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Australian Car Insurance Market - ANALYSIS
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Australian Car Insurance Market - ANALYSIS

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For my MBA and also my current consulting role I had to assess the Australian Motor Insurance market in terms of its economics, drivers, trends and competitive structure to inform my client of the …

For my MBA and also my current consulting role I had to assess the Australian Motor Insurance market in terms of its economics, drivers, trends and competitive structure to inform my client of the market’s attractiveness to grow sales revenues and also give consideration to lessons from overseas General Insurance markets

Also I had to determine what strategic design principles would need to be applied to any new initiatives based on bank strategy, so my client's strategy, the client's Group’s brands, and awareness of customer needs

This powerpoint slides also assess what issues may exist in my Client's current Motor Insurance operating model and customer value proposition that may need to be addressed for new initiatives to succeed


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  • 1. SIZE, GROWTH & PROFITABILITY The $6bn domestic motor insurance market is the largest component of the general insurance market, has grown ~5% p.a. for 5 years, and has a ~9% to ~15% profit margin Australian General Insurance Market by class of business ($m) Growth of the Domestic Motor Insurance Market ($m) CAGR = 4.98% Employers liability 1,191 4% Other 4,125 16% Professional indemnity 1,496 6% Profit (9%) 7,000 Householder s 4,338 16% Motor insurance industry profitability(1) 6,018 5,646 6,000 Commercial motor 1,602 6% 5,000 4,720 4,776 4,944 Expense 5,209 Commission paid to distributor (7.5% - 15%) (20%) 4,000 Loss Sacrificed to Underwriter (71%) (85% - 92.5%) Full service underwriters Brokers / Distributors 3,000 Public & product liability 2,145 8% Profit Acquisition Cost Fire & ISR 3,151 12% CTP motor 2,286 9% Domestic motor 6,018 23% 2,000 1,000 0 2004 Total GI Market: $26,352m in Gross Premium Revenue ► Domestic motor insurance is worth $6bn in premiums per annum, and is the largest segment of the Australian general insurance market ► Given that a number of players sell both domestic motor and CTP, these two market segments can be considered together 2005 2006 2007 2008 2009 Share of GI Market: 21.2% 21.1% 21.7% 21.8% 22.8% 22.8% ► System growth has averaged 5% p.a. over the last 5 years ► In this time the motor insurance share of the overall GI market has grown slightly from 21% to 23% (1): Based on 2009 industry actuals, excludes investment income Source: APRA June 2009, JP Morgan General Insurance Survey 2009 ► Underwriters earned an average margin of 9% in 2009, while distributors earned 7.5% – 15% before acquisition costs The profitability and strategic implications of business models are discussed further in this report 2
  • 2. UNDERLYING DRIVERS OF MARKET GROWTH The underlying growth of Australia’s population and the increase in car ownership all result in additional vehicles and drive demand for comprehensive domestic motor insurance Australian Population Growth (millions) 22.5 Total Passenger Vehicles (millions, LHS) and Passenger Vehicles per 1000 People (RHS) 14 22.0 12 2.54% annual growth 10 20.5 1.54% annual growth 20.0 0.55 cars per person 19.0 1.02% annual growth 2 18.0 Resident Population ► Australia‟s ongoing population growth and wealth continues to drive demand for passenger vehicles 640 52 50 600 48 580 46 540 44 520 42 500 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 54 660 560 4 18.5 56 620 8 6 19.5 700 680 12.0m cars 21.5 21.0 Australian New Passenger Vehicle Sales (thousands) 40 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total Vehicles Vehicles per 1000 ► Total registered passenger vehicles have risen from 9.8m in 2001 to just over 12m in 2009 ► Vehicle ownership rates (penetration) are also increasing, with cars per person rising 1.02% per annum over the last decade ► The increase in ownership rates levelled off in 2008/2009 as a poor economic environment slowed vehicle purchasing 2001 2002 2003 2004 2005 2006 2007 2008 2009 Passenger Vehicles ► Much of the demand for motor vehicles is met through new vehicle sales ► Sales fell dramatically in 2008 and 2009, but have since shown an upward trend though it is unknown whether this will herald a return to historic levels Source: ABS 3
  • 3. INDUSTRY TRENDS The hangover from the GFC, technological innovations, and new competitive pressures are expected to shape the market over the next several years Economic • Market hardening with premium increases of 5% in 2009, and premium growth of 5% and 4% predicted by industry participants for 2010 and 2011 (1) • Decreasing sum insured due to lagging impact of economic slowdown (fewer new cars and shift to smaller cars) though this is now offset by increasing new vehicle sales • Improved investment returns as equity markets recover • Claims costs lower due to strong AUD reducing cost of parts, however upwards pressure also present due to a shortage of repairers and consequently higher labour costs Political Competitive • The Henry Tax Review may alter the economics of vehicle ownership and operation, impacting demand • Regulatory changes to capital standards are expected in 2010 which may impact funding mix and ROE • Regulatory tightening as a hangover from the GFC may also have unexpected impacts going forward • Entry of new players potentially eroding market share of leaders and mid-tier players • New products and business models (e.g. Pay-asyou-drive and online aggregators) may impact profitability • Well known retailers leveraging their brands (e.g. Australia Post, Coles) Technological • Internet distribution models have lowered the barriers to entry • If widely adopted, internet aggregators / price comparison websites have the potential to increase shopping around and price-based decision making, however their success is yet to be determined • Web-bots are making it simpler for insurers to benchmark pricing against one another Social • High fuel costs vs. historical averages are contributing to declining car use (likely to reduce claims frequency) • Increasing familiarity with online purchasing driving demand for 24-hour quotations and sales • The focus on climate change and the contribution of car usage may lead to an increase in „car share clubs‟ (e.g. Go Get) driving down car usage and ownership (1): Some analysts are sceptical of this, and expect more modest premium growth as a result of competitive pressures Source: Media articles, JP Morgan General Insurance Survey 2009 4
  • 4. CUSTOMER BUYING BEHAVIOURS Customers consider a number of factors in selecting motor insurance, suggesting a number of areas in which players can differentiate Top factors in selecting a motor insurance provider 54% Value for Money Trustworthiness 36% Customer Service Players have an opportunity to appeal to customers behaviours and differentiate on any of these top factors:  While some customers are entirely driven by one factor (e.g. Price), most purchasing choices involve a trade-off between multiple factors to select the best overall offer Value for Money: Price, Product & Service  Players will typically aim to compete with the market in most areas and differentiate or dominate in one or two 35% 33% Level of Cover Overall Reputation 23% Flexible Payment Options 22% 15% Range of Benefits / Features 13% Ease of Understanding Policy 9%  For example, Choice.com.au analysis based on premium prices and policy features shows a breakdown of the market into two groups: 9% Loyalty Rewards / Incentives Trustworthiness: Brand & Customer Experience Professional Advice 6% Simple Product Solutions Customer Service: Service Higher Prices Speed of Quotation Strategic Differentiators Opportunities to Differentiate ~75% of brands 5% Recommendation of Friend 2% Overall Quality of Website 1% Other 3% 0% 10% 20% 30% 40% 50% 60% 70% Level of Cover: Product Features ~25% of brands Highly competitive on product features High price competition More Features (1): See appendix for further detail Source: AC Neilsen 5 (1)
