Direct insurance is increasingly the preferred method used by big financial services companies to deliver their personal-lines general insurance. Before the arrival of direct-distribution models, insurance brokers and other intermediaries were 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 some 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 operating costs made possible by call-centre and Internet-based operations. The new entrants include utilities, retailers and affinity groups.
The trend has also displayed specialisation in the distribution chain as distributors of personal lines have become increasingly separated from underwriters, with each tackling their specialist cost bases. Many market participants have set up partnerships with companies able to offer economies of scale in terms of expertise, or with access to large numbers 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 from their rivals and their 'no nonsense' approach to customer needs.
The direct insurance industry is aggressively innovative in using technology to gain speed in obtaining competitive quotations. Direct insurers invest heavily in information technology (IT), and make considerable 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. The research also shows that usage of the Internet to buy insurance policies remains low, compared with telephone-, broker- or branch-mediated purchases. Despite the rise in direct insurance, the ability to purchase insurance from a branch office remains important to many customers.
In due course, the development of websites and of digital television may alter the picture, and the share of direct insurance distribution may increase even more. However, the introduction of more technology will also aid brokers, and their share may eventually cease to shrink.
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