UK online insurer Esure, owned by Halifax, launches its motor insurance operation on Tuesday.
Halifax’s online insurance subsidiary, Esure, will launch its motor insurance operation this Tuesday. Headed by Direct Line founder Peter Wood, it plans to shake up the motor insurance market in a similar way to Direct Line in the late 1980s. Direct Line pioneered the use of the telephone in motor insurance, cutting insurer’s costs considerably and offering lower premium rates.
Esure aims to be a top-five motor insurer within three years. It is targeting safer drivers and claims to offer an unbeatable package for low-risk drivers, cutting premiums by up to 30%. In addition, its no-claims discount packages can cut the cost of premiums by 70% for five claim-free years.
However, these proposals are unlikely to worry motor insurers. The motor insurance market is recovering from a sustained period of fierce price competition. This was a highly unprofitable time for motor insurers. In 1998 the motor underwriting loss reached its nadir of GBP1.4 billion. They are only just approaching underwriting profitability in their motor books of business now, through premium rate increases between 1999 and 2001. With these memories still fresh in their minds motor insurers will not be willing or able to resume intense price competition again so soon.
Furthermore, Esure is aiming to underwrite the safest drivers, where premiums are lower than average; recent premium increases have not hit this sector as hard. As a result, Esure’s potential cost savings for drivers are not as amazing as it suggests. It may not persuade drivers to change from their current insurer due to consumer inertia and the hassle of switching provider.
Motor insurers are not likely to reduce their premium rates to negate the threat of Esure. Not only can they not afford to enter into a new price war, but Esure is also a new entrant with limited name and brand recognition. With this in mind, motor insurers are most likely to wait and see what impact Esure makes in the market before revising their own pricing strategies.
