In my research on the P&C industry, I have come across a plethora of car insurance comparison sites – can you help us understand this business model a little better?

Comparenow: There appears to be a lot of confusion among consumers as well as in industry on this marketplace. Not all “comparison shopping sites” operate the same– some sites truly offer a quote online while others simply provide leads to agents and insurers. Generally speaking, we categorize online comparison shopping sites into three major categories.

First, there are “aggregators” – this term is widely used (and often times incorrectly) to describe the entire online shopping marketplace. As we define it, aggregators are essentially lead generators – they ask a series of 10-15 questions but rarely, if ever, generate an online quote for the consumer. Agents or insurance companies who buy these leads from the aggregator site follow up with the consumer with an email or phone call to provide a final quote and seek to close the transaction outside of the aggregator site.

Second, there are online agencies, who work with a select group of carriers and occasionally offer final, bindable quotes online. Consumers might be required to speak with someone on the phone or through email to obtain a final quote and close the transaction, after answering some additional questions or providing the agent/insurer more information.

And finally, there are what we call “European Style Comparison Sites”, which is Comparenow’s business model. Once the consumer enters the requested information, it is rated and transferred – in real time – to the insurer or agent to obtain an accurate, bindable quote. Consumers are able to complete the process directly on the insurer’s website or work with an agent to bind the policy.

There are several other nuances among these three types of business models, all offering differing value propositions to consumers, agents and insurers.

What are some factors consumers, agents and insurers should consider when working with an online comparison shopping site online for auto and/or home insurance?

Comparenow: In our view, online comparison sites provide a lot of value to all these constituents in the insurance value chain. Consumers are already shopping online for auto insurance, seeking a variety of quotes and information, so comparison sites are simply meeting this demand head on. Going to individual sites takes too much time, so there is instant value for consumers in procuring information and/or quotes from online comparison sites.

As for agents and insurers, comparison sites are building an online presence and advertising heavily – so online comparison sites can help alleviate this expense and effort required by agents and insurers. Most auto insurance advertising spend is concentrated in the top direct insurers – so working with a comparison site can level the playing field among large and small agents and insurers. Essentially, comparison sites allow agents and insurers to leverage existing online marketing efforts. There is also opportunity for agents and insurers to cross sell other lines to potential or newly acquired customers.

For all constituents, as alluded to in a previous question, it is important to recognize the differences among the “online shopping sites” to ensure you are getting your desired outcome.

There is often a lot of talk in the industry regarding the online comparison marketplace in Europe and its similarities/differences from the U.S - can you discuss this in more detail?

Comparenow: We often hear the UK used as a corollary to the U.S market. However, we think that associations between the UK and U.S are flawed and offer a poor analogy. The UK is less complicated in many ways – it has a reduced amount of regulation, there is less of an agency presence and the market has demonstrated a greater propensity to shopping and buying car insurance direct vs. through an agent in general. Here is one data point that speaks to the UK market: in the past 12 years, auto comparison shopping sites in the UK have gone from 0% to 75% marketshare – quite staggering.

I would say that Spain and France are fairer comparisons to the U.S market. Both countries are very agent centric and highly regulated – similar to the U.S. Also, both of these countries, which substantially started online comparison shopping in 2010, have seen strong market share gains in a short period of time. In Spain, the percent of the market’s new business sales via comparison sites was 4% in 2010 – in 2013 it jumped to 13%. Similarly in France, the percent of the market’s new business sales via comparison sites was 3% 2010 and was 11% 2013. This trend will likely continue.

The U.S market is still in the very early stages of “true” comparison shopping and buying so very little of the direct market share (and new business) is driven by comparison shopping at this point.

Given the number of companies competing in comparison shopping market, do you see potential for consolidation?

Comparenow: When it comes to “European Style” online comparison shopping, I actually think we are still in the early stages and we will likely see an explosion of new entrants in the coming years. There will likely be more startups, private equity backed initiatives or even large companies that form joint ventures or white label their online comparison sites – similar to what we’ve seen from Walmart.

It may seem strange but we actually welcome more entrants as we believe that as more players enter this market, there will be more awareness brought to consumers, which should help promote this business model overall.

As of now, it seems most activity is centered on auto insurance and personal risk in general - do you see potential for more activity in commercial risks?

Comparenow: While we do not participate in the commercial market, we do believe there is potential for growth in commercial lines but the marketing approach would have to be different. Where the approach in personal lines has to be consumer centric and involve TV and mass media, commercial lines spend must be more targeted through direct mail, magazines, trade communications, or the like. A more sophisticated comparison shopping experience will likely be brought to commercial enterprises, particularly small businesses.

Neil K. Rekhi, MBA, CPCU is the founder of Premium Intel, a P&C-focused market intelligence company that serves as a strategic research and analyst partner to its clients. Contact him at [email protected].