After years of speculation about what it would look like and when it would happen, Amazon announced its much-anticipated insurance offering in October 2022. And, since rumours of a potential Amazon aggregator have circulated since 2018, it did not come as a surprise to anyone in the insurance sector that the tech giant was launching a price comparison website (PCW).
However, the move did reignite the discussion about how PCWs have impacted the broker market and how they will continue to do so in the future. Aggregators have been around for many years now, and experts in the sector noted that they, thanks to their significant marketing budgets, have inspired a shift in consumer behaviour.
Chris Rolland, chief executive officer of AllClear Travel Insurance, said PCWs serve a purpose for people who want shortcuts to aid decision-making and explained that they have also helped raise awareness of the need for insurance.
“However, they’re not always the best solution, particularly for specialist cover,” he added. “Comparison site search algorithms are not designed to help customers search for comprehensive and quality cover. Neither is it always easy to compare like-for-like product benefits due to the different levels of cover that providers offer.”
Brokers also warned that the aggregators’ focus on price over quality and ad campaigns emphasising that they can help people find cheap insurance solutions has led to an unhelpful change in customer mentality.
Peter Robinson, managing director at Prizm Solutions, stated that it is “easy to be pompous” and say that PCWs are bad because they drive brokers out of the market, adding: “But my biggest issue with comparison sites is that they put the cheapest policy at the top because people are always drawn to the top position.”
He continued: “It’s only when they have a claim that they find out their policy’s not worth the paper it’s written on. By then, it’s too late, and then our industry gets slagged off because it doesn’t pay claims, but really, it’s because the person has made an uneducated and unadvised purchase of a policy which isn’t fit for purpose.”
PCWs have mainly been focused on personal lines insurance, such as home, car and travel insurance. And the personal lines market has long been a difficult environment for brokers because, in addition to comparison sites, they have also had direct insurers to compete with.
Up until recently, commercial lines brokers have barely felt the impact of aggregators because, when it comes to the more complex risks faced by businesses, customers still need professional advice. However, brokers have started noticing a shift in the market, with smaller SMEs and micro-businesses now buying cover on PCWs, suggesting that commercial lines brokers are increasingly likely to feel the impact too.
Robinson warned that the lack of advice and guidance on comparison sites means that many people buy the wrong policies and end up underinsured, which can have serious consequences for businesses.
“I frequently speak to small tradesmen who don’t realise they need to have employer’s liability. They say they don’t have any employees, but they’ve got subcontractors and don’t realise they’re responsible for them,” he said. “Policies off comparison sites will always be cheaper because they’re designed for quote and buy, but people don’t get the benefits of going through a broker because there’s no one to tell them what they need specialist cover for.”
The cost-of-living crisis has also driven people to care more about cheaper coverage, and brokers are having more conversations about pricing than before.
“You can understand why clients want to cut costs, but they have to understand that saving on costs diminishes the value of what they’re buying,” Robinson added.
The future of distribution
Looking to the future, Rolland predicted that the distribution landscape will look different, with an increase in the number of direct players. He hoped that there would also be a better focus on finding the best value cover rather than the cheapest.
“Comparison sites do not allow for much customer interaction,” he said. “This is a benefit that brokers can still offer. We love talking to customers and helping them find the best product that suits their needs.”
Regulation will also play a part when it comes to the role of PCWs in the market going forward. PCWs selling insurance are regulated by the Financial Conduct Authority and the regulator has been zoning in on risks of harm in the insurance sector over the last few years.
In 2020, it sent out a letter to PCWs, calling out some of them for demonstrating “poor understanding of their regulatory obligations”, which it said include only selling products that are consistent with the customer’s demands and needs. They are also required to give customers “appropriate, clear information” so that they can make an informed choice. The FCA further warned that PCWs need to do better in the future.
In addition, the FCA’s new Consumer Duty, which requires regulated firms to consider the needs, characteristics and objectives of their customers, including those who are vulnerable, and how they behave at every stage of the customer journey, is coming into force at the end of July.
Amazon’s insurance venture
When Amazon launched its Amazon Insurance Store, the company stated that it would offer an “improved shopping experience” for home insurance in the UK.
Asked what he thought about Amazon moving into insurance, Robinson noted that he was interested to see what could come from it, adding that the tech giant has both “entered and pulled out of sectors” over the years.
He highlighted that the margins in the UK insurance sector are tight and predicted that Amazon is in for a shock if it believes it will make a big profit from selling insurance.
“They’re going to be a player, but I don’t know if they’re going to get the return in investment they were hoping for,” he said.
Meanwhile, Rolland stated that he had not felt any impact from Amazon’s insurance move and argued that AllClear had been “the first in the market to offer the opportunity for a customer to get a price for all their product needs on a website like Amazon suggest they do” over ten years ago.
He urged the industry to embrace artificial intelligence and innovative technology, adding: “I’m keen that collectively we all move forward. I’m the first to want innovation to help us all do more and do better for consumers.”
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