
issues. She led a team that reviewed a major UK insurer’s policies under the Unfair
Terms in Consumer Contracts Regulations, as well as guided clients through OFT,
ASA and Information Commissioner complaints.

Mark Neville
Partner
Tel: +44 (0) 20 7894 6356
Email: mneville@beachcroft.com
Mark has considerable experience in advising major UK insurers on insurance
distribution arrangements, including agreements with brokers and corporate
partnership or affinity agreements with high street banks, major retail chains, car
manufacturers, charities and other intermediaries.
He has been on a number of secondments throughout his career (including at AXA,
CGNU (now Aviva) and RAC). In 2008, Mark spent 6 months as Acting Head of Legal
Services at Allianz Insurance.
Mathew Rutter
Partner
Tel: +44 (0) 20 7894 6322
Email: mrutter@beachcroft.com
Mathew has experience of a wide range of non-contentious regulatory issues as
they affect insurers, banks, asset managers and other financial institutions. His areas
of expertise include financial promotions, consumer credit, TCF, unfair terms in
consumer contracts, market abuse and insider dealing issues, money laundering,
MiFID, conduct of business issues and corporate governance.
Mathew regularly advises on transactions in the regulated sector, including change
of control issues. He also advises on new authorisations and perimeter issues over
whether authorisation is required.
Mathew also advises regulated firms on corporate and commercial matters, such as
outsourcing arrangements, joint ventures, and shareholders or LLP agreements.
Mathew regularly writes articles and gives talks on regulatory issues, and has
appeared on radio and television discussing regulatory developments.

James MacNish-Porter
Partner
Tel: +44 (0) 20 7894 6601
Email: jporter@beachcroft.com
James specialises in financial services law. A company mergers and acquisitions lawyer
by background, James’ skills include non-contentious financial services regulatory
advice and distribution agreements. James has a detailed knowledge of the Financial
Services and Markets Act and other financial services regulation. He has a particular
interest in insurance and wealth management businesses as well as the regulatory
perimeter. James is part of Beachcroft’s discrimination team, dealing with the Equality
Bill proposals for age factors in financial services.
Recently, James has provided training on conflict and governance, financial promotions
and unfair contract terms in financial services and spent time on secondment with a
major insurer. He is company secretary of the Association of Independent Financial
Advisers and has set up industry schemes to assist financial advisers.
Nick Gibbon
Partner
Tel: +44 (0) 20 7894 6308
Email: ngibbon@beachcroft.com
Nick has over 20 years’ experience, with Beachcroft and Allen Overy, of leading
teams acting for insurers and other financial institutions including RSA, Allianz, AXA
and Ansbacher. Nick is recognised as a leading expert in the Legal Experts 2009 guide,
and leads Beachcroft’s non-claims Financial Institutions Group in London.
Nick’s background is in corporate law and he has extensive experience of mergers,
acquisitions, disposals, IPOs (and other share issues), joint ventures (and other co-
investment arrangements) and reorganisations, as well as of other corporate finance
work. Nick is also used to advising financial institutions and their management on the
myriad company law and other issues that confront them on a daily basis.

If you would like this document in a different format
please email marketingqueries@beachcroft.com
or phone +44 (0) 20 7894 6663.
design3fishinatreewww.3fishinatree.com
Weusetheword‘partner’torefertoamemberoftheLLP,oranemployeeorconsultantwithequivalentstandingandqualifications.Beachcroft
LLP is a limited liability partnership registered in England and Wales (registered number OC317852) which is regulated by the Solicitors
Regulation Authority. A list of the names of our members is available for inspection at our registered office, 100 Fetter Lane London EC4A 1BN.
Beachcroft LLP is a full-service
commercial law firm with offices
across the UK and in Ireland
To find out more about us go to
www.beachcroft.com
© Beachcroft LLP 2010

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