Online insurance first to feel the bite of commoditisation


Tightening market conditions, and a fight for customers in an increasingly commoditised market, are behind the recent demise of one online-only insurance provider. The development has led experts to issue a warning to the industry – increase your focus on branch recognition and product differentiation or risk losing market share to larger, multi-disciplinary players.

Earlier this month Buzz Insurance, an IAG subsidiary, announced it will cease selling new policies and roll existing product offerings into sister brands – NRMA Insurance, SGIO and SGIC.

In a statement, Buzz Insurance spokesperson Adele Bugagiar, says the company faced difficulty gaining brand recognition in the market. “As a new and completely online insurer, Buzz Insurance has faced the challenge of competing in a market which has a range of longer established and bigger brands,” Bugagiar says.

IBISWorld Industry Analyst, Tim Stephen, agrees with the rationalisation, saying that while Buzz Insurance had the backing of IAG, Australia’s largest player in general insurance, the highly competitive online environment makes it difficult to build a new brand from scratch.

Tightening market conditions are also having an impact. The general insurance sector has experienced softening growth rates and a slow down in consumer expenditure. Over the last five years the industry has contracted at 0.5 per cent per year, and over the next five years growth is only forecast at a rate of 1.5 per cent per annum.

Stephen says: “Discontinuing underperforming businesses is not surprising at a time like this. IAG has chosen to get out now before sinking any more costs into the business, and is expected to approach the online market from a new angle.”

The volume of new players moving into the insurance market is another factor at play. Brand Strategist and Consultant, Richard Sauerman, claims those operating under a new brand, such as Buzz Insurance, are struggling on two fronts: they lack the brand recognition the incumbents such as IAG enjoy. They also face a tough battle due to commoditisation, with many new entrants supported by big brand, such as Wesfarmers.

Sauerman, who has worked on financial services brands such as CommInsure, QBE and NAB, says that selling commodity services can work in an online-only business. However, insurance providers must be mindful of the importance brand recognition has on elevating the perceived lack of advice services and security concerns some customers have with online-only offerings.

“If you’re not first to market, then you’re up against a lot of loyalty. It’s hard to have a product that’s meaningfully different enough under those circumstances,” he says.

While some online-only financial organisations are working hard to create points of differentiation, Buzz Insurance’s Bugagiar says that innovation in itself is not the answer. “Through Buzz Insurance we have accelerated our digital capabilities — both online and mobile — and have delivered technology innovation,” she says. “However, given the ongoing investment required to build sufficient awareness of a relatively new brand, the time is now right to integrate our Buzz Insurance experience and leverage our sister brand websites.”

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Innovation without focus on customer experience a ‘pointless’ exercise