Home & Motor:10 years of steady leakage to challengers

The adage that disruption is over-estimated in the short-run and under-estimated in the long run is particularly relevant for Australian personal lines insurance.

This is the view of UBS insurance analyst James Coghill who said almost 10 years on from Youi and Progressive setting up shop in Australia disruption to incumbents has been “orderly” rather than “great”.

While new disrupters could impact the industry over the next 10 years, Coghill remains positive on the sector in the medium term mostly because of rate increases in Motor leading to improved margins for Suncorp Group and Insurance Australia Group.

From a standing start in 2008, Youi has now carved out a 5 per cent share of Motor, according to Coghill.

More recently though, Budget Direct and Real/Hollard appear set to eclipse Youi in personal lines delivering growth rates of between 20 and 30 per cent last year.

“Should Real/Hollard sustain 30.1 per cent growth delivered in 2017, it could be the first challenger to exceed $1 billion of gross written premium over the next year or so.”

In a six-monthly update of Motor and Home market shares, Coghill noted that back in 2008, IAG and Suncorp collectively held close to a 70 per cent share of Motor - 33.1 per cent and 35.7 per cent respectively.

A drop in market share 

According to the analyst, this has now dropped to 60.5 per cent - 31.5 per cent and 29 per cent - espectively. 

Collectively, Coghill estimates this to be a 10 per cent loss of Motor - or 11. 8 per cent by including IAG's acquired Wesfarmers share of the market -  or $930 million of GWP in today's terms.

That said, Coghill argues IAG and Suncorp are faring better more recently – but mainly in Motor, not Home.

More recently IAG and Suncorp have tracked close to market growth rates in Motor, 4.7 per cent and 4.1 per cent respectively in 2017 versus market growth of 6.3 per cent.

“Encouragingly, this was underpinned by 1 per cent volume growth in Motor, a solid outcome given the need to raise rates over this period.

“Both however flat-lined in Home," he said.

The two insurance giants logged growth rates of -0.1 and 1.3 per cent respectively for Home or 3 per cent by stripping out the impact of the fire service levy compared to market growth is running at 4.6 per cent.

This gives rise to share losses of 1 per cent, according to the analyst.

“Across personal lines we estimate the challengers grew at 10.6 per cent, despite Youi contracting by 1.5 per cent over the year.”

Although Coghill thinks it is more important to look at the the full year picture than any six month period, his update shows continued momentum in Motor for the 2018 first half.

"This is the fifth consecutive half of 5 per cent plus growth meaning margins should expand from here," he calculated.

Both Suncorp and IAG experienced lower volumes for Home for the 2018 first half offset by modest premium rate rises.

Ex levy distortions in New South Wales, Coghill estimates Suncorp grew at 2.6 per cent and IAG at 2.9 per cent.

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