Standing Tall. How Australian Insurers Can Achieve Profitable Growth in a Challenging Market

Transcription

1 Standing Tall How Australian Insurers Can Achieve Profitable Growth in a Challenging Market

2 Compared to other mature markets, the Australian insurance industry has enjoyed relatively strong personal lines performance in recent years. Local insurers bounced back quickly following the global financial crisis of 2008, using a surge of policy growth and rate increases to reach an average return on capital of ~15 percent by Grey skies are on the horizon, however, as Australia begins to feel the effects of macro forces at work around the world. Although the local market is still expanding, insurers can expect to see slower growth and reduced profitability in some lines as consumer expectations evolve and competition intensifies. Accenture set out to examine the challenge of profitable growth in the Australian insurance market by focusing on three key questions: What are the trends and forces shaping the market? What are the implications for insurance players? What will set successful insurance providers apart in the future? We looked at industry data, reviewed proprietary research and conducted a survey of 3,500 consumers to gauge the local market. From there, we considered the results in light of the experiences of other mature economies around the world to get a better sense of what the future holds for Australian insurers. 1

3 Tuning in to the forecast Our research uncovered a number of significant changes in the competitive landscape and consumer behaviour that are reshaping the Australian market for general insurance. Growth in insurance is becoming a zero-sum game Rate increases and growth in housing starts have buoyed the Australian home insurance market, but other personal lines products, such as motor insurance, that have been profitable in the past are beginning to face commoditization and an outlook of slower growth. Although new vehicle registrations in Australia rose approximately 2 percent in 2012 more in certain vehicle classes, such as motorcycles the overall rate of growth has been steadily declining since Insurers that want to expand faster than demand is increasing must be willing and able to poach customers from competitors to make up the difference. Competition is intensifying New market entrants are beginning to threaten the dominance of Australia s historical market leaders. These challengers are using low prices and other unique value propositions to build brand awareness and increase market share often more successfully than established insurance companies. It remains to be seen which challenger brands will reach significant scale, but their collective impact on the market is undeniable. In a recent aided awareness study, three of the top 12 home insurance providers and five of the top 12 motor insurance providers were challenger brands. 3 Moreover, when asked which providers offer the cheapest insurance, Australians ranked new insurers, major retailers and online insurers ahead of established insurance companies (see Figure 1). 4 Figure 1: Consumer perceptions of insurance providers Thinking about different insurance providers in Australia, which type of provider listed below do you believe offers the cheapest insurance? A newer insurer A major retailer An online insurer An established Australian insurance company Your main financial institution (MFI) A credit union, building society or mutual bank An established international insurance company A company such as Australia Post A large bank A financial institution that is NOT your MFI A specialist insurer A regional bank 1st choice 2nd choice 3rd choice 0% 20% 40% 60% 80% 2

4 The banking industry remains a sleeping giant. All of Australia s major banks already participate in the insurance market as brokers or underwriters, but consumer awareness of these offerings remains fairly low. A survey of customers at the country s top four financial institutions revealed that nearly half were unaware or unsure if their bank sells insurance (see Figure 2). 5 In an aided awareness study of motor insurance providers, the highest-rated bank ranked nineteenth. The industry fared better in the home insurance category, securing three of the top 12 spots. With their significant customer bases and strong customer relationships, banks have the potential to be formidable competitors should they begin actively focusing efforts on their insurance businesses. Research suggests that consumers may be receptive to this idea, with 64 percent indicating that they would be comfortable insuring their car, home and/or belongings with their main financial institution (see Figure 3). Consumer behaviours and expectations are changing These significant shifts in the competitive landscape coincide with rapid changes in the consumer market. Today s insurance customers are more price-sensitive, demanding and empowered than their predecessors. Consumers are more sensitive to price As consumer concern over the economy grows, people are saving more and spending more cautiously. The share of Australians who are concerned about the domestic economic outlook and how it might affect them in the coming year reached 52 percent in April 2013 up six percentage points in just four months. 6 Between 2007 and 2012, the country s household savings more than doubled, from 4.0 to 9.3 percent. 7 Today, price is the number one factor driving consumer behaviour in the Australian insurance market (see Figures 4 and 5). More than 45 percent of consumers choose to seek quotes from insurers based on which ones they believe will be the cheapest not which ones they believe have the best brands or reputations, or the most comprehensive product offerings. 8 In this highly priceconscious environment, where a better price is the most commonly cited reason for switching insurers, sales and discounts are becoming the rule rather than the exception. Figure 2: Consumer awareness of insurance offerings at Australian banks Are you aware whether your main financial institution offers the following types of insurance? 70% 60% 50% 40% 30% 20% 10% 0% 59% 52% Yes 17%16% No Comprehensive motor insurance Home and contents insurance 31% 25% Not sure Figure 3: Consumer comfort with various insurance providers in Australia Thinking about different insurance providers in Australia, how comfortable would you be insuring your car, home and/or belongings with them? Share of participants who responded 6 10, where 0 is extremely uncomfortable and 10 is extremely comfortable An established Australian insurance company Your main financial institution (MFI) An established international insurance company A large bank A specialist insurer A credit union, building society or mutual bank A regional bank A bank, credit union or building society that is NOT your MFI A company such as Australia Post 39% 35% 35% 43% 40% 58% 54% 64% 72% A major retailer A newer insurer An online insurer 34% 32% 27% Dec-12 Apr-13 3

5 Figure 4: What drives Australian consumers to seek insurance quotes When you last obtained an insurance quote, why did you choose to get a quote from that particular insurer? I believed they would be the cheapest I believed they had the best brand/reputation I was a current customer I believed they had the most comprehensive product offerings I saw them advertising on TV I believe they had the best customer service I found them via an Internet search I believed they have the highest quality of claims service It was easiest to get the quote They were recommended by a friend They offered a guaranteed saving I saw they had won an award Other 0% 10% 20% 30% 40% 50% 60% Comprehensive motor insurance holders Home and contents insurance holders Figure 5: What drives Australian consumers to switch insurance providers When you switched your comprehensive motor and home/contents insurance, what motivated you to change insurers? Better price from new insurer A guaranteed saving on my new insurance policy compared to the cost of my existing policy Better policy coverage with the new insurer Rising cost of existing policy The opportunity to receive a discount on your policy for applying online Already holding other insurance policies with the new insurer (non-car related) A call centre based in Australia The availability of a 24 hour call centre The offer of a fixed priced premium in year two The opportunity to receive a discount on the policy based on policies you already held with insurer The opportunity to receive cash/a percentage of your premiums back on the policy The opportunity to pay your premiums by the month at no additional cost Change in policy coverage with existing provider A lower excess New insurer willing to insure your car for a higher value The option to insure modifications/non-standard features of your car at no additional cost Difficult claims process with existing provider Poor customer service with existing provider The inclusion of flood coverage for a reasonable premium Recommendation of new insurer from family/friend The location of a branch/office of the insurer Purchase of a new vehicle/property Already holding other comprehensive car insurance policies with the new insurer Already holding CTP insurance with the new insurer Comprehensive motor insurance Home and contents insurance holders 0% 20% 40% 60% 80% 100% 4

6 Consumers are more demanding Although price ultimately drives their decisions, consumers look at a wide variety of factors when selecting an insurance provider. In fact, many of these consideration including quality of customer and claims service, product offering, telephone service, and brand and reputation share roughly the same relative importance in consumers minds (see Figure 6). Consumers want all of these things, plus the ability to manage their insurance needs 24/7 across multiple channels, including online, mobile and telephone. Consumers are more empowered Thanks to technological advancements and the spread of personal computing devices, consumers ability to access information and interact with insurance providers has expanded exponentially. Australian consumers are growing increasingly comfortable using these technologies and much more tech-savvy in general. The average Australian spends 21 hours and 54 minutes online each week. 9 Fiftyone percent own smartphones, 60 percent are on Facebook and 27 percent use social media. 10 In 2011, 55 percent of Australians accessed online media using a device other than a desktop or laptop while commuting or travelling up from 42 percent in Cross-platform and multiscreen behaviours are common, with users accessing multiple types of content or sources of information simultaneously, whether across media, devices or screens. Sixty-four percent of those surveyed use the Internet to learn about companies or products, 12 and more than 50 percent of motor insurance customers research quotes online before making a purchase most often by telephone. 13 Aggregator websites that allow consumers to compare products across providers are growing in number and popularity. Between July 2012 and April 2013, site use rose 44 percent for motor insurance (from 18 percent to 26 percent) and 50 percent for home insurance (from 14 percent to 21 percent). Furthermore, consumers appear to be ready and willing to manage more insurancerelated interactions online. As Figure 7 shows, the majority of Australians are already somewhat or extremely comfortable using the Internet to perform insurancerelated tasks across the value chain. 5

7 Figure 6: How Australian consumers choose their insurance providers When choosing an insurance company, how important are the following factors in your decision? Share of participants who responded 6 10, where 0 is very unimportant and 10 is very important Quality of claims service 87% Quality of customer service 87% Price of the policy 86% Product offering 85% Ability to contact the insurer by phone 85% Brand / Reputation of the insurance company 85% Ease of shopping / purchase 83% Access to expert advice (product or financial) 74% Ability to contact the insurer in person at a branch 67% 0% 20% 40% 60% 80% 100% years years years years years years years Total Figure 7: Australian consumer comfort performing insurance-related tasks online How comfortable would you say you are performing the following insurance related tasks online? Mean score out of 10 Obtaining a quote 5% 7% 11% 33% 43% 7.37 Receiving a renewal notice 8% 8% 14% 33% 37% 6.97 Accepting a renewal offer 8% 8% 13% 35% 36% 6.95 Purchasing insurance 9% 9% 15% 33% 35% 9.76 Making a policy change 9% 9% 15% 36% 31% 6.61 Submitting a claim 9% 11% 15% 34% 30% 6.51 Managing a claim 9% 12% 15% 35% 30% 6.49 Not comfortable at all (0-1) Somewhat uncomfortable (2-4) Neutral (5) Somewhat comfortable (6-8) Extremely comfortable (9-10) Base: All Insurance holders (Dec-12: N=2,155) 6

8 Reading the signs These changes in the competitive landscape and consumer behaviour will have important implications for insurance providers in the Australian market. Mass-market offerings will become less relevant Although consumers are increasingly price-sensitive, other aspects of a company s offering are also extremely important. Perceived value plays a critical role in purchasing decisions and reported satisfaction, but the desired balance of price to value influenced by dimensions such as reputation, service, ease and overall experience will vary among customer segments. Insurance companies will need to communicate their positioning effectively, and tailor their propositions and offerings for the segment(s) they are trying to reach. In our research, consumers responded positively to the concept of more tailored or customized products or offerings. For example, a recent survey found that 63 percent of respondents would be interested in a motor insurance product that bases the cost of their premiums on their actual driving behaviour. 14 Even more interesting, 73 percent of them would likely switch providers to purchase such a product (see Figure 8). 15 These results suggest that telematics-based offerings could gain traction quite quickly in the Australian market. Figure 8: Consumer openness to different personal lines products Please indicate how interested you are in each of the following: Share of participants who responded 6 10, where 0 is extremely uninterested and 10 is extremely interested 1. A motor insurance product that bases the cost of your premium on your actual driving behaviour, meaning you could pay less if you are deemed to drive safely or pay more if you are deemed to drive unsafely 63% Likely to switch if provider offers this product Willingness to pay (if likely to switch): Not willing to pay extra up to 5% more up to 10% more up to 20% more more than 20% 73% 71% 15% 9% 4% 2% 2. A home and contents insurance product that allows you to customize your policy by determining what is covered and the excess that applies to individual items 63% 66% 64% 20% 10% 4% 2% 3. A motor insurance product that allows you to customize your policy by determining what is covered and the excess that applies to individual items 61% 68% 67% 17% 11% 3% 1% 4. A home and contents insurance product that allows you to find out the level of coverage and policy inclusions that are possible for a given budget 54% 68% 63% 18% 12% 5% 2% 5. A motor insurance product that allows you to find out the level of coverage and policy inclusions that are possible for a given budget 54% 70% 66% 17% 11% 4% 2% 0% 20% 40% 60% 80% years years years years years years years Total Base: All insurance holders by age (Apr-13:18-24: N=130, 25-34: N=825, 35-44: N=857, 45-54: N=901, 55-64: N=574, 65-74: N=170, 75-84: N=85, Total: N=3,542) Base: Comprehensive car insurance holders who are interested in (1: N=1,356, 3: N=1,209, 5: N=1,070); Home and contents insurance holders who are interested in (2: N=1423, 4: N=1,208) 7

