IAG has announced it will close its online-only business, Buzz Insurance, due to the “ongoing investment required to build sufficient awareness of a relatively new brand”.

Buzz, which launched in 2009, will no longer sell new home and motor policies, but will honour existing policies and continue to process claims as normal.

“As a new and completely online insurer, Buzz Insurance has faced the challenge of competing in a market which has a range of longer-established and bigger brands,” a spokesman said.

As part of the decision to shut Buzz, IAG says it has “significantly enhanced” the online offerings of its other direct brands, which are now optimised for smartphones.

“Through Buzz Insurance we have accelerated our digital capabilities – both online and mobile – and have delivered technology innovation,” the spokesman said. “However… the time is now right to integrate our Buzz Insurance experience and leverage our sister brand websites.

“NRMA Insurance, SGIO and SGIC customers will be able to interact online as well as have the benefits of being with an insurer with a long and proud history.”

The investment community welcomed the move with analysts saying that while scrapping Buzz would not have a significant impact on IAG’s bottom line, it was right to focus on its core brands.

But Merrill Lynch insurance analyst Andrew Kearnan questioned the strategic implications of the decision, noting that Buzz’s importance was as much about having a defensive position in the online space as about profit from the brand.

“IAG downplays the relevance of Buzz, suggesting it was an ‘experiment’,” Mr Kearnan says in a briefing note. “We view it differently, seeing it as one part of IAG’s response to challengers in the [Australian] motor market, a key cash cow contributor to IAG profits.”

Mr Kearnan says that while the overall motor market in Australia is not growing, “challengers have delivered double-digit momentum, lifting market share from 6 to 9% in two years”.

“With the motor class north of 30% of insurance earnings for IAG and delivering +30% return on equity, any threat to this segment is difficult to ignore.”