New entrants in the home and personal motor lines have hatched a “spectacular” plan built around the broker channel to successfully challenge the dominance of IAG and Suncorp, according to a Macquarie Research report.

It says the broker channel is the least profitable in the two markets, but the newcomers have succeeded by adopting a leaner cost base.

“The start-up structure of the new entrants has allowed them to pay competitive broker commissions, while lowering the premium to the customer and providing the same customer service – all by reimagining the cost base,” Macquarie says.

“Each new entrant is addressing their cost base in a different way… As a result, this could turn an ‘unprofitable’ channel into an opportunity where the customer, broker and insurer wins.

“This makes the business plan of the latest entrants even more spectacular.”

According to Macquarie Research the insurers that entered the profitable personal lines market in the past 24 months are already underwriting about $100 million worth of business each.

It lists AIG, Zurich and Chubb as the ones focused on the broker channel, a departure from the prior decade when going directly to customers was the preferred strategy.

Axa and Liberty entered the home market in July, and are also employing the broker channel, Macquarie says.

By Macquarie’s estimates, the combined market share of IAG and Suncorp in the personal home and motor lines has declined to 56.9% as of June. About 10 years ago that figure was 61.3%.

The original challengers including Youi, Hollard and Auto + General presently have about 10% of the market from practically no footprint 15 years ago.

“Both IAG and Suncorp remain distracted by regulatory pressures, heightened by a tangle of legacy technology,” Macquarie says.

“As incumbents continue to focus inwards, the risk of ongoing market share losses remains heightened, as even more insurers enter the market and the old guard get a second wind.”