Com­pare and con­trast

Mak­ing in­sur­ance shop­ping eas­ier

Sunday Star-Times - - BUSINESS -

It’s time to force the same price trans­parency on car and house in­sur­ers that we forced on power providers, young tech­nol­ogy en­tre­pre­neur Michael Speight says.

Back in 2010, the elec­tric­ity re­tail­ers were forced to pro­vide their prices to any per­son upon re­quest by the Elec­tric­ity In­dus­try Par­tic­i­pa­tion Code.

That al­lowed The Elec­tric­ity Au­thor­ity’s What’s My Num­ber cam­paign to launch in May the fol­low­ing year, mak­ing it eas­ier for power-users to shop around, and check if they could be sav­ing money by get­ting a bet­ter deal.

Now, Speight, co-founder of price com­par­i­son site Glimp.co.nz, be­lieves it is time to in­tro­duce sim­i­lar rules for in­sur­ers, to en­able com­pe­ti­tion to drive prices down for house and car cover be­cause just like the power providers, the in­sur­ers fear a loss of con­trol.

Glimp lets peo­ple com­pare prices for elec­tric­ity, broad­band, mort­gages, per­sonal loans, car loans and credit cards, but it has its sights on crack­ing the enor­mous car in­sur­ance mar­ket.

In the year to the end of Septem­ber 2016, in­sur­ers col­lected $1.64 bil­lion in pri­vate and com­mer­cial ve­hi­cle in­sur­ance.

‘‘The elec­tric­ity re­tail­ers were very re­sis­tant to us,’’ Speight says.

‘‘We were one of the first ones to ask for the pric­ing, and we had to go to the Elec­tric­ity Au­thor­ity to make them give it to us.’’

The in­sur­ers are sim­i­larly re­sis­tant, mak­ing no bones about what they think of web­sites like Glimp, and have so far stymied the growth of on­line car and house in­sur­ance web­sites, which have thrived over­seas.

‘‘There’s a rea­son why this hasn’t hap­pened be­fore. It’s money,’’ Speight says.

New Zealand has one of the most con­cen­trated gen­eral in­sur­ance mar­kets in the world.

IAG, which owns State, NZI and AMI, and Suncorp, which owns Vero and AA In­sur­ance, con­trol over three-quar­ters of the house and car in­sur­ance mar­kets, cre­at­ing a du­op­oly only matched by Food­stuffs and Pro­gres­sive in the su­per­mar­ket in­dus­try.

Dr Michael Naylor from Massey Uni­ver­sity’s School of Busi­ness, was forth­right in his op­po­si­tion to the at­tempted takeover by Suncorp or the third largest gen­eral in­surer Tower, which the Com­merce Com­mis­sion re­fused ear­lier this year be­cause it feared the ef­fect on com­pe­ti­tion should it be al­lowed to go ahead.

‘‘The mar­ket for per­sonal house and con­tents in­sur­ance is al­ready highly con­cen­trated and un­com­pet­i­tive. The cur­rent mar­ket struc­ture can be char­ac­terised as a du­op­oly. My fig­ures show that IAG has 50 per cent, Suncorp has 28 per cent, Tower 7 per cent, and FMG 4 per cent.’’

In­ter­na­tion­ally, this is con­sid­ered to be highly con­cen­trated, Naylor said.

He con­trasted the fierce com­pe­ti­tion and in­no­va­tion in the life in­sur­ance in­dus­try to the stag­na­tion in the gen­eral in­sur­ance sec­tor.

‘‘It is telling to com­pare the changes in mar­ket share and in­no­va­tion which have oc­curred in that sec­tor, with the stag­na­tion of the house and con­tents sec­tor.’’

Peter Har­ris from small in­surer CBL, said in his plea to the com­mis­sion to de­cline the Suncorp at­tempted takeover of Tower: ‘‘New Zealand has a his­tory of al­low­ing duopolies to flour­ish, with na¨ıve be­liefs that the two will work in com­pe­ti­tion with each other to drive down prices and im­prove ser­vice for end cus­tomers.’’

‘‘This has not been the case. In­stead sup­pli­ers and cus­tomers are ma­nip­u­lated to en­sure prof­itabil­ity is main­tained.’’

Naylor says the coun­try could ‘‘ab­so­lutely’’ re­quire in­sur­ers to do what the elec­tric­ity providers have to do.

‘‘That would be won­der­ful, and not just car in­sur­ance, but all the in­sur­ance,’’ he says.

Open­ing that Pan­dora’s Box is fraught with dan­ger, how­ever.

‘‘You have to do it care­fully,’’ Naylor says.

In­sur­ance is not like elec­tric­ity, says Tim Grafton from the In­sur­ance Coun­cil, which is the in­dus­try voice for in­sur­ers in­clud­ing Suncorp and IAG.

Elec­tric­ity is a pure com­mod­ity pur­chase. In­sur­ance is not.

‘‘There’s no dif­fer­ence be­tween the elec­trons go­ing into your home and the elec­trons go­ing into mine,’’ Grafton says.

But each in­sur­ance pol­icy is a con­tract be­tween an in­surer and the pol­i­cy­holder, and the terms of those con­tracts are dif­fer­ent from in­surer to in­surer.

‘‘There’s a sig­nif­i­cant risk that peo­ple will pur­chase on price alone with­out in­form­ing them­selves of the poli­cies that lie be­neath,’’ Grafton says.

That could trig­ger a race to the bot­tom, with in­sur­ers seek­ing mar­ket share by of­fer­ing lim­ited cover.

There are other con­sid­er­a­tions, in­clud­ing the fi­nan­cial strength of in­sur­ers, and their will­ing­ness to pay claims, though no in­surer re­veals their claim de­cline rates, and nor are there any plans to make them.

Grafton says peo­ple who want quotes can al­ready get them on­line from each of the in­sur­ers, or call them up on their freep­hone num­bers, though he ac­knowl­edges this is time-con­sum­ing.

‘‘Peo­ple tend to buy on price,’’ Naylor says.

Ac­tu­ally, of­ten they don’t buy the cheap­est, but by some strange rule of thumb, they go for the sec­ond cheap­est.

The kind of on­line com­par­i­son in­dus­try he’d like to see would pro­vide con­sumers with the other in­for­ma­tion they needed, in­clud­ing qual­ity rat­ings, and on­line re­views from cus­tomers.

But, Naylor says: ‘‘All in­sur­ance com­pa­nies are cur­rently re­sist­ing.’’

Speight, and his busi­ness part­ner Denis Tyurkov, have a strat­egy to break that re­sis­tance down, and are used to re­sis­tance from duopolies.

Nei­ther Spark or Voda­fone were help­ful or en­thu­si­as­tic about his ef­forts, Speight says, though new en­trants to the mar­ket like Stuff Fi­bre, owned by Fair­fax Me­dia, had em­braced Glimp as a way of gain­ing mar­ket share quickly, and ef­fi­ciently.

The at­ti­tude at Glimp was ‘‘We’re go­ing to build it, and force it to hap­pen’’, says Speight.

It has done a deal with sev­eral bro­kers, so when peo­ple seek to get quotes from Glimp for car in­sur­ance, the bro­kers will sub­mit their de­tails to the in­sur­ers to get the quotes.

Any at­tempt to lean on the bro­kers by the big in­sur­ers would leave Glimp lit­tle choice but to com­plain to the Com­merce Com­mis­sion, Speight says.

Once cus­tomer vol­umes start to rise, Speight be­lieves in­sur­ers may be forced to change their minds and start to work con­struc­tively with Glimp.

It’s not only the gen­eral in­sur­ers which Speight has in his sights.

Travel in­sur­ance and life in­sur­ance are the next mar­kets it will try to crack.

If it is suc­cess­ful, Glimp, and others like it, could play a part in in­ten­si­fy­ing com­pe­ti­tion in in­sur­ance, just as hap­pened in the do­mes­tic power mar­ket.

Shanna Crispin from the Elec­tric­ity Au­thor­ity says What’s My Num­ber has had a mas­sive im­pact.

‘‘It’s has helped cre­ate more in­formed and ac­tive con­sumers.’’

123RF

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SUP­PLIED

Tech en­trepreneur­s Michael Speight and Denis Tyurkov.

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