For the fifth consecutive quarter, the iGO4 price index for the best motor quote across 1000 separate risks has fallen – by a further 3.25% says Tom Cooper, Executive Director, iGO4
This quarter we counted a total of 192 ‘proper’ brands live across the eight sites monitored, and more than 50 of these were top at least once across the basket. Direct players still hold sway on motor, with Admiral again to the fore, alongside Esure, Sheilas’ Wheels, Swiftcover and Octagon, though the brokers held their own with strong performances from the Budget brand, Hastings, Express, Thames City, Autonet, One Call and iGO4 Essentials.
Rising instalment cost While the underlying cost of the core insurance product has fallen again, the total price paid by the customer may well have not. Our first analysis in September 2008 noted an average credit charge of 13% at a time when the base rate was 5%. The Bank of England soon lowered its rate to 0.5% in March 2009, where it has remained ever since. In this time, brands on price comparison sites have increased direct debit charges to an average of 17%. On a typical £500 funded premium, this will have added more than £40 to the provider’s income stream in the past four years and, therefore, the ‘soft’ market would have to be viewed with scepticism by consumers wishing to pay by instalments, with more than half likely to do so given the difficult financial climate.
The average instalment charge has risen by 3.5% in the past two years alone. While writing business on instalments is lucrative at point of sale, brands have to contend with a different kind of risk profile than that of someone prepared to pay in full. Instalment customers are three times more likely to cancel or fail to send in proof of no claims bonus, and providers obviously need to ensure they maintain their payments. As illustrated by the graph (see p14), brands have now started to increase deposits in order to mitigate any likelihood of bad debt arising. They appear to be quite prepared to push their luck on the instalment charge, as they must be able to continue to increase rates while also ensuring they do not suffering commercially. This is a risky strategy and, while a brand’s instalment penetration may well be maintained following an increase, what would be less clear is whether it is losing absolute sales as a result.
Brands are also beginning to introduce a wider range of ancillary products into their portfolios, with the cost of motor legal expenses flattening at around the £26 mark. Once again there are interesting developments to report in the price comparison arena, with Google making its first noteworthy move since the acquisition of Beat That Quote. Users searching for ‘car insurance’ on the search engine will now see Google’s own listing in the central column between the sponsored and natural search results. This is an interesting move, though not a game-changer, and the two sites most likely to be impacted – Go Compare and Money Supermarket – are unlikely to be overly concerned.
If you wish to read more please view the Post Magazine Article
*Taken from the Post Magazine October 2012