The new General Insurance Pricing Practices (GIPP) rules, introduced by the FCA on 1st January 2022 banned dual pricing (aka price walking). The ban has forced insurance brokers selling motor and home policies to reconsider their over reliance on aggregators and price comparison websites for lead generation.
Consequently, savvy brokers are now re-investing in their own brand marketing, using tailored direct marketing campaigns, user journey optimisation and in-depth competitor analysis to mitigate the negative effects of the rule changes and gain competitive advantage.
What is dual pricing?
Dual pricing is where insurers reduce insurance premiums for new customers below cost to entice consumers to switch insurer. When the time comes to renew, the insurer significantly ramps up the price to offset their losses and move into profit.
FCA says new measures will save consumers £4.2Bn over 10 years
According to the FCA the new rules are “tackling the loyalty penalty in home and motor insurance. The FCA found the practice of increased renewal prices for existing customers – known as price walking – was distorting the market and limiting competition. The new measures will save consumers £4.2bn over 10 years.”
The FCA also found that in some cases the level of insurance protection was being reduced in order to achieve lower prices, effectively trading off better cover for cheaper premiums.
According to the FCA, home insurance customers, (with combined buildings and contents cover), who stick with their provider for over five years pay £287 – an increase of over 40%, compared with an average of £165 a year.
The regulator says that the new rules mean that a customer who’s been with the same insurer for over five years could expect to see an ‘average’ annual saving of £34 on contents cover, £41 for buildings cover, and £62 on a combined buildings and contents policy.
Why did price walking take hold in the first place?
The huge growth in price comparison websites (PCWs), backed by multi-million-pound advertising campaigns, persuaded millions of consumers that they could save significant money by comparing prices and switching provider every year. Unsurprisingly it was the PCWs that benefited most, receiving a commission for every consumer switch.
What has changed?
The effect of the new rules means that, from Jan 1st, insurance providers must offer customers who renew, equivalent rates to new customers. Those who choose to remain loyal and not switch, will no longer be forced to subsidise the loss-leading offers designed to attract new customers.
What will happen to prices?
It’s a little early to conclude what’s going to happen to prices as the market adjusts to such a huge change. Some experts have warned that it could see the end of cheap deals for new customers who rely on shopping around.
Respected consumer finance expert, Martin Lewis of MoneySavingExpert, suggested that insurance companies could increase new customer rates to “meet in the middle” as a result. He said: “My guess is firms won’t just cut renewals to match newbies’ prices. “they’ll drop ’em somewhat and increase new-customer rates – meeting towards the middle.”
Industry experts predict that the changes will be good news for loyal customers who stick with their provider but its likely to see the end of very cheap deals for those serial switchers.
How will providers compete if prices harmonise?
Price has been the key differentiator for those seeking motor and home insurance policies for many years. The title “Price Comparison Website” tells you everything about how the aggregators perceive and present competing products. If price differentials erode and consumers become less reliant on PCWs, lead volumes may decline, and brokers will need to focus on alternative propositions and different channels to win business.
Whilst competitive pricing is a given, consumers will start to consider more closely the policy cover, the value proposition, their customer experience and the brand’s appeal and reputation, to inform and influence their purchase decisions.
The re-emergence of brand
Motor and home insurance will become less commoditised as providers establish their own position in the market, offering carefully crafted products to multiple segments of diverse insurance buyers. The insurance sector should see a return to better customer segmentation and appropriate underwriting with differentiated brands, just as Dacia and Mercedes are differentiated in the automotive sector.
Likely effects on Price Comparison Websites
Since their emergence in the early 2000s price comparison websites have become a dominant force in the way consumer insurance products are sold in the UK. The four largest companies: Moneysupermarket, Compare the Market, Confused and Go Compare, generated total combined revenues in excess of £800M last year.
The importance of insurance switching to these businesses cannot be underestimated with insurers being charged on average c.£40-£50 for each customer introduced. Last year, insurance switching revenue made up almost half of Moneysupermarket’s £388M yearly turnover.
