Sometimes a seemingly small change in presentation can have a big impact on a business’ bottom line. What happens when drivers tell price comparison websites (PCWs) they want to spread the cost of their insurance over monthly payments is a live example.
Until recently, consumers using PCWs reviewed and compared quotes which were ranked by the cost of the annual premium quoted.
But those who choose to pay in monthly instalments instead of in one lump sum weren’t getting a full picture. If they wanted to spread the payment over the course of the year, they would see the total cost of doing that that at a later stage of the purchase journey. Often only after ‘toggling’ on a PCW results page and/or after clicking through to their chosen provider’s website.
Paying in instalments of course means that consumers pay more over the course of the year. That’s a natural expectation of borrowing money and reflects the risk of credit default that premium finance companies and brokers are taking on.
But the presentation of quotes by PCWs effectively made it hard to identify which provider would charge them less overall – credit and insurance together.
Brokers saw an opportunity here to ‘win’ on total premium and make it up in instalment income after they’d engaged with the customer, got their attention, and won marketing rights. Instalment income evolved into a core revenue stream for brokers. It is so profitable that many brokers will reduce the quoted insurance premium for customers who say they want to pay in monthly instalments in order to get a good position on the PCW to win the more lucrative part of their contract.
But change is in the air driven by the Insurance Distribution Directive. Three of the big four PCWs now rank the results for customers who want to pay monthly by total cost – ie the total amount the customer will pay over the course of their policy. That change is not an academic point.
As the table below shows, many brokers who regularly hit the top price spot on PCWs for annual premium where the consumer has opted to pay monthly do so far less often when the total cost of credit is factored in.
|Paying annually||Paying monthly (total cost)||Average cost of credit|
This poses a challenge to a fundamental part of brokers’ business models. And make no mistakes, this is a challenge for brokers more than it is for insurers. Insurers tend to offer credit at a lower cost than brokers do. Their rankings on PCWs are therefore less affected.
Consumer Intelligence exists to help companies to see the world through the eyes of their customers. That includes understanding the prices they present and the role of price and PCW position on their customers’ purchase decisions.
That’s why we’ve updated our insurance benchmarking data collection to include a separate toolkit Instalment View which enables our clients to understand pricing data as it appears to customers who opt to pay in instalments.
Consumer Intelligence can also benchmark the cost of credit, which ranges substantially between and even within brokers according to the type of customer.
The cost of credit is set to become more competitive as consumers see the world through this lens. And with the FCA’s focus on transparency, it looks set to be a permanently changed feature of the insurance landscape brokers must navigate. Doing so armed with data and intelligence will help.
Instalment View is the latest addition to our comprehensive price benchmarking toolkit, Market View. Up to now, we have provided a unique understanding of market pricing behaviour based around the annual premium. Instalment View now enables brands to establish their competitive position when it comes to the total cost incurred by customers paying in instalments.