For a time, it seemed Australian insurers could escape the strike of global forces hitting insurers in other mature markets. Indeed, local insurers bounced back quickly following the global financial crisis, reaching an average return on capital of around 15 percent by 2010. But, times are changing. Although the Australian insurance market is still expanding, insurers can expect to see slower growth and reduced profitability.

What are the forces shaping the market and how will they affect insurers? How can carriers set themselves apart in the future? Over the next few weeks, I’ll examine each of these topics, but first, I’m going to take a closer look at those inescapable forces.

Competition is intensifying

A recent study suggests new market entrants are beginning to threaten the dominance of Australia’s historical market leaders. In fact:

  • Three of the top 12 home insurance providers and five of the top 12 motor insurance providers are challenger brands.
  • When asked which providers offer the cheapest insurance, 60 percent of those surveyed said newer insurance providers.
  • Banks have the potential to be formidable competitors—64 percent of consumers surveyed indicated they would be comfortable insuring their car, home and/or belongings with their main financial institution.

Consumer behaviors are changing

Much like what we’re seeing in other mature markets, today’s Australian insurance customers are more price-sensitive, demanding and empowered than their predecessors. Just how much?

Let’s look at the findings:

Price is top of mind

Price is the number one factor driving consumer behavior in the Australian insurance market. More than 45 percent of consumers seek quotes from insurers based on which ones will be the cheapest. The numbers are even higher when consumers were asked what drives them to switch insurance providers:

Figure 5: What drives Australian consumers to switch insurance providers
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What consumers really, really want

Price ultimately drives Australian insurance consumers’ decisions, but research shows they look at a wide variety of factors when selecting an insurance provider. These factors include quality of customer and claims service, product offering, telephone service, and brand and reputation—but that’s not all. Consumers also want the ability to manage their insurance needs 24/7 across multiple channels.

Power to the people

Australian consumers are growing increasingly comfortable using technology; in fact, 64 percent of Australians use the Internet to learn about companies or products. Our findings also reveal:

  • Half of motor insurance customers research quotes online before making a purchase—most often by telephone.
  • Between July 2012 and April 2013 use of aggregator websites rose 44 percent for motor insurance and 50 percent for home insurance.
  • More than 60 percent of Australians would be interested in a motor insurance product that bases the cost of their premiums on their actual driving behavior—73 percent would likely switch providers to purchase such a product.
Figure 7: Australian consumer comfort performing insurance-related tasks online
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These changes in the competitive landscape and consumer behavior will have important implications for insurers in the Australian market. Join me next week when I take an in-depth look at what this all means to insurers.

In the meantime, to learn more:

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