Online comparison websites are an expanding area of the life insurance market and over the past year increasing volumes of business have been written through this channel. Richard Weatherhead investigates.
Since the growth of the Internet, many consumers have turned to the Web in search of a “better deal” on their risk insurance. Many insurers and superannuation funds offer risk insurance online, either with or without underwriting.
However, there is a growing number of websites that allow the user to:
• Compare the prices and features of the risk insurance products offered by many of the leading insurance companies in Australia; and
• Buy their chosen insurance product either online, via the website provider’s advisers or by referral to a third party adviser.
These websites have become known as “aggregator sites” but are referred to as “online comparison websites” below.
Our analysis of 11 of these online comparison websites currently available in Australia reveals how this new segment of the life insurance market is developing, what is being done well and where there is still room for further development and innovation.
A comparison of the websites considered is set out in the accompanying table.
Products and pricing
Whilst the products offered on online comparison sites are usually the insurers’ standard products traditionally sold through advisers, they are often priced differently. Some are cheaper and some more expensive. However, a 20 per cent discount on the first year’s premium is provided by many online comparison websites.
Many offer additional benefits – for example, a “club lifestyle” reward card and a free mortgage health check.
Nearly all websites offer a quotation service for death, TPD, income protection and trauma insurance. One website is restricted to death cover only and one is restricted to death and income protection. All provide detailed product information or quotes from the majority of the large Australian insurers. The median number of insurers compared for each particular type of cover is 12.
Cannex/Canstar does not provide quotes. It is positioned as a product rating site, allowing users to compare product features across life, direct life and business insurance. It also quotes a “reasonable range” for the price of a particular policy and the option to be put in contact with a licensed financial adviser if required.
The ability to compare product features as well as premiums should be an integral part of any online comparison website. InsuranceQuotesRUs provides an aggregate score for each product out of 100. However, it does not give an explanation as to how the score is determined.
Infochoice also provides a comparison of the basic features available; and Ratesonline provides a star rating for each product. A future opportunity for online comparison websites will be to provide a fully integrated comparison of prices and features, allowing users to view these across all the chosen products before making a buying decision.
Commissions
Online comparison website providers (or the advisers who receive referrals) nearly always receive commissions on the insurance business sold. However, since some websites only provide general advice, the Financial Services Guide is often not provided online, so the customer may be unaware of the commission (or fee) structures that apply until an adviser contacts them.
Upfront commissions are usually up to 140 per cent of the first year’s premium and ongoing commissions are typically in the range of zero to 40 per cent. These rates are similar to and sometimes slightly higher than those paid to dealer groups under traditional agency agreements.
Ability to buy online
Disappointingly, only two of the online comparison websites (iSelect and Insurance Watch) allow the user to apply directly for insurance online. The others require the user to call an adviser or register for an adviser to contact them. This is likely to be an area where the market will develop further in the future. A more flexible approach, which is common in markets such as the UK, is to allow the user to complete the entire transaction online but give them the option of a telephone call to get help through the process if they wish.
Insurance needs assessment
Only four websites provide insurance needs calculations. Of these, there is significant variation in the results and methodology adopted, which is of some concern.
Two of the calculators are very simple, requiring only the user’s gross annual income and their aggregate debts. However, there are large disparities between the results for these two sites. For example, with gross annual income of $100,000 and no debt, the estimated death cover needed is stated as $1,428,571 on one website and $765,000 on the other – a difference of more than $650,000. These figures do not vary by age or sex.
One site provides a very detailed insurance needs calculator requiring more than 30 inputs, allowing a tailored estimate for the individual concerned. However, no default values are set for inputs such as the inflation rate and investment earnings rate (needed to assess amounts required to replace future income), which increases the risk that users will enter unrealistic assumptions, leading to an incorrect needs assessment. Nevertheless, this website does provide a link which gives historical rates over the past 10 and 20 years.
The InsuranceQuotesRUs website provides a link to the FSC’s Lifewise calculator. This is a comprehensive insurance needs assessment tool with the ability, amongst other things, to recognise spouses/partners as well as dependant children.
Online quotation
Four of the 11 online comparison websites do not allow the user to obtain a quote online! Rather, after completing the personal and insurance details forms, the website states that an adviser will be in contact within the next one to three business days. This is despite the fact that, often, the website states the consumer is able to “get an insurance quote online”.
The websites with more limited functionality are more akin to “adviser locator services” and are effectively marketing and distribution channels for advisers rather than direct distribution channels.
Insurance information
All 11 online comparison websites provide users with additional, comprehensive information on life insurance in general. This includes:
• Explanatory articles highlighting the key features of different types of life insurance;
• How to find the right insurance;
• Access to related life insurance news articles;
• Glossaries; and, in one case
• A blog on life insurance related topics.
Future development
Many websites are essentially extensions of the traditional financial advice businesses.
It is reasonable to assume that as Internet usage continues to grow, more and more consumers in Australia will look online, not only to research risk insurance but also to buy it. The growth of tailored online products will continue and this is likely to drive price competition, for the benefit of consumers.
These changes could provide opportunities for advisers. Customers with relatively simple personal financial circumstances, or who cannot afford a holistic financial plan, can be directed to an online comparison website, with the adviser receiving an appropriate referral fee. Even for clients who need personal advice, new products and competitive prices offered by online comparison sites will be a useful addition to the overall range of products traditionally available in the adviser market.
Richard Weatherhead is a director of Rice Warner Actuaries – www.ricewarner.com
Disclosure: Rice Warner developed the LifeWise insurance needs calculator.