According to research from Consumer Intelligence, around 75% of motor insurance purchasers use a comparison website when their policy is up for renewal. For home insurance it’s around 64%.
The FCA stated that the changes would still enable insurance companies to target customers with different prices and product types. “This would help to ensure that consumers still have a range of choices in the market…it would also mean firms could still offer competitive deals to consumers who shop around and switch regularly” said the FCA.
Whilst the PCWs insist there are still incentives for consumers to seek out better deals, any erosion of price differentiation is likely to impact their usage.
Brokers who rely heavily on PCWs are facing a stiff challenge
Our very own Steve Tarbard, CEO and Founder of Beyond Clicks performance marketing agency says “brokers who rely heavily on aggregators for lead generation could find that their business volumes are being dictated by the level of marketing activity and conversion rates of the aggregators. Over-reliance on PCWs means that brokers are effectively shackled to the cost-per-sale pricing model favoured by the aggregators, unable to exploit the wider market effectively.”
For those customers looking to renew their policy, if a PCW search fails to result in significant savings, then the incentive to switch is reduced and the more likely it is that the customer will renew with their existing provider, causing switching volumes to decline.
Furthermore, when the customer is faced with a multitude of different broker products on the aggregator’s platform, it will ultimately be the PCW’s brand that is remembered by the end consumer at renewal. “As the aggregator holds all the customer data, the broker is at a disadvantage to conduct its own direct marketing and retaining the customer at renewal is a long shot at best.” says Tarbard.
How brokers can compete more effectively
Digital marketing holds the key for many brokers seeking to break free from over-reliance on PCWs. By investing in data driven pay per click advertising, customer journey optimisation and in-depth competitor analysis, brokers can wrestle back a competitive edge.
Hone your pay-per-click advertising
Pay per click advertising when done right can work wonders.
With an effective PPC strategy, brokers can garner immediate results, drive incremental web traffic, and avoid the negative impacts of Google’s ongoing algorithm changes. Brokers can target customers in real time and dovetail campaigns to complement their natural search (SEO) activity. Measuring ROI is tangible and accurate tracking provides a wealth of usable data.
Whether these skills are within the brokerage or provided by a reputable external agency, pay-per-click will be a primary weapon to win back lost broker business.
72% of businesses say that improving customer experience is their top priority.
Customer Journey Optimization (CJO) is essential to keep competing and keep converting in an increasingly competitive market, you need to know your customer journey inside out and be an expert at making it relevant and seamless. Because if you don’t, your competitors will.
Research from leading consultancy firm Forrester found that 72% of businesses say that improving customer experience is their top priority.
Make the customer journey personal, seamless, and relevant
Making your customer experience personal, seamless, and relevant is the new battleground. Research shows that over 50% of customers will happily walk away to another brand if you fail to tailor their experience.
Any brand whose customers experience difficulty, confusion or frustration risks losing them to other, slicker operators. That’s across the entire customer journey – from awareness to purchase to advocacy.
More eggs in more baskets
Those brokers without adequate alternative marketing channels were hit hard when the pandemic struck as aggregators slashed advertising budgets and overall marketing spend. Without diversification, brokers run the risk of suffering from a similar occurrence in future.
Let Beyond Clicks boost your marketing
Beyond Clicks help brokers leverage the benefits of controlling their own marketing strategies.
Beyond Clicks create effective digital marketing acquisition and retention strategies. We run campaigns on behalf of many of the UKs most successful brokers. Providing brokers with the marketing blueprint to succeed, and then nurtures partnerships with customers to maintain and build on that success over the long-term.
For brokers looking to explore the benefits of individualised lead generation campaigns, Beyond Clicks offers a free 30-minute workshop tailored to your business and the marketing opportunities available to you.
To find out more:
Call 01277 424924
Email team@beyondclicks.co.uk