The growth of the so-called challenger brands is set to accelerate further, according to actuarial consultancy Finity.

But the major players in the personal lines classes – most notably IAG and Suncorp – remain dominant. Bolstered by a customer base that tends to stick with one insurer, they are nevertheless keeping a wary eye on the interlopers. Their competitive edge is service rather than price.

Finity’s latest Pendulum report, compiled with Deutsche Bank, says the challengers, along with banks, are changing the personal lines landscape and taking a growing share of the market from major players IAG and Suncorp.

Motor and home, where return on equity is high, are particularly attractive.

“We estimate Auto & General, Hollard, Youi and Coles Insurance have collectively captured 8% of the personal lines market,” the report says. “Growing at well above industry growth rates, the key challenger brands have doubled their market share over the past three years.”

Including the major banks, the collective share stands at 16%, up from 10% three years ago.

The loss ratios of new entrants are below those of the major insurers, especially in domestic motor, which represents the bulk of their portfolios.

“Challenger brands price themselves out of the market for the highest risk motor policies but are cheaper elsewhere relative to the rest of the market,” the report notes.

Pendulum lead author Andy Cohen told insuranceNEWS.com.au such brands are cutting prices faster and targeting the most profitable sectors, and their growth trend is set to continue.

“I don’t see challenger brands retreating,” he said. “They’ve got a competitive pricing proposition and as the customer has an increasing propensity to use the web to shop around, they are growing as an alternative.

“The major brands are still dominant but there is a bit of a battle on.”

Hollard Australia CEO Richard Enthoven believes the rate at which customers are switching to challenger brands is accelerating. 

“The entrance of Woolworths and Coles has had a profound impact because customers know these brands well,” he told insuranceNEWS.com.au.

Wesfarmers Insurance MD Anthony Gianotti told the Wesfarmers group results briefing last week that Coles has more than 350,000 policies in force at June 30, compared with 200,000 the year before.

Auto & General MD and CEO Ram Kangatharan says his company is maintaining growth at “three to four times that of the duopoly”.

He told insuranceNEWS.com.au this is driven by a business model that rewards customers with the best price, plus a focus on innovation.

“Auto & General is continuously looking at ways to make it easier for customers to buy and compare insurance. We were pioneers in the aggregator space in Australia and have won a number of product innovation awards for our online and mobile options.”

Suncorp says the motor market has become more competitive, and in home cover competitors are trying to “cherry-pick” business.

“Some poor risks have gone to competitors,” Group CEO Patrick Snowball told the recent results presentation.

“It is foolish to try to grow market share when some of the players are behaving so aggressively.”

Suncorp Personal Insurance CEO Mark Milliner notes “aggressive behaviour from some of our competitors, especially on the marketing front” and says the group will respond on marketing and price.

IAG MD and CEO Mike Wilkins admits challenger brands have “grabbed some share”, but says a healthy bottom line is more important than chasing growth.

He also believes there is “churn” between the new entrants, and that damage to major players is limited.

While the challenger brands are creating some excitement in a market where the major players have a large and faithful customer base, real growth will only come when the major players start to lose significant market share.

For now, there is no sign of that happening, which tends to support the market leaders’ contention that real growth for the challengers will come mainly from taking customers off each other.