The traditional dominance of Insurance Australia Group Ltd (ASX: IAG) and Suncorp Group Ltd (ASX: SUN) in Australia's personal insurance market is under threat. New players are taking advantage of changes in technology to provide competitive alternatives for customers.
According to UBS's latest market update, the combined market share of IAG and Suncorp has declined from 63.1% in 2010 to 58% currently. Suncorp, which owns brands such as AAMI and GIO, has lost 3.6% share in car insurance and 2.3% in home and contents insurance over that period. IAG, which operates subsidiaries including NRMA and SGIO, dropped 1.7% market share in car insurance and 1.4% in home and contents.
This market share has been taken by smaller operators that are utilising the internet to get a foothold in the sector. These competitors, such as Youi and Real Insurance, utilise the low cost online channel to save on overheads and rely on online comparison sites to drive customers to their offerings. This also reduces the requirement for expensive television and print advertising.
UBS research also shows that these challengers are rising fast, with premiums written increasing by 24.8% in the car insurance market and 36.6% in home and contents insurance. Andy Cornish, the head of IAG's biggest Australian business unit, said last month that IAG would not discount its products to maintain market share. As a result, IAG is likely to face continued competition and decreases in market share over the coming years. IAG reported a 10% fall in net profit over the six months to December 31, although it attributed this to higher natural peril payouts.
Shareholders may see such profit declines becoming more regular if the traditional duopoly is unable to adequately respond to the increasingly competitive insurance landscape.