  • 5. COMPETITORS IN THE MARKET Consolidation has not reduced customer choice, there are more targeted brands and business models in the Australian Motor Insurance market than ever before ► ► ► Incumbents Suncorp Group Many of their business models leverage the internet for distribution and a low cost offering Mixture of insurers and bancassurers ► Split into two business models: ► Aim to gain share on like-for-like offer Aggressors Aim to gradually build market share through quality offerings and minor differentiation from the Incumbents Offshoots of the Incumbent and Mid-tier brands using low-cost internet models to defend against the Aggressors ► New players looking to leverage „aggregator‟ model and aiming for a market paradigm shift IAG Full value chain insurers Aggressors are new entrants making aggressive and mostly price-based plays to gain market share Mid-Tier players have a reputable brand for motor insurance and small to moderate market share ► Mid-Tier Players ► ► ► Incumbents have been in the market over a long period of time and built up sizable market share Aim to gain share by undercutting on price Experimenters Incumbent Offshoots Aim to defend Incumbent share by matching Aggressor model Aggregators Aim for paradigm shift based on new model 6
  • 6. MARKET SHARES OF KEY PLAYERS IAG and Suncorp represent the “cosy duopoly” of the domestic motor market in Australia, holding ~70% of the overall market on a GWP basis The majority of larger market players offer both CTP and comprehensive motor insurance, with CTP often acting as a loss leader to attract new comprehensive customers Market Share of Motor by Insurer CommInsure 2% RACQ 3% IAG Group brands include: Westpac Other 0.5% 4% • • Suncorp Group brands include: • AAMI (National) • RACQ (QLD, via a joint venture) • RAA (SA, via a joint venture) • APIA – Australian Pensioners Insurance Agency (National) Allianz 8% GIO (NSW) • The Buzz (Internet-only) Suncorp (QLD) • CGU (VIC/NSW and national intermediated distribution) • Wesfarmers 6% SGIO (WA) • IAG 33% SGIC (SA) • QBE 4% RACV (VIC, via a joint venture) • Zurich 3% NRMA (NSW, ACT, TAS, QLD) • Just Car (national niche player) • Shannons (national niche player) • Bingle (Internet-only) IAG and Suncorp have successfully maintained their ~70% market share through consistently low lapse rates (e.g. 47% of NRMA customers have been with them for 10+ years) Suncorp 37% This has been achieved by: • Building and maintaining high levels of trust in their brands • Effective loyalty programs (NCBs, multi policy discounts) 7
  • 7. COMPETITOR POSITIONING The market is dominated by the large national and state players who target the mass market on value through competitive prices and service. Smaller players lead on price and/or target niches Price Key Observations Note: bubble size and positioning is illustrative Bingle Budget Direct Aust. Post Virgin  The larger brands (e.g. AAMI, NRMA) focus on a mass market offering and primarily seek to balance product features and service quality with price YouI iSelect Just Car PAYD Coles  Some of the larger and more established intermediated insurers (e.g. Vero, CGU) have adopted service-driven mass market offerings that tend to be more expensive than competitors Real Allianz Lumley ibuyeco QBE Niche Mass NRMA/RACV AAMI Shannons  Aggressors such as A&G Group (via Budget Direct), Real and YouI aim to undercut the large incumbents on price, and focus on a mass market play through a single channel (internet) or through distribution agreements with existing mass market brands Vero APIA Comminsure CGU Suncorp  Many players have also launched brands to target market niches (e.g. PAYD and Just Car target low car-users and young drivers respectively) with price-based offers GIO Product / Service Bubble size = approximate market share IAG Group Suncorp Group  Some niche players such as Shannons and APIA target demographic or needs-based customer segments who will pay a premium for highly differentiated service experiences A&G Group Other 8
  • 8. COMPETITOR CUSTOMER VALUE PROPOSITIONS (1/4) The Incumbent brands offer a range of GI products with a strong focus on cross sales, and tend to differentiate using service-based offerings and competitive pricing Incumbents Positioned as the insurer that offers “better” service, claims and pricing, AAMI primarily sells through call centres then internet – GIO is a significant brand in NSW with plans to expand presence in VIC with a focus is on growing H&C then cross-sell to Motor – – Suncorp is a significant bancassurance brand in QLD Positioned towards a large segment called “planners” who understand risk and take pride in their belongings who primarily purchase over the phone then internet – Focus is state-based rather than product (i.e. the emphasis is selling to the parochial Queensland home base) – – Distinct sub-brands aim to retain market share of vehicles (or customer segments) outside of underwriting guidelines: (e.g. Insure My Ride for motor cyclists, Just Car for grey imports, Bingle for online bargain hunters, APIA for over 50s and Shannons for motoring enthusiasts) – Product is largely undifferentiated with the highest no claim bonus but lowest new car replacement (1 year) and personal effects ($200) – There was a significant investment in pricing capability in 2007 to make it highly granular, active demand pricing and responsive to competitors – The primary channels is sales through call centres then internet – Size of the motor book allows for medium level of pricing sophistication (i.e. good use of relativities and interactions but not very granular) – Product is largely undifferentiated – – Good inbound call capability which are now brand focused (i.e. historically the Suncorp and GIO call centres were combined resulting in poor service levels during the storm season) – Discounts offered if taken together with home and contents insurance Largest insurance brand in NSW with a focus on attacking AAMI by promoting ease of switching – Positioned as the insurer that is easy to do business with and gives “greater” choice – Product is largely undifferentiated but more modular than competitors (e.g. select options such as car after an accident) with a focus on multi-policy discounts, which is a defensive tactic used by market leaders – Discounts offered if taken together with home and contents insurance – Less efficient claims model with limited cross-channel capabilities, but in the process of being rejuvenated Has a <$75 million motor dealer channel – – Pricing, Product and Claims are the same as GIO Claims Brand Position Australia‟s largest insurance brand with a national focus on motor then cross-sell to H&C Product / Price / Distribution – – Strong inbound and outbound capability (e.g. concierge service on inbound and refined outbound sales capability) – Discounts offered if taken together with home and contents insurance – Has ~$100 million intermediated motor through AMP and Honda, however this is unprofitable and Honda has a very low first year retention – Best practise claims model for customers and suppliers (i.e. branded assessment centres that promote sustainably competitive/quality repairs) – Claims model was implemented in 2006 based on the AAMI model. This is used nationally by all Suncorp brands – Claims model based on AAMI model Note: Only selected competitors are shown 9
  • 9. COMPETITOR CUSTOMER VALUE PROPOSITIONS (2/4) The mid-tier players use a mixture of direct and indirect distribution, but have struggled to achieve significant brand differentiation in the market Despite having a strong reputation as a commercial insurer, QBE‟s overall capability in personal lines is patchy – The brand leverages the equity built around the Bank and makes the link to insurance, and is largely known for Life Insurance – It has little to no brand presence in car insurance since most of its distribution is through third parties – The market entry strategy into underwriting motor was to quickly and aggressively undercut on price to acquire market share – QBE considered investing in building a direct brand, WesternQBE but decided the investment would not deliver target returns Product / Price / Distribution – QBE offers three levels of car insurance, including specialised products for younger car owners – Three levels of car insurance. High no claim bonus (70%) that is comparable to AAMI – Primarily an intermediated player with distribution through brokers and agents, and a JV with ING which provides white labelled products to ANZ bank – Brand Position – Claims Mid-Tier Players – Allianz‟s direct brand focuses on low cost and reliability – Although the low brand profile vs the incumbents means that it tends to underperform on trustworthiness measures, the brand is perceived in customer surveys as offering good levels of cover and value for money – Zurich is primarily focused on commercial lines and has little brand presence outside this market – Low brand recognition in the mass market for motor or other personal lines – Primarily intermediated distribution (either broker-based or through affinity plays) Has distribution agreements with a number of European car manufacturers to provide bundled insurance at time of purchase – Some direct distribution via the online channel, which they promote as part of broader promotion of the retail brand Motor insurance presence is primarily through fleet sales and CTP insurance, with smaller domestic comprehensive book cross-sold off these two – Claims are handled by Lumley who have a core focus on Fleet Insurance. This resulted in poor claims experience in 2008 and 2009 during the period of rapid growth Allianz has a white label agreement to distribute motor insurance through NAB – – – – Some direct distribution via an online quotation engine on their website QBE has internal claims capabilities, but is stronger in claims handling from its core commercial business than from personal lines – Allianz have also launched 1Cover, a low cost direct internet player aiming to differentiate on price – Has solid claims capabilities and a reputation as the strongest provider for claims outsourcing and affinity models – Internal claims capability but primary focus is not on comprehensive motor capabilities Note: Only selected competitors are shown 10
  • 10. COMPETITOR CUSTOMER VALUE PROPOSITIONS (3/4) The Aggressors are new market entrants who are primarily adopting price driven challenges to the Incumbent brands, generally using direct or white label distribution Aggressors Budget Direct Brand / Product – Owned by Auto & General, a subsidiary of privately-held Telesure, a direct player in South Africa – A&G primarily run a direct multi-brand strategy with capability to offer products through intermediaries, of which Budget Direct is the headline brand – Aggressive focus on challenging the major brands on price ibuyeco Virgin – Distribution brand / channel for Auto & General, with brand positioning aimed at the niche market of environmentally conscious drivers – White label agreement between Auto & General and Virgin Money, which aims to leverage the Virgin brand‟s association with value for money in Australia – Insurance premiums are at the lower cost /lower featured end of the spectrum, however cover is bundled with the calculated cost of offsetting the vehicle‟s carbon emissions for the year of cover – Value proposition is strongly price based, with an emphasis on low premiums (“up to 30% cheaper than the big guys”), plus additional offers of 13 months cover for the price of 12 – Real – Brand / Product Australia Post Owned by Hollard who are a privately owned company that offers a diverse range of General and Life Insurance products. – The only Motor Insurer to promote 10% cash back if you do not claim in 3 years and Pay As You Drive insurance – White label agreement between Auto & General and Australia Post, which aims to leverage the strong brand, customer base and distribution footprint of the national post provider – Value proposition is based around a „value for money‟ price-based offer, married to a trusted brand Also offer a 2 year premium level guarantee YouI Progressive 11 Owned by Outsurance, a direct distribution player in South Africa – Entered the Australian market in January 2010 with a sole focus on motor insurance – Offers comprehensive motor but does not provide CTP – – Brand name and marketing material are highly customercentric (You.Insured) Progressive‟s value proposition is based on convenience, with 100% online purchasing and claims management designed to target individuals who prefer to only transact via the internet – Note: Only selected competitors are shown – Uses a direct distribution model with an emphasis on price savings through more accurate risk pricing
  • 11. COMPETITOR CUSTOMER VALUE PROPOSITIONS (4/4) The Experimenters are a mixture of existing players adopting new business models and new market entrants who are aiming to grow the online aggregator distribution model Experimenters Bingle iSelect Developed by AAMI in response to the entry of aggressive online competitors with approximate startup costs of $10m - $15m – Aggregator website providing quotations and feature comparisons across a panel of motor insurance providers – Target customers are customers seeking the cheapest premium – – Brand / Product – Lowest cost strategy with no sales, service or claims call centre (i.e. all online) and basic product: Initial market entry was in health insurance, with a recent expansion into motor insurance – The technology platform is via Auto & General – No claims bonus has been replaced by “best price on the day” – – No windscreen excess – No new car replacement – No choice of repairer Panel includes a range of the Aggressor brands: Ozicare, Cashback, Budget Direct, 1st For Women, Heels n Wheels, Kudos, ibuyeco, Retirease Insurance, Dawes and Silver Fox – these are all Auto and General brands Coles – – Coles Insurance is a white-label arrangement between two Wesfarmers subsidiaries, Coles and Lumley, launched as an attempt to extract synergies from its insurance and retail subsidiaries – Aims to leverage the Coles brand and distribution footprint to provide a mass market insurance offering – Launched in mid-2009 in Tasmania and due for national launch in early 2010 – Focus on providing value for money cover as well as minor product innovations that reinforce the brand link (i.e. comprehensive cover for stolen or damaged groceries) The Incumbent and Mid-tier players are yet to engage as a supplier to any of the aggregator sites Note: Only selected competitors are shown 12
  • 12. DISTRIBUTION CHANNEL BREAKDOWN Branch networks including bank branches and branches of full service underwriters such as NRMA represent 29% of direct distribution and 21% of all personal lines Distribution Channel Breakdown Direct Mail, 3% 100% Internet 11% 90% 80% 70% 60% Branch Network 29% Direct 73% 50% Call Centre 56% 30% 10% 0% ► Direct channels account for the vast majority of personal lines distribution in Australia, with the remainder distributed via brokers or a range of other intermediated channels (including agencies, strategic alliance partners and affinity groups) ► Online discounting, a common practice in the UK, is gaining momentum in Australia as insurers seek to drive customers to lower cost acquisition channels: – Allianz offer 10% discounts for online policies in motor and H&C 40% 20% Key Observations – GIO offers 15% online discounts for motor and H&C Other Intermediated 20% ► New distribution channels are emerging, particularly white label arrangements with retailers: Broker, 7% – Australia Post has launched a white labelled motor product underwritten by Auto & General All Personal Lines Direct Distribution There does not seem to be an overall industry figure for customers using the internet and whilst we are using the JP Morgan figures we have our doubts as to whether internet usage is really as high as 11% – Coles are piloting H&C and motor offerings in Tasmania, underwritten by Lumleys (owned by Coles parent Wesfarmers) Source: JP Morgan General Insurance Survey 2009 13
  • 13. ROLE OF BANCASSURANCE Research conducted by Datamonitor suggests that bancassurance accounts for at least ~9% of motor insurance distribution in Australia Percentage of products held with primary bank 70% 61% 61% 60% 53% 52% 50% 41% 40% 26% 30% 20% 13% 11% 10% 9% 6% 0% Transaction account Savings account Mortgage Credit card Personal loan Debit card ► Research conducted by Datamonitor suggests that bancassurance accounts for at least ~9% of motor insurance distribution in Australia Other insurance Life insurance Car insurance Pension / super ► Similar penetration rates for non-motor GI and for life insurance suggest that bank-based distribution in general is yet to have a substantial impact in this market Source: Datamonitor – Cross Selling Financial Services, 2009 14
  • 14. AUSTRALIAN BANCASSURANCE Despite the significant potential of their branch networks Australian banks have had limited success in selling general insurance with home and contents providing the greater revenue • • • • • • • 1264 branches combined Westpac white labels its motor insurance through Vero and underwrites H&C Westpac‟s St.George and Bank SA brands white label motor insurance from CGU No product bundles including motor insurance (WBC Premier Advantage offers discounts on H&C and life insurance) 826 branches ANZ white labels both home and motor insurance through QBE & ING „ANZ Breakfree‟ product bundle includes 5% discount on first year of motor insurance premium • • • • • • • 1094 branches CBA underwrites H&C and motor insurance with claims outsourced to Lumley, a subsidiary of Wesfarmers Has the most effective bancassurance offering with significant national market share „Wealth Package‟ includes 10% discount on base premium for motor insurance 1049 branches NAB white labels its insurance through Allianz Motor insurance discounts not included in any product bundles („Choice Package‟ does include discounts on H&C and life insurance products) Key Observations ► With the exception of Suncorp, the success of banks in GI has been limited with only CBA achieving any minor market share with around 3% market share in each state ► Home insurance has been the major focus with the banks focusing on sales at the point of mortgage origination with a similar strategy being used with motor finance ► CommInsure have had the greatest success in motor because: – Distribution channels are aligned to sales objectives (i.e. high levels of staff awareness, training to identify sales triggers such as bank cheques for purchasing a car, KPIs, NPS, MI and BDM support) – The “CommInsure” brand leverages the parent brand equity and raises customer awareness of the insurance offering – Aggressive pricing and broad underwriting (pricing is more rational after two years of +35% growth) – Products are good quality, competitive with other offers, and provide limited differentiation from the majors on NCB • • • • 216 branches Suncorp underwrites H&C and motor insurance Although they have the smallest branch network, Suncorp is the largest of the bancassurance players, having multiple insurance subsidiaries Does not offer explicit discounts for bundling insurance with bank products ► By contrast, the white label models of WBC, ANZ and NAB have seen limited differentiation or sales focus, and have had little impact ► All of the banks have product bundles on offer, primarily structured as add-ons to home loan customers. Only CBA and ANZ offer discounts on motor insurance as part of packages (1) (1): See appendix for further detail of bundles on offer Source: APRA, Bank websites 15
  • 15. THE VALUE CHAIN & BUSINESS MODELS Business models follow the value chain with the major players adopting a multi-brand distribution strategy which stretches all the way across the value chain in order to maximise margin 1 Full Service Provider Value Chain Brand & Marketing The activities undertaken will define the business model and capabilities Distributors may move down the value chain to capture more margin Business Model Product & Pricing 3 Distributor Post Sales Service 2 Intermediated underwriter Claims Management Underwriters may move up the value chain in an attempt to capture distribution margin 3 Distributor Examples Normal reinsurance Takes the distribution and product margin with all the risks and requires capabilities across the value chain IAG, Suncorp Takes the distribution and product margin and mitigates some risk with reinsurance arrangements and requires capabilities across the value chain Lumley Coinsurance/Reinsurance Reduces underwriter risk through sharing across partners Admiral Profit and equity risk share arrangement IAG / RACV Profit Commission Intermediated underwriter Description Joint venture 2 Full Service Provider Variant Heavy reinsurance support 1 Business Model There are 3 broad categories of business models and these define the core capabilities of the organisation Sales & Distribution Option to outsource claims in order to concentrate on product and/or distribution for Full Service Providers and Intermediated Underwriters Profits based on business volume QBE / ING White labelling Leverages brand and protects the customer experience and takes distribution margin. Capabilities concentrated on customer, sales and marketing. Westpac Single Insurer alliance Joint branding between insurer and distributor RBS / Norwich Union Multiple Insurer alliance Leverage bank brand and provide multiple product solutions HSBC Aggregator Almost becomes an „advisor‟ to the customer to select most suitable product from the market and leverages internet technology iSelect The majority of bancassurer business models are either Full Service Providers or Distributors. The Intermediated Underwriter model is only used when insurance forms a strong strategic component of the overall bank holding company 16
  • 16. BANCASSURER BUSINESS MODEL IMPLICATIONS The choice of business model has some fundamental implications in terms of potential profitability, operational and reputational risk, and strategic differentiation in the market 1 Strengths – – Full Service Underwriter Potential to maximise profitability through controlling margins and cost throughout the end to end value chain (i.e. Setting premium levels, risk appetite, operational costs etc) though this can be cyclical and volatile – Control the strategic positioning of brands in the market according to customer segmentation and buying behaviours – – Complete control over the customer base – Control of service standards and quality tailored to your customers needs – Additional levels of capital required for book – can be an advantage if capital can be secured at a cheaper rate than your competitors – Significant and ongoing brand investment needed – – Intermediated Underwriter Opportunity for multi-brand distribution without significant brand and marketing investment and ability to add revenues through targeting new areas of the market through alternative distribution channels Distribution costs can be lower than direct distribution since sales networks are already in place (particularly for bancassurance or retail partnerships where insurance is not the core product) 3 Distributor – Potentially lower operational and reputational risk – Opportunity to leverage distributors brand, customer base and customer insights – Marginal distribution costs since existing sales force and infrastructure can be leveraged – No capital is required to be held The end to end value chain become your core competencies and the organisation‟s resources do not have to compete against other products/services in a portfolio – Weaknesses / Risks 2 Today COMPANY A is a Distributor based on a white labelling approach – Retain control of service standards and quality tailored to customers needs – Reliant on partner for sales and marketing to generate business volumes – May be perceived as a low-volume channel by underwriter and hence de-prioritised – Partner may prioritise other product lines if insurance is not a core product – High potential for operational and reputational risk – High potential for operational and reputational risk Limited pricing control and high risk that underwriter may price uncompetitively to ensure margins are preserved vs. direct business Expertise required across the capabilities in the value chain (e.g. distribution, marketing, pricing, claims management, systems) – Control over the customer base is deferred – – Levels of capital still required for the book - can be an advantage if capital can be secured at a cheaper rate than your competitors No control over claims process risks poor customer experience and brand damage as underwriter prioritises risk recovery over customer experience – Expertise required across the capabilities in the value chain (e.g. pricing, claims management, systems) Bancassurers can combine elements of these business models to have a “hybrid” model e.g. both underwriter and distributor depending on brand/product/customer segment 17
  • 17. RECENT COMPETITOR ACTIVITY The internet continues to be the primary source of competitive activity, and although industry impacts remain weak so far IAG and Suncorp are struggling to respond Growing Focus on Marketing ► The entry of new players has resulted in the launch of a number of aggressive market campaigns, both from the Aggressors seeking to gain market share and the Incumbents seeking the defend it ► As a result, marketing spend as a percentage of GWP has increased for most players, and the industry may see a corresponding uptick in switching activity Experimenter Brands Struggling ► As part of its mid-year results, IAG announced in February 2010 that „The Buzz‟ had lost money in the first half of the financial year ► Despite this, the Experimenter brands are proving to have broader appeal outside of younger and more web-savvy customers. IAG revealed that the average customer of The Buzz‟s is 35 years old and tends to live in wealthier suburbs Increased Aggregator Activity Entry of Progressive Recent Activity ► US-based Progressive entered the Australian market at the start of 2010 with the launch of Progressive Direct, a direct online distribution model which aims to gain some of the alternative online market occupied by lower cost internet players ► Progressive hopes to leverage its expertise in online business models and segmentation, and aims to rollout online claims management which it believes will help differentiate it within the Australian market Competitor Premium Increases ► Additional players have entered the aggregator space in recent months, with health insurance aggregator iSelect entering the motor insurance market ► Suncorp and IAG have announced increases to motor premiums in the first two months of 2010, indicating a hardening of the market and moves from the major players to recover margins ► The aggregators continue to struggle with low participation from the incumbent brands, which limits the credibility and trustworthiness of their offerings ► As yet this has not been met by fierce undercutting from competitor brands (beyond their existing discounting strategies) ► Recent fierce weather events in Victoria have generated extremely large claim volumes and will likely result in further premium increases Source: Media articles 18
  • 18. BANCASSURANCE IN THE UK The banks are split between the underwriting and distributor business models and this has implications for brand positioning in the UK general insurance market Bank Model Underwriter/ Joint Venture Multiple Partner Distributor Single Partner Distributor Hybrid Brands Multiple Single Single Single % of Group Profits* Multiple Strategy Biggest personal lines insurer in the UK with direct and partnership brands as well as commercial presence Having built up leadership in direct and partnership business, are currently developing commercial offerings and consolidating different brand infrastructure Mainly distribution model but with some underwriting of own PPI products Embarked upon a significant growth ambition for general insurance though has found it difficult to make an impact 4.9% Underwrite own PPI but partner with Aviva (formerly Norwich Union) for all other products under a distribution model Formed a distribution partnership joint venture with NU in 2005 announcing significant growth plans & price focused proposition. Have enjoyed a moderate degree of success through leverage of bank‟s customers 5.5% Hybrid model, partnering for motor & SME, underwriting own creditor and underwriting some home, passing rest to a panel Have a growing GI presence, looking to selectively develop underwriting expertise and “cherry pick” risks to underwrite 5.3% Hybrid Model underwriting own home & PPI, partnering for commercial. Own E-sure Direct Motor Brand Growing home insurance offering under the Halifax brand and growing motor direct under the E-sure brand 16.9% 6.8% Now form Lloyds Banking Group Underwriter Operating Model * % of Group Profit attributable to Home & Motor insurance 2005 19
  • 19. EUROPEAN BANCASSURANCE Europe has the highest bancassurance penetration in the world, with a share of distribution channels accounting for more than half of premium income in many markets Key Observations ► Traditionally the focus is on life insurance rather than non-life products ► Share of non-life insurance for new business in 2006: – UK 10% – Germany 12% – Italy 2% – France 9% – Spain 10% (Source: “Bancassurance“ Oliver Wyman Study 2008) ► ► Northern Europe – Non-integrated Model Southern Europe – Integrated Model • • • • • Usually involves distribution rather than product manufacturing Distribution agreements are often on an exclusive basis in Germany though UK is multi partnered Use of multiple brands for particular segments Focus on use of direct channels • • • Joint ventures or full integration more likely Success based on integration of insurance and banking business models Appeal to existing bank relationships through active targeting Distribution of products by bank staff (i.e. Non direct channels) Excluding the UK, agents and brokers play a major role in all European markets However, bancassurance has steadily gained market share in motor insurance since 2000 in France, UK Belgium and Spain ► In most countries bankers are targeting motor insurance where they see some potential for cross selling and profits ► In France, Spain and Italy, banks benefit from having a special relationship of trust with their customer and are perceived to be better than insurance companies at handling financial issues and they value the face to face relationship 20
  • 20. LEARNINGS FROM OVERSEAS OPERATING MODELS While no definitive model for successful bancassurance exists, there are a number of lessons that can be learnt from the models which have succeeded overseas ► There is no “right model” (distributor vs. underwriter) for bancassurance, it is circumstantial to the overall corporate strategy, market and internal business capabilities ► Though there are a number of “get rights”: – High level of direct distribution – Relative profitability through maintaining margin – Relative lack of brand proliferation – Relative size of market ► Traditional bancassurance models have typically struggled due to tension between underwriter profitability and distributor margin versus ultimate price to customer ► There are a number of successful bank-owned models: – TD – Meloche-Monnex (Canada) – stand alone direct insurer – Royal Bank of Canada – RBC Insurance (Canada) – stand alone insurer with proximity to the bank, clear customer proposition and leveraging brand name – HSBC – HSBC Insurance (worldwide) – leverage brand name and customer capture 21
  • 21. LEVERAGING THE BANK’S BRAND STRENGTH HSBC, Worldwide Bank of America, US Leverage the powerful bank brand with different business models appropriate to the market Gave their customers the perception of value to help them save money HSBC have a hybrid model across the world and act as either aggregator, distributor or full service underwriter depending on the market and the opportunities therein. Central to all markets and models though is the use of the single and worldwide HSBC brand. ► In the UK they have partnered with BISIL, who act as an aggregator, to arrange their customer‟s motor insurance ► They also offer Premier Car Insurance for their Premier customers through a single distributor model (Equity Red Star) ► In Australia they have a white label approach to leverage the HSBC brand with Allianz ► In Singapore and Hong Kong they act as the underwriters and distributor ► In Asian markets they also act as the underwriter and partner with others for the distribution aspect of the value chain (e.g. Auto Insurance) ► Common to all these models is that the HSBC brand is at the front and central to the proposition ► Employees across all branches and countries are aware of the product and able to sell it regardless of channel – this sales effectiveness is key to penetrating their customer book ► A lot of effort is also invested in understanding their customer book in terms of segments and propensity modelling allowing HSBC to accurately target the product at customers that will offer them the most value and long term revenues ► Investment has been made in the internet capability to ensure that the brand is strongly represented online and that the customer experience is strong A small team of Bank of America employees in conjunction with a research team observed the banking and buying habits of their various customer segments. They discovered: ► Certain savings tricks by customers who would round up the amount of anything they bought to the nearest dollar to provide a small cushion in their transaction account ► Taking this idea, the BoA team 18 months later rolled out a programme entitled “Keep the Change” ► The product works by rounding up the amount of any purchase to the nearest whole dollar when they use their Visa Debit Card and stores the excess balance in an electronic savings jar, in effect a savings account, which is linked to their transactions account ► As an incentive the bank matched 100% of the transactions for the first 3 months and after that they will contribute between 5% up to a total of $250 annually ► Both the 100% and 5% contributions are paid annually on the anniversary of opening the account ► 12 months after the inception of the programme, over 3 million customers had signed up for the programme – including 1.3 million new customers – and had cumulatively saved up $200m ► The use of debit card transactions had increased as a result of the programme which in itself generated extra fee income ► Dependencies for the success of the programme were in the main effective marketing and the back end systems to record the amount which went to the merchant and the amount that is transferred to the electronic savings jar ► As for the customers, it seemed to strike a chord with people emotionally and the inherent desire to save 22
  • 22. BROAD & NARROW MARKET POSITIONING RBS, UK Bingle, e car, Progressive, Australia Made General Insurance a strategic priority with a multi brand presence and full business model Internet only propositions look to take market share based on low cost model RBS in the UK has positioned general insurance as a key income provider to the overall bank based on: ► Creating a separate business division within the bank - RBSI ► A multi channel and multi brand approach matched to key customer segments in the UK Motor Insurance market ► The portfolio of brands was created through start ups, joint ventures, and acquisitions ► The distribution of motor insurance through the bank‟s distribution channels (Nat West and RBS branches) was an optional benefit rather than the primary focus ► Strong „direct‟ offering through call centres and internet channels ► Income from General Insurance is a strong contributor to overall bank incomes at circa 20% ► Joint ventures with other leading retail brands e.g. Breakdown providers (Green Flag), supermarkets (Tesco) enabled diversification for the distribution approach and leverage through well known retail and motoring associated brands ► In short, the components of the business were: – Churchill Insurance provided scale and appealed to a particular geography of the UK and mass affluent customer segment – Direct Line run as a separate business for mass market – Green Flag Breakdown Services allowed for an affinity play – Tesco joint venture allowed a new distribution approach ► Overall the RBSI model was a combination of Full Service Underwriter and Intermediated Underwriter ► Andy Cornish was the former Managing Director of RBSI for over 9 years and is now IAG‟s Direct Insurance Chief Executive Bingle (underwritten by AAMI) and e car (underwritten by Southern Rock Insurance co) were launched in 2007 with a value proposition based on low premium prices accessed using only the internet as a channel thus achieving a low cost model. Progressive (US) have a similar model and entered the Australian market in January 2010. Features of this business model are: ► Leverages the models common in the UK where „direct‟ is popular due to broadband take up and use ► Quote, purchase, renewal and claims are all completed online ► There is no provision of phone numbers for contact – only email and internet contacts ► There is no choice of repairer ► The target market for these types of propositions is a younger market (Gen X and Y) ► Focused advertising to raise initial awareness ► Early positioning to take advantage if internet usage for car insurance in Australia surges ► Strong positioning for “cheap car insurance” and heavy above the line advertising spend matched with strong online capabilities ► Strategic proposition is based on industry data that Australians maybe overpaying by $3.4bn for car insurance ► Aiming to sideswipe customers from the market incumbents through price reductions ► The incumbents have set up their platforms to check this aggressive market play (e.g. IAG own The Buzz ) ► The success of this market challenge is predicated on greater internet use by customers and that they are more price sensitive than brand loyal 23
  • 23. PRODUCT BUNDLING & INNOVATION Telstra, Australia Norwich Union, UK Have successfully used product “bundling” to prevent churn of their customer book Embracing new technologies for innovation only works if you can convince customers to take it up The key strategic driver for Telstra was to reduce churn of their customer book. ► Defensive strategic move as had 70-80% of the market ► Achieved through a strong capability and understanding of the customer book through segmentation and propensity modelling focused on those customers that were most likely to switch ► Propensity modelling showed that customers with 4 products were very unlikely to switch and hence became the aim ► Some customers were not offered the choice of bundling because of reduced margins ► The added extras were at a low marginal rate to Telstra but perceived by customers as high value ► Success was based on an „anchor‟ product of fixed line telephones and cross sell from there ► The success came from Big Pond (broadband), and Foxtel, customers saw mobiles as a separate purchase ► Achieved 450,000 customers with 4 products with very high retention rates ► Main issue of churn was driven primarily by price (64% of customers mentioned this as primary reason) and then service ► Started through a trial of asking all fixed line customers about broadband services, it then was about scale ► Product Bundling has been a success for Telstra in meeting its strategic objective of reducing churn and protecting its customer base ► Furthermore, it has become a key approach to marketing its products and services that conveys value and convenience to the customer Pay as you drive (PAYD) is a metric based “user pays: insurance product. ► PAYD is a product development that bases insurance costs on how much the customer drives, when and where to ► The proposition is that customers are bale to reduce their risk through accurate vehicle usage measurement and only paying for when the vehicle is in use whilst insurers are able to price more accurately for the risks actually undertaken ► Other insurers using this technology are Hollard Insurance in South Africa, AIOI Insurance in Japan and Progressive (TripSense) and GMAC in the US whilst AAMI have begun to actively investigate adoption in the Australian market ► This may cause the size of the traditional motor vehicle to reduce if an insurer introduces PAYD into a geographical area and customers take up the product in numbers – therefore suited to a non-incumbent to launch this strategy to take market share ► Greater accuracy to price risk and segment customers an d more positive underwriting results ► There is obviously a technology dependence on this innovation ► Norwich Union suspended the scheme 2 years after launching as take up from the market was too low to overcome the costs of administration and fitting vehicles with the GPS receivers ► This is despite customers being involved in the pilot saving up to 30% which was particularly suited to low car usage and young car drivers ► It seemed customers were not keen on having a “big brother” device in their cars ► Patrick Snowball was the Chief Executive of NU at this time, he is now with Suncorp 24
  • 24. MOTOR INSURANCE INDUSTRY ECONOMICS (1/2) Premium growth has tended to lag behind inflation over the long term, reflecting increasing competition and declining margins Average Vehicle Kilometres per Year (thousands) Motor Insurance Premium Growth Claims Frequency & Average Claim Size 15.5 130 140 15.0 140 120 120 100 14.5 110 80 100 14.0 90 60 13.5 80 40 70 13.0 20 60 50 12.5 2001 2002 2003 2004 2005 2007 2008 2009 Average Motor Insurance Premium (index) 0 2000 2001 2002 2003 2004 2005 2006 2007 Passenger Vehicles All Vehicles CPI ► Motor insurance premiums have tended to increase more slowly than CPI over the past 10 years, although the gap has narrowed in the last 2 years 2001 2002 2003 2004 2005 2006 2007 2008 2009 Claim Frequency (index) Average Claim Size (index) ► Kilometres travelled per vehicle declined over the last decade, indicating a reduction in car use or trip length ► Over time this trend is likely to limit the frequency of claims resulting from driving incidents ► Claims frequency shows some volatility (linked to weather events) but reflects a general increase as additional customers enter the market ► Average claim sizes have been in decline since the start of 2008 25
  • 25. MOTOR INSURANCE INDUSTRY ECONOMICS (2/2) Industry participants forecast falling loss ratios resulting in improved profitability in 2010 and 2011 Motor Insurance Combined Ratios 90 80 Loss ratios in 2009 declined from the peak in 2008 but remained high by historical standards Industry participants expect loss ratios to improve over the coming two years, however the driver of this move is unclear ► The industry’s weighted average expense ratio increased to 20%, however this may have been skewed by the inclusion in 2009 by a number of new entrants who do not benefit from scale ► 16 Combined ratios in domestic motor insurance have hovered around 90, the result of high loss ratios driven primarily by weather events ► 89 93 ► ► Forecasts 100 If industry forecasts hold, combined ratios should improve to 85 in 2010 and 2011, driving margin improvements and higher profitability in the sector 91 85 16 20 85 17 17 70 60 50 40 73 77 71 30 68 68 20 10 0 2007A 2008A 2009A Expense Ratio 2010F 2011F Loss Ratio Source: JP Morgan General Insurance Survey 2009 26
  • 26. AUSTRALIAN GI OPERATING MODELS Business models are focused around either full service (direct) or intermediated distribution, with the major players adopting a multi-brand strategy which straddles both models Players who underwrite and directly distribute their own products. Full service providers Split roughly into 4 sub-groups: • The two incumbents who operate through a range of brands Incumbents Mid-tier Players • IAG: NRMA, RACV, SGIC, SGIO, The Buzz • CommInsure • Suncorp: Suncorp, GIO, AAMI, APIA, Just Car, Shannons, RACQ, Bingle • The mid-tier players who are established but hold single-digit market shares • The aggressors, who have all launched in the last 5 years and favour low-cost distribution • Allianz: Allianz, 1Cover (1) • Zurich Aggressors • Auto & General: Budget Direct, ibuyeco (1) • The Challengers, which are start-up brands launched by the incumbents to attempt to compete with the low-cost Aggressors Challengers • Bingle (Suncorp, via AAMI) • Hollard: Real, PAYD • Youi • Progressive Players who underwrite business which is distributed through brokers or third parties (including banks). Some of these players also have some direct distribution. Intermediated underwriters • CGU (IAG) (2) • Lumley (subsidiary of Wesfarmers) • QBE • Westpac (Vero) • Virgin (Auto & General) • St.George / BSA (CGU) • Australia Post (Auto & General) • NAB (Allianz) Distributors (partnered with) Distribute products underwritten by intermediated underwriters, occasionally on a white label basis • Vero (Suncorp) • Coles (Lumley) • ANZ (ING & QBE) (1): Primarily direct distribution but also involved in some intermediated distribution (2): Primarily intermediated business but also involved in some direct distribution 27
  • 27. MOTOR INSURANCE POLICY FEATURES The majority of players in the market are ranked similarly on policy features, indicating a competitive environment where policy innovations are swiftly replicated by competitors Policy Features Insurer GIO Suncorp RACT RAA HBA Mutual Community CGU CommInsure ING AAMI QBE HBF NRMA SGIC RACV SGIO TIO Allianz (Gold) Allianz (Plus) Real Insurance Ansvar Insurance Pay As You Drive Apia The Buzz Youi Budget Direct (Gold) Australia Post Budget Direct (Std) Just Car Insurance Bingle Valuation Option No Claims Bonus Choice of Repairer 24-hour Helpline Agreed Value Either Agreed Value Higher of both Either Either Either Either Either Agreed Value Either Agreed Value Either Either Either Either Market Value Either Either Either Market Value Agreed Value Either Agreed Value Either Either Either Either Agreed Value Agreed Value Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Choice.com.au Policy Rating Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 89 88 88 87 81 81 80 78 78 77 77 77 75 75 75 75 73 72 71 71 70 70 69 63 63 60 Yes 53 53 34 30 ► Mass market brands offering extensive policies with similar levels of features ► Competitive pressures are strong, meaning that most feature innovations are matched by competitors ► It should be noted that certain new market entrants (e.g. Real Insurance) offer policy features which are broadly competitive with the fully-featured incumbents ► The lower end of the features range is unsurprisingly dominated by players whose business models are based on highly competitive pricing Source: Choice.com.au 28
  • 28. AUSTRALIAN BANK PRODUCT BUNDLES While all of the major banks offer product packages these almost all require a mortgage as their base, and only two (CBA and ANZ) include discounts on motor insurance Premier Advantage Package ► Primarily offered to home loan customers (but available to other lending customers) ► Provides discounts on lending rates, transaction account and credit card fees, insurance products (H&C, landlord‟s, mortgage, and life) and wealth and super products ► $395 annual fee Westpac Choice Student Package ► Available to full time students ► Fee free transaction account, lending rate discount for personal lending, interest bonus on savings account Wealth Package ► Requires $150k total home lending with CBA ► Lending rate discounts for home and personal loans, fee free transaction account and credit cards, bonus interest on TDs, financial planning discounts, and life insurance discounts and GI discounts as follows: – 10% off residential H&C base premium – 5% off investment H&C base premium – 10% off motor base premium – 5% off loan protection premiums ► $350 annual fee NAB Choice Package ► Requires $150k or more of mortgage lending ► Offers lending rate discounts, lending fee discounts, no transaction account and credit card fees, bonus interest on TDs, premium and discounts on life and H&C insurance ► $395 annual fee NAB Shareholders Package ► Available to NAB shareholders ► Bonus TD interest, no credit card or lending application fees, life insurance discount NAB Graduate Package ► Credit card and low interest loans for recent graduates Advantage Package ► Home loan based package ► Offers discounts on home lending rates and fees, transaction account fees and credit card fees ► $395 annual fee ANZ Breakfree ► Home loan package, plus a broad range of package options, but no life insurance ► Offers lending rate discounts and fee waivers on home and personal lending, fee free transaction and credit cards, discounts on margin lending and online trading, financial planning discounts, 1 free month of H&C cover in first year, 5% off motor premium in first year ► $375 annual fee Money Manager – My Home Package ► Home loan based product ► Provides rate discounts on lending greater than $150k ► Also offers fee discounts on home and personal lending, transaction accounts, and credit cards ► Discounts on “a range of other banking and insurance products” (however similar discounts available outside the package) ► $300 annual fee 29
  • 29. CUSTOMER DEMAND DRIVERS Value for money and trustworthiness are ranked as the top two factors in selecting a provider, with customers who switched placing a greater emphasis on price Top factors in selecting a motor insurance provider All Customers Customers who switched in the last 6 months 54% Value for Money 66% Value for Money Trustworthiness 36% Trustworthiness Customer Service 35% Customer Service 33% Level of Cover 28% 34% 32% Level of Cover Overall Reputation 23% Overall Reputation 21% Flexible Payment Options 22% Flexible Payment Options 22% 15% Range of Benefits / Features 13% Ease of Understanding Policy 18% Range of Benefits / Features Ease of Understanding Policy 9% Speed of Quotation 9% Speed of Quotation 8% Loyalty Rewards / Incentives 9% Loyalty Rewards / Incentives 9% Professional Advice 6% Professional Advice 6% Simple Product Solutions 5% Simple Product Solutions 6% Recommendation of Friend 2% Recommendation of Friend 3% Overall Quality of Website 1% Overall Quality of Website 2% Other 3% Other 3% 0% 10% 20% 30% 40% 50% 60% 70% 0% 10% 20% 30% 40% 50% 60% 70% Source: AC Neilsen 30
  • 30. TOP CUSTOMER DEMAND DRIVERS BY PLAYER Deviations in customer responses from the market average show how the differing value propositions of the players is reflected in the priorities of their customers • Price is a significant differentiator, and is clearly valued more highly by budget brand customers than those that have stayed with the traditional players • Trustworthiness is more of a hygiene factor with less of a spread in customer responses • Brands with strong statebased roots (e.g. Suncorp show high trust levels) • Customer service is a hygiene factor for the incumbent brands, but less critical to price-sensitive customers • Value for Money There is a low spread in responses on level of cover, suggesting that most brands are competitive on this factor 54% Market Average Trustworthiness 36% Market Average Good Customer Service 35% Market Average Level of Cover 33% Market Average Source: AC Neilsen 31
  • 31. ROLE OF TRUST IN FINANCIAL SERVICES PURCHASES There is a strong bias towards trustworthiness when it comes to the purchase of financial products, with 68% of the market only willing to buy from established brands “I would only buy financial products from an established provider” Breakdown of Responses Disagree, 4% Strongly disagree, 3% Strongly agree, 24% Neither agree nor disagree, 23 % Agree, 46% Source: Datamonitor Australian Financial Services Consumer Trends Survey, 2007 32
  • 32. LIKELIHOOD TO SWITCH BY PROVIDER Brands with high trust levels and/or strong regional footprints (APIA, RACQ, NRMA, RACV) have the highest incidence of customer stickiness Likelihood to switch providers at next renewal (by provider) Highly Likely Likely Market Average 5% Budget Direct 5% 11% Allianz 6% 9% CGU 5% Suncorp 6% AAMI 5% 8% 25% GIO 4% 9% 24% RACV 4% Unsure 7% APIA 0% 33% 35% 26% 36% 25% 37% 25% 21% 38% 25% 44% 28% 19% 10% 23% 23% 12% 44% 28% 45% 22% 20% 29% 25% 19% 4% 25% 27% 6% Highly Unlikely 41% 29% 9% 4% 4% 5% 26% 30% 8% NRMA 3% 6% RACQ 22% Unlikely 30% 57% 40% 50% 60% 70% 80% 90% 100% Source: AC Neilsen 33
  • 33. LIKELIHOOD TO SWITCH BY CHANNEL Customers who have used the internet as a purchase channel are a higher risk of switching, while customers using face to face channels are the lowest Likelihood to switch providers at next renewal (by original purchase channel) Highly Likely Market Average 5% Likely 7% Unsure 22% Face-to-Face 3% 5% 9% 19% Other 5% 7% 21% Telephone 5% 7% 22% 7% 0% 9% 10% 41% 26% 4% 48% 20% 48% 24% 43% 26% 28% 20% Highly Unlikely 26% 18% Post Internet Unlikely 30% 40% 26% 40% 50% 60% 30% 70% 80% 90% 100% Source: AC Neilsen 34
  • 34. BUNDLING OF BANK PRODUCTS (1/3) There is a strong bias from customers towards accessing product bundles from their bank to satisfy emerging product needs What approach would you take to purchasing a new financial product? Strongly agree Agree 70% 60% 50% 40% 30% 20% 10% 0% In taking out a new In taking out a new product I would product I would first review as many go to my bank providers as possible I am more inclined I am more inclined I am more inclined to get several to get several to go to separate products from my products from my providers to get the bank to make it bank because I best rates easier for me know and trust them Source: Datamonitor Australian Financial Services Consumer Trends Survey, 2007 35
  • 35. BUNDLING OF BANK PRODUCTS (2/3) Drivers for customers to want to bundle financial services products are primarily driven by price (reduced fees or lower interest rates), with convenience a secondary factor What reasons would you have for bundling products with the same bank? Very important Quite important 80% 70% 60% 50% 40% 30% 20% 10% 0% Help with life events Single website to manage all financial services Single point of Lower rates for Better rate for Reduced fees contact mortgage / loan high-interest (banking, cards / credit card saving account etc) Source: Datamonitor Australian Financial Services Consumer Trends Survey, 2007 36
  • 36. BUNDLING OF BANK PRODUCTS (3/3) Bundled products have been shown to provide a reason to switch to and a disincentive to switch away from the bundle provider, however this was only a factor for some customers How has product bundling influenced your choice of bank? 14% 12% 10% 8% 6% 4% 2% 0% Switched transaction account due Didn't change transaction account Didn't change high interest savings to getting bundle with different provider due to holding bundle account provider due to holding provider bundle Source: Datamonitor Australian Financial Services Consumer Trends Survey, 2007 37