The car insurance consumer loves competition! Competition in the car insurance industry leads to lower car insurance premiums and a wider range of products available. It keeps car insurers on their toes and forces them to be rather inventive in their marketing and product development.
I have come across an interesting article in the Business Day of the Sydney Morning Herald, featuring the impact that a US online insurance giant is having in Australia.
I would like to quote a few interesting facts from the article by Eric Johnson:
- The US insurance giant Progressive Direct is looking to capitalise on rising motor vehicle insurance premiums in Australia.
- Australian insurers had to increase premiums to recoup losses from their investment portfolios.
- Australian insurers have been challenged by large payouts from recent wild weather.
This article also makes important revelations with regards to the rise and impact of online insurers:
- Online-focused insurers such as Progressive, Virgin Insurance and Real Insurance, represent one of the biggest threats to big Australian insurers such as Insurance Australia Group and Suncorp Metway.
- In Britain more than 40 per cent of car insurance sales take place online, and in the US they make up 15 per cent. While online sales account for less than 5 per cent of the market in Australia, analysts say the proportion is growing rapidly.
Why are these insurers able to make such a significant impact? How big are they?
- Progressive is the fourth largest car insurer in the US, taking in more than $US14 billion ($15.5 billion) in premiums annually from about 11.5 million drivers, making it more than twice the size of either IAG or Suncorp.
But what about South Africa – could we expect foreign insurers to enter our market?
The South African financial industry is very well regulated and it is difficult for international operators to enter the market. This is something which the online gambling companies are well aware of. The credit control act and other legislation have to a large degree protected South Africa from some of the devastating consequences of the credit crunch in the US and Europe. Most financial companies from abroad will seek to partner or merge with a South African banking group and enter the market from this point.
There are few very small car insurance companies in South Africa. The Financial Services Board and the compliance legislation require much information on financial liquidity, financial statements etc before granting a financial services provider the license to operate in South Africa. Many of the new car insurance companies might not be well known, but on closer inspection we find that they are backed by shareholders who are big role players in the South African financial services industry.
One thing is however certain – if major international companies believe there is money to be made in the South Africa car insurance industry – they WILL find a way to enter the market. If their entry into the Australian market is a success – South Africa might be the next port of call!
South African car insurers can expect to face increased competition. They will have to remain price competitive and inventive – and this can only be good for the consumer!!