Compare and contrast
Making insurance shopping easier
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.’’
Crash claims costs are rising, now topping $1 billion a year.
Tech entrepreneurs Michael Speight and Denis Tyurkov.