UK Motor Insurance: At the Crossroads?

The UK motor insurance market is at a critical juncture, with insurers navigating extremely challenging profitability, intense regulatory and governmental scrutiny and rapidly changing distribution channels, technology and consumer behaviour. Current market conditions mean that insurance companies cannot afford to maintain business as usual operations. They need to rapidly adapt and change their mindset in terms of the way in which they operate and compete in this sector.

Accenture conducted online interviews with 2,751 motor insurance customers in the UK in October 2011, probing the perceptions and behaviours governing their motor insurance relationships, switching activity, levels of satisfaction with service experiences, and the factors that influence provider selection.

The motor insurance market is at a critical juncture and insurers are facing challenges on all fronts. A dire few years in terms of profitability, a drying up of reserve releases, and a long period of unprecedented low interest rates, all mean that premium rate rises are attracting attention and criticism, but not yet making a really significant impact on the bottom line. The market is also under intense scrutiny from the OFT, Ministry of Justice and the Transport Select Committee, and is facing an uncertain future as a result of the potential outcomes of these investigations, along with the impact of the European Court of Justice gender ruling.

At the same time the market is navigating the challenges brought on by changing distribution channels, new technology and shifting consumer behaviour and attitudes. To top it all off, the fiercely competitive nature of the market shows no sign of dying down. These challenging and constantly changing market conditions mean that insurance companies cannot afford to maintain business as usual operations. They need to rapidly adapt and change their mindset in terms of the way in which they operate and compete in this sector.

Accenture’s 2011 survey of motor insurance customers in the UK puts the spotlight on some of the major issues facing the industry.

Highlights from Accenture’s 2011 survey of UK motor insurance customers include:

• There has been a step change in attrition levels; 68% of all customers have been with their provider for less than 3 years. Rather than retention just being at an extreme cyclical low, there has been a structural long-term shift to higher attrition rates, creating stiff challenges for insurer pricing and retention strategies.
  
  
• Although brand remains an important distinguishing feature for consumers, who often use it as a proxy for product features, benefits and service levels, the ways in which insurance companies are managing their brands needs to change with the times. Insurers need to move from brand awareness to brand effectiveness in the digital world.
  
  
• Good service remains a hygiene factor, but one that has strong indirect influence, particularly as a result of digital media.
  
  
• Targeted product propositions can be used to tackle retention for some consumer groups, provided they meet consumers’ low cost criteria. New technology and the wealth of available digital data present plenty of scope for innovations that can be tested and adjusted in real-time to maximise conversion among target customer groups.
  
  

To be successful in current market conditions insurance companies must adapt to the waves of change facing their industry and the way in which they do business. Insurance companies need:

• Better connectivity—harnessing new technologies and social media to connect with consumers in different ways.
  
  
• A more analytic understanding of customers – improving retention strategies and allowing more targeted product propositions.
  
  
• The ability and flexibility to adapt at pace and respond to the changing landscape.

To be successful in current market conditions insurance companies must adapt to the waves of change facing their industry and the way in which they do business. It is clear that insurers need to embrace digital and social media – engaging with consumers and harnessing data gained through these channels to improve consumer engagement, product propositions, marketing, targeted acquisition and retention, to name just a few areas.

Insurance companies need:

• Better connectivity – harnessing new technologies and social media to connect with consumers in different ways.
  
  
• A more analytic understanding of their customers – improving retention strategies and allowing more targeted product propositions.
  
  
• The ability and flexibility to adapt at pace and respond to the changing landscape.

For more details on the actions that insurers should be taking and the implications of the digital world for the insurance industry, please see Accenture’s Point of View: The Digital Insurer.