Direct insurance is increasingly becoming the preferred method used by large financial-services companies to deliver their personal-lines general insurance. Before the arrival of direct distribution models, insurance brokers and other intermediaries formed the main distribution channel of personal-lines insurance. This still applies to commercial lines, but personal-lines direct insurance is rapidly taking market share.
Direct Line set up the first dedicated direct insurance operation in the UK in 1985. The market share taken by direct players has increased steadily ever since, partly at the expense of companies' own sales staff and agents, and partly at the expense of intermediaries. The trend has intensified since 1999, when retailers also entered the market.
The obvious success of direct insurance companies prompted traditional insurance players to set up their own distinct direct insurance brands. New entrants have also been attracted to the direct insurance market, because of the lower costs made possible by call centre and Internet-based operations. The new entrants include utility companies, retailers and affinity groups.
The trend has also displayed specialisation in the distribution chain as distributors of personal lines are increasingly separated from underwriters, with each tackling their specialist cost bases. Many market participants have set up partnerships with firms able to offer economies of scale in terms of expertise, or with access to a large volume of customers.
Direct insurance companies have developed strong brand names to differentiate them from their fiercely competitive rivals. Their publicity (such as `Quote me happy' from Norwich Union Direct or 'Just AAsk' from the AA) reinforces their differences and their `no-nonsense' approach to customer needs.
The direct insurance industry is aggressively innovative in its use of technology to gain speed in obtaining competitive quotations. Direct insurers invest considerable sums in IT, and make heavy use of customer relationship management (CRM) techniques to supplement their call-centre and Internet sales opportunities.
Key Note research indicates that clients are more likely to select an insurer based on convenience, rather than on price or even on reputation. Key Note's research also shows that usage of the Internet to buy insurance policies is now high, rivalling other remote channels such as the telephone, while broker or branch-mediated purchase remains significant. Despite the rise in direct insurance, the ability to purchase insurance from a branch office remains important to many customers.
The development of websites and of broadband Internet access is likely to lead to more integrated insurance purchasing, as consumers research the Web and then choose a direct supplier either online or through a retail outlet. The introduction of more IT and consolidation of brokers is inevitable, as the latter face heavy regulatory burdens and greater demands from customers (who expect a high-quality service and solutions to their insurance problems that direct insurers do not always want to consider).
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