9 Integrated multi-channel distribution will be essential Retailers, particularly online companies like Amazon, have raised the bar for the customer experience across sectors. Consumers expect to be able to interact with companies, manage their accounts and make purchases when, where and how they want whether they are buying a shirt, a book or motor insurance. That means 24/7 service and the ability to move seamlessly and effortlessly among online, mobile and traditional channels over the course of a single transaction. In Australia, where many insurance purchases are made by telephone, the majority of consumers still begin their journey online. Because of this, cross-channel integration will be essential. Even companies that do not use the Internet as their primary distribution channel must be able to attract and convert customers who shop online. Delivering this type of experience will require a deliberate and integrated strategy for customers across all channels of interaction, and new investments to develop necessary capabilities. Customer churn will rise as loyalty falls A combination of heightened price sensitivity, competition and increased advertising spend among insurers means consumers are more likely to shop around for quotes before making decisions. Since the switching costs associated with personal lines products are low, there are very few barriers to increased churn. Aggregator sites may accelerate this trend, particularly in the most price-sensitive segments. The cost of doing business will increase Growing competition and changing consumer behaviour will drive up the cost of doing business for insurance companies. As customer churn increases, a higher proportion of the customer base will need to be replaced each year in order to maintain market share and growth. Few insurers currently possess the capabilities required to meet the evolving needs of Australian consumers. New investments in technology and the customer experience will be necessary to adapt and stay ahead. The industry s advertising spend has increased significantly since 2009 with 12.5% CAGR16 a common attribute of increased competition that can be observed in other mature markets, including the United States and United Kingdom. The battle for market share starts with a fight for market awareness and often leads to a substantial increase in advertising budgets across the industry. Alternative media and better customer targeting can potentially alleviate this trend in the future. Data will be a source of competitive advantage Companies have access to more consumer data than ever before. By applying advanced analytical capabilities to mobile, online and third-party data, insurers can gain a wealth of critical insights that will help them target potential customers and serve existing customers more effectively. 8

10 Sowing the seeds of success There are challenging times on the horizon for Australian insurance companies. Forward-thinking insurers will take this opportunity to prepare their businesses for the emerging market conditions. Successful companies will outperform their competitors by: Developing a deep understanding of their customers Industry leaders will get to know their customers like a retailer would, looking beyond their risk characteristics to develop a rich profile of wants and needs, household, life stage, service expectations and more. With this information, they can tailor offers, target market messages and implement segmented customer experience strategies that reflect what their customers value. Clearly defining their value propositions The most successful companies will have clear and compelling value propositions that are recognized by their target audiences. Everything from their brand messaging and product offers to the customer experience they provide will reinforce their market positioning. Leveraging analytics across their value chains Leading companies will apply analytics beyond functional applications, such as product pricing, claims fraud and marketing campaign management. They will tackle enterprise-wide challenges by combining cross-functional internal data with external data from across the value chain. In the near term, the application of analytics in marketing, sales and service holds tremendous potential for Australian insurers. Establishing multi-channel capabilities and a digital presence Industry leaders will be able to support customer transactions across channels, and be working toward increased integration or even channel convergence. They will maintain and leverage a digital presence in a deliberate way, and have a strategy for the role it plays in customer experience and analytics across all channels. Mobile capabilities will support interactions across the value chain. Leaders will also use multi-channel capabilities to lower costs by increasing self-service and reducing volume in higher-cost channels, such as branches and call centres. Aligning their strategies with their operating models A company s value proposition does not begin and end with marketing and brand messaging. A low cost value proposition requires a fundamentally different operating model than one focused on customer centricity. Leading companies will align their model including core processes, technology and culture to deliver on their chosen strategy. Regardless of their focus, cost structure optimization will also be crucial since price is a key consideration across customer segments. Adapting, evolving and improving Consumers needs and behaviours are evolving quickly. At the same time, new technology is increasing transparency and accelerating the flow of information in their favour. Add to this the uncertainty introduced by changing global weather patterns and what we see is that insurance companies are operating in an environment that is more dynamic than ever before. The most successful companies will build capabilities that allow them to anticipate and respond to changes more easily than others. They will develop processes that enable change, and cultures that encourage and embrace it. The ability to adapt and continuously improve will likely become the most important strategic capability a company can possess. 9

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12 Sources 1. Australian Prudential Regulation Authority 2. Australian Bureau of Statistics 3. Global business intelligence provider, RFi 4. Global business intelligence provider, RFi 5. Global business intelligence provider, RFi 6. Global business intelligence provider, RFi 7. Accenture, The Future of Australian Business Trends: The Cost Conscious Australian Organisation, Global business intelligence provider, RFi 9. The Australian Online Consumer Landscape, Mar 2012, The Nielsen Company 10. The Australian Online Consumer Landscape, Mar 2012, The Nielsen Company 11. The Australian Online Consumer Landscape, Mar 2012, The Nielsen Company 12. Global business intelligence provider, RFi 13. Global business intelligence provider, RFi 14. Global business intelligence provider, RFi 15. Global business intelligence provider, RFi 16. Accenture Research Contacts Andrew Parton Managing Director Accenture Insurance Ravi Malhotra Managing Director Accenture Management Consulting About Accenture Accenture is a global management consulting, technology services and outsourcing company, with approximately 275,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, Its home page is Copyright 2013 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture