For my MBA and also my current consulting role I had to assess the Australian Motor Insurance market in terms of its economics, drivers, trends and competitive structure to inform my client of the market’s attractiveness to grow sales revenues and also give consideration to lessons from overseas General Insurance markets Also I had to determine what strategic design principles would need to be applied to any new initiatives based on bank strategy, so my client's strategy, the client's Group’s brands, and awareness of customer needs This powerpoint slides also assess what issues may exist in my Client's current Motor Insurance operating model and customer value proposition that may need to be addressed for new initiatives to succeed

2. SIZE, GROWTH & PROFITABILITY
The $6bn domestic motor insurance market is the largest component of the general insurance
market, has grown ~5% p.a. for 5 years, and has a ~9% to ~15% profit margin
Australian General Insurance Market
by class of business ($m)
Growth of the Domestic
Motor Insurance Market ($m)
CAGR = 4.98%
Employers
liability
1,191
4%
Other
4,125
16%
Professional
indemnity
1,496
6%
Profit (9%)
7,000
Householder
s
4,338
16%
Motor insurance
industry profitability(1)
6,018
5,646
6,000
Commercial
motor
1,602
6%
5,000
4,720
4,776
4,944
Expense
5,209
Commission
paid to
distributor
(7.5% - 15%)
(20%)
4,000
Loss
Sacrificed
to
Underwriter
(71%)
(85% - 92.5%)
Full service
underwriters
Brokers /
Distributors
3,000
Public &
product
liability
2,145
8%
Profit
Acquisition Cost
Fire & ISR
3,151
12%
CTP
motor
2,286
9%
Domestic
motor
6,018
23%
2,000
1,000
0
2004
Total GI Market:
$26,352m in Gross Premium Revenue
► Domestic motor insurance is worth $6bn in
premiums per annum, and is the largest
segment of the Australian general insurance
market
► Given that a number of players sell both
domestic motor and CTP, these two market
segments can be considered together
2005
2006
2007
2008
2009
Share of
GI Market: 21.2% 21.1% 21.7% 21.8% 22.8% 22.8%
► System growth has averaged 5% p.a. over
the last 5 years
► In this time the motor insurance share of the
overall GI market has grown slightly from
21% to 23%
(1): Based on 2009 industry actuals, excludes investment income
Source: APRA June 2009, JP Morgan General Insurance Survey 2009
► Underwriters earned an average margin
of 9% in 2009, while distributors earned
7.5% – 15% before acquisition costs
The profitability and strategic implications
of business models are discussed further
in this report
2

3. UNDERLYING DRIVERS OF MARKET GROWTH
The underlying growth of Australia’s population and the increase in car ownership all result in
additional vehicles and drive demand for comprehensive domestic motor insurance
Australian Population Growth
(millions)
22.5
Total Passenger Vehicles (millions, LHS) and
Passenger Vehicles per 1000 People (RHS)
14
22.0
12
2.54% annual
growth
10
20.5
1.54% annual
growth
20.0
0.55 cars
per person
19.0
1.02% annual
growth
2
18.0
Resident Population
► Australia‟s ongoing population growth
and wealth continues to drive demand
for passenger vehicles
640
52
50
600
48
580
46
540
44
520
42
500
0
2001 2002 2003 2004 2005 2006 2007 2008 2009
54
660
560
4
18.5
56
620
8
6
19.5
700
680
12.0m cars
21.5
21.0
Australian New Passenger
Vehicle Sales (thousands)
40
2001 2002 2003 2004 2005 2006 2007 2008 2009
Total Vehicles
Vehicles per 1000
► Total registered passenger vehicles have risen
from 9.8m in 2001 to just over 12m in 2009
► Vehicle ownership rates (penetration) are also
increasing, with cars per person rising 1.02%
per annum over the last decade
► The increase in ownership rates levelled off in
2008/2009 as a poor economic environment
slowed vehicle purchasing
2001 2002 2003 2004 2005 2006 2007 2008 2009
Passenger Vehicles
► Much of the demand for motor
vehicles is met through new
vehicle sales
► Sales fell dramatically in 2008 and
2009, but have since shown an
upward trend though it is
unknown whether this will herald
a return to historic levels
Source: ABS
3

4. INDUSTRY TRENDS
The hangover from the GFC, technological innovations, and new competitive pressures are
expected to shape the market over the next several years
Economic
• Market hardening with premium increases of 5% in 2009, and premium growth of 5%
and 4% predicted by industry participants for 2010 and 2011 (1)
• Decreasing sum insured due to lagging impact of economic slowdown (fewer new cars
and shift to smaller cars) though this is now offset by increasing new vehicle sales
• Improved investment returns as equity markets recover
• Claims costs lower due to strong AUD reducing cost of parts, however upwards pressure
also present due to a shortage of repairers and consequently higher labour costs
Political
Competitive
• The Henry Tax Review may alter the economics of
vehicle ownership and operation, impacting demand
• Regulatory changes to capital standards are
expected in 2010 which may impact funding mix and
ROE
• Regulatory tightening as a hangover from the GFC
may also have unexpected impacts going forward
• Entry of new players potentially eroding market
share of leaders and mid-tier players
• New products and business models (e.g. Pay-asyou-drive and online aggregators) may impact
profitability
• Well known retailers leveraging their brands (e.g.
Australia Post, Coles)
Technological
• Internet distribution models have lowered the barriers
to entry
• If widely adopted, internet aggregators / price
comparison websites have the potential to increase
shopping around and price-based decision
making, however their success is yet to be
determined
• Web-bots are making it simpler for insurers to
benchmark pricing against one another
Social
• High fuel costs vs. historical averages are contributing to declining car use (likely to
reduce claims frequency)
• Increasing familiarity with online purchasing driving demand for 24-hour quotations and
sales
• The focus on climate change and the contribution of car usage may lead to an increase
in „car share clubs‟ (e.g. Go Get) driving down car usage and ownership
(1): Some analysts are sceptical of this, and expect more modest premium growth as a result of competitive pressures
Source: Media articles, JP Morgan General Insurance Survey 2009
4

5. CUSTOMER BUYING BEHAVIOURS
Customers consider a number of factors in selecting motor insurance, suggesting a number of
areas in which players can differentiate
Top factors in selecting a motor
insurance provider
54%
Value for Money
Trustworthiness
36%
Customer Service
Players have an opportunity to
appeal to customers behaviours
and differentiate on any of these top
factors:
 While some customers are entirely
driven by one factor (e.g. Price), most
purchasing choices involve a trade-off
between multiple factors to select the
best overall offer
Value for Money:
Price, Product & Service
 Players will typically aim to compete
with the market in most areas and
differentiate or dominate in one or two
35%
33%
Level of Cover
Overall Reputation
23%
Flexible Payment Options
22%
15%
Range of Benefits / Features
13%
Ease of Understanding Policy
9%
 For example, Choice.com.au analysis
based on premium prices and policy
features shows a breakdown of the
market into two groups:
9%
Loyalty Rewards / Incentives
Trustworthiness:
Brand & Customer Experience
Professional Advice
6%
Simple Product Solutions
Customer Service:
Service
Higher Prices
Speed of Quotation
Strategic Differentiators
Opportunities to Differentiate
~75% of brands
5%
Recommendation of Friend
2%
Overall Quality of Website
1%
Other
3%
0% 10% 20% 30% 40% 50% 60% 70%
Level of Cover:
Product Features
~25% of
brands
Highly competitive
on product
features
High price
competition
More Features
(1): See appendix for further detail
Source: AC Neilsen
5
(1)

6. COMPETITORS IN THE MARKET
Consolidation has not reduced customer choice, there are more targeted brands and business
models in the Australian Motor Insurance market than ever before
►
►
►
Incumbents
Suncorp Group
Many of their
business models
leverage the
internet for
distribution and a
low cost offering
Mixture of insurers and
bancassurers
►
Split into two business
models:
►
Aim to gain share
on like-for-like
offer
Aggressors
Aim to gradually build
market share through
quality offerings and
minor differentiation
from the Incumbents
Offshoots of the
Incumbent and Mid-tier
brands using low-cost
internet models to
defend against the
Aggressors
►
New players looking to
leverage „aggregator‟
model and aiming for a
market paradigm shift
IAG
Full value chain
insurers
Aggressors are new
entrants making
aggressive and
mostly price-based
plays to gain market
share
Mid-Tier players have
a reputable brand for
motor insurance and
small to moderate
market share
►
Mid-Tier Players
►
►
►
Incumbents have
been in the market
over a long period
of time and built up
sizable market
share
Aim to gain
share by
undercutting
on price
Experimenters
Incumbent Offshoots
Aim to defend
Incumbent share
by matching
Aggressor model
Aggregators
Aim for
paradigm
shift based
on new
model
6

7. MARKET SHARES OF KEY PLAYERS
IAG and Suncorp represent the “cosy duopoly” of the domestic motor market in Australia,
holding ~70% of the overall market on a GWP basis
The majority of larger market
players offer both CTP and
comprehensive motor
insurance, with CTP often acting as
a loss leader to attract new
comprehensive customers
Market Share of Motor by Insurer
CommInsure
2%
RACQ
3%
IAG Group brands include:
Westpac
Other
0.5%
4%
•
•
Suncorp Group brands include:
•
AAMI (National)
•
RACQ (QLD, via a joint venture)
•
RAA (SA, via a joint venture)
•
APIA – Australian Pensioners
Insurance Agency (National)
Allianz
8%
GIO (NSW)
•
The Buzz (Internet-only)
Suncorp (QLD)
•
CGU (VIC/NSW and national
intermediated distribution)
•
Wesfarmers
6%
SGIO (WA)
•
IAG
33%
SGIC (SA)
•
QBE
4%
RACV (VIC, via a joint venture)
•
Zurich
3%
NRMA (NSW, ACT, TAS, QLD)
•
Just Car (national niche player)
•
Shannons (national niche player)
•
Bingle (Internet-only)
IAG and Suncorp have successfully maintained
their ~70% market share through consistently
low lapse rates (e.g. 47% of NRMA customers
have been with them for 10+ years)
Suncorp
37%
This has been achieved by:
•
Building and maintaining high levels of trust in
their brands
•
Effective loyalty programs (NCBs, multi policy
discounts)
7

8. COMPETITOR POSITIONING
The market is dominated by the large national and state players who target the mass market on
value through competitive prices and service. Smaller players lead on price and/or target
niches
Price
Key Observations
Note: bubble
size and
positioning
is illustrative
Bingle
Budget Direct
Aust. Post
Virgin
 The larger brands (e.g. AAMI, NRMA) focus
on a mass market offering and primarily
seek to balance product features and
service quality with price
YouI
iSelect
Just Car
PAYD
Coles
 Some of the larger and more established
intermediated insurers (e.g. Vero, CGU)
have adopted service-driven mass market
offerings that tend to be more expensive
than competitors
Real
Allianz
Lumley
ibuyeco
QBE
Niche
Mass
NRMA/RACV
AAMI
Shannons
 Aggressors such as A&G Group (via Budget
Direct), Real and YouI aim to undercut the
large incumbents on price, and focus on a
mass market play through a single channel
(internet) or through distribution agreements
with existing mass market brands
Vero
APIA
Comminsure
CGU
Suncorp
 Many players have also launched brands to
target market niches (e.g. PAYD and Just
Car target low car-users and young drivers
respectively) with price-based offers
GIO
Product / Service
Bubble size = approximate market share
IAG Group
Suncorp Group
 Some niche players such as Shannons and
APIA target demographic or needs-based
customer segments who will pay a premium
for highly differentiated service experiences
A&G Group
Other
8

9. COMPETITOR CUSTOMER VALUE PROPOSITIONS (1/4)
The Incumbent brands offer a range of GI products with a strong focus on cross sales, and
tend to differentiate using service-based offerings and competitive pricing
Incumbents
Positioned as the insurer that offers “better” service,
claims and pricing, AAMI primarily sells through call
centres then internet
–
GIO is a significant brand in NSW with plans to expand
presence in VIC with a focus is on growing H&C then
cross-sell to Motor
–
–
Suncorp is a significant
bancassurance brand in QLD
Positioned towards a large segment called “planners”
who understand risk and take pride in their belongings
who primarily purchase over the phone then internet
–
Focus is state-based rather
than product (i.e. the
emphasis is selling to the
parochial Queensland home
base)
–
–
Distinct sub-brands aim to retain market share of vehicles
(or customer segments) outside of underwriting
guidelines: (e.g. Insure My Ride for motor cyclists, Just
Car for grey imports, Bingle for online bargain hunters,
APIA for over 50s and Shannons for motoring
enthusiasts)
–
Product is largely undifferentiated with the highest no
claim bonus but lowest new car replacement (1 year) and
personal effects ($200)
–
There was a significant investment in pricing capability in
2007 to make it highly granular, active demand pricing
and responsive to competitors
–
The primary channels is sales
through call centres then
internet
–
Size of the motor book allows for medium level of pricing
sophistication (i.e. good use of relativities and
interactions but not very granular)
–
Product is largely undifferentiated
–
–
Good inbound call capability which are now brand
focused (i.e. historically the Suncorp and GIO call centres
were combined resulting in poor service levels during the
storm season)
–
Discounts offered if taken
together with home and
contents insurance
Largest insurance brand in
NSW with a focus on
attacking AAMI by promoting
ease of switching
–
Positioned as the insurer that
is easy to do business with
and gives “greater” choice
–
Product is largely
undifferentiated but more
modular than competitors
(e.g. select options such as
car after an accident) with a
focus on multi-policy
discounts, which is a
defensive tactic used by
market leaders
–
Discounts offered if taken
together with home and
contents insurance
–
Less efficient claims model
with limited cross-channel
capabilities, but in the process
of being rejuvenated
Has a <$75 million motor
dealer channel
–
–
Pricing, Product and Claims
are the same as GIO
Claims
Brand Position
Australia‟s largest insurance brand with a national focus
on motor then cross-sell to H&C
Product / Price / Distribution
–
–
Strong inbound and outbound capability (e.g. concierge
service on inbound and refined outbound sales capability)
–
Discounts offered if taken together with home and
contents insurance
–
Has ~$100 million intermediated motor through AMP and
Honda, however this is unprofitable and Honda has a
very low first year retention
–
Best practise claims model for customers and suppliers
(i.e. branded assessment centres that promote
sustainably competitive/quality repairs)
–
Claims model was implemented in 2006 based on the
AAMI model. This is used nationally by all Suncorp
brands
– Claims model based on AAMI
model
Note: Only selected competitors are shown
9

10. COMPETITOR CUSTOMER VALUE PROPOSITIONS (2/4)
The mid-tier players use a mixture of direct and indirect distribution, but have struggled to
achieve significant brand differentiation in the market
Despite having a strong reputation as a
commercial insurer, QBE‟s overall
capability in personal lines is patchy
–
The brand leverages the equity built around
the Bank and makes the link to insurance,
and is largely known for Life Insurance
–
It has little to no brand presence in car
insurance since most of its distribution is
through third parties
–
The market entry strategy into underwriting
motor was to quickly and aggressively
undercut on price to acquire market share
–
QBE considered investing in building a
direct brand, WesternQBE but decided the
investment would not deliver target returns
Product / Price / Distribution
–
QBE offers three levels of car insurance,
including specialised products for younger
car owners
–
Three levels of car insurance. High no claim
bonus (70%) that is comparable to AAMI
–
Primarily an intermediated player with
distribution through brokers and agents,
and a JV with ING which provides white
labelled products to ANZ bank
–
Brand Position
–
Claims
Mid-Tier Players
–
Allianz‟s direct brand focuses on low cost
and reliability
–
Although the low brand profile vs the
incumbents means that it tends to
underperform on trustworthiness measures,
the brand is perceived in customer surveys
as offering good levels of cover and value
for money
–
Zurich is primarily focused on commercial
lines and has little brand presence outside
this market
–
Low brand recognition in the mass market
for motor or other personal lines
–
Primarily intermediated distribution (either
broker-based or through affinity plays)
Has distribution agreements with a number
of European car manufacturers to provide
bundled insurance at time of purchase
–
Some direct distribution via the online
channel, which they promote as part of
broader promotion of the retail brand
Motor insurance presence is primarily
through fleet sales and CTP insurance, with
smaller domestic comprehensive book
cross-sold off these two
–
Claims are handled by Lumley who have a
core focus on Fleet Insurance. This
resulted in poor claims experience in 2008
and 2009 during the period of rapid growth
Allianz has a white label agreement to
distribute motor insurance through NAB
–
–
–
–
Some direct distribution via an online
quotation engine on their website
QBE has internal claims capabilities, but is
stronger in claims handling from its core
commercial business than from personal
lines
–
Allianz have also launched 1Cover, a low
cost direct internet player aiming to
differentiate on price
–
Has solid claims capabilities and a
reputation as the strongest provider for
claims outsourcing and affinity models
–
Internal claims capability but primary focus
is not on comprehensive motor capabilities
Note: Only selected competitors are shown
10

11. COMPETITOR CUSTOMER VALUE PROPOSITIONS (3/4)
The Aggressors are new market entrants who are primarily adopting price driven challenges to
the Incumbent brands, generally using direct or white label distribution
Aggressors
Budget Direct
Brand / Product
–
Owned by Auto & General, a subsidiary of
privately-held Telesure, a direct player in
South Africa
–
A&G primarily run a direct multi-brand
strategy with capability to offer products
through intermediaries, of which Budget
Direct is the headline brand
–
Aggressive focus on challenging the major
brands on price
ibuyeco
Virgin
–
Distribution brand / channel for Auto &
General, with brand positioning aimed at
the niche market of environmentally
conscious drivers
–
White label agreement between Auto &
General and Virgin Money, which aims to
leverage the Virgin brand‟s association with
value for money in Australia
–
Insurance premiums are at the lower cost
/lower featured end of the spectrum,
however cover is bundled with the
calculated cost of offsetting the vehicle‟s
carbon emissions for the year of cover
–
Value proposition is strongly price based,
with an emphasis on low premiums (“up to
30% cheaper than the big guys”), plus
additional offers of 13 months cover for the
price of 12
–
Real
–
Brand / Product
Australia Post
Owned by Hollard who are a privately owned company that
offers a diverse range of General and Life Insurance
products.
–
The only Motor Insurer to promote 10% cash back if you do
not claim in 3 years and Pay As You Drive insurance
–
White label agreement between Auto &
General and Australia Post, which aims to
leverage the strong brand, customer base
and distribution footprint of the national post
provider
–
Value proposition is based around a „value
for money‟ price-based offer, married to a
trusted brand
Also offer a 2 year
premium level
guarantee
YouI
Progressive
11
Owned by Outsurance, a direct distribution player in South
Africa
–
Entered the Australian market in January 2010 with a sole
focus on motor insurance
–
Offers comprehensive motor but does not provide CTP
–
–
Brand name and marketing material are highly customercentric (You.Insured)
Progressive‟s value proposition is based on convenience,
with 100% online purchasing and claims management
designed to target individuals who prefer to only transact via
the internet
–
Note: Only selected competitors are shown
–
Uses a direct distribution model with an emphasis on price
savings through more accurate risk pricing

12. COMPETITOR CUSTOMER VALUE PