The personal lines motor market in Australia is no place for the faint-hearted. It’s crowded and competitive, with tight margins and – at the bottom end of the market where online is the norm – a handful of dollars separate the players.

The pricier car insurers like AAMI, GIO, Allianz and the auto clubs compete mainly on the excellence of their service and the strength of their reputations, while the online niche specialists struggle for the market share that’s left. The big players also have their bottom-end entries, too, but their big profits come from the benefits-laden top-end comprehensive car policies.

The top-end customers are also welded on to their chosen insurers by bonuses and slick no-fuss CRM systems.

The online operators, meanwhile, have carved out their market footholds by dealing solely on price. What you pay for is what you get, which is fine with internet-savvy consumers who Google “car insurance Australia ” and search for the cheapest deal. (Try it – there are more than 3.5 million results.)

Just when it seemed the market was impossibly crowded and rumours were emerging about the dwindling resolve of some lower-end players, the car insurance war has opened up on another front entirely. Into the crowded market has come Wesfarmers-owned Coles Insurance with home and car insurance aimed straight at the millions of customers who walk through the doors of its 742 stores each year.

After trialling the product in Tasmania in 2009, the company gave its home and contents products a low-key market mainland debut last October. But its car insurance product has had a much livelier introduction.

Last month Coles launched a pilot marketing program on Sydney’s North Shore – a location that indicates Wesfarmers is aiming its Coles products at the establishment end of the market rather than the crowded ground of the online discounters.

Sydney’s North Shore is one of the most prosperous parts of Australia, and Wesfarmers Insurance says AAMI, NRMA Insurance and GIO hold more than 80% of its car insurance market. Coles is targeting the middle ground, offering similar-quality claims service and the sort of inducements that only a major retailer can throw into the package.

Customers are being offered a saving of at least $100 off premiums offered by NRMA Insurance, AAMI or GIO, as well as free roadside assistance for a year, triple the standard 4-cents-a-litre Coles fuel discount for a month and a two-year price freeze on the premium.

Coles is also offering a roadside assistance package that can be bought with their groceries for $79 or $75 online.

And it’s using billboards, bus shelter ads and a local media campaign to get its message across. If it works on the North Shore, expect to see Coles Insurance billboards everywhere comparing its local prices with those of the establishment brands.

Wesfarmers Insurance COO Corporate Partners Stuart Blake says the Coles products have so far enjoyed a strong response. More than 50% of the new business is being handled through a specialised call centre in Melbourne with the rest being transacted online.

Mr Blake came to Wesfarmers six months ago from IAG, where he oversaw much of the group’s personal lines business. While he agrees one of his greatest challenges at present is helping consumers accept the concept of Coles as an insurance brand, he’s very confident about snatching a decent slice of the market.

“Coles is a mass market proposition,” he told insuranceNEWS.com.au. “The potential is enormous.”

Suncorp Personal Lines CEO Mark Milliner – who manages the AAMI and GIO brands among others – says he’s relaxed about the new competition.

“I think they’re underpricing the risk,” he said. “We understand the risks and we price them properly. The bigger the pool of risk, the better you can price it.

“They don’t have a sizable customer share, and they’re out there with a lead offer. We understand that – it’s how it’s done.

“But will those discounts be sustainable, or will they go on renewal? It’s a bit like selling milk for $1 – it gets you attention, but is it sustainable?

“The reality is that you will get judged by how well you fulfill the promises you make. And this market is a lot more complex than just the North Shore.”

NRMA Insurance didn’t want to discuss the entry of the latest competitors, with a spokesman saying “we believe our products provide good value”.

“Insurance premiums are based on individual customer profiles and requirements, so we are best equipped to talk to consumers about our products,” she told insuranceNEWS.com.au.

It’s early days for the Coles insurance operation. Wesfarmers Insurance has shown it has the resolve and the financial muscle to thrive in highly competitive segments, but car insurance is the toughest market segment in Australia and the major competitors are battle-hardened.

As Mark Milliner told insuranceNEWS.com.au when asked how his brands may respond to the new player on the block: “We’ll have to wait and see.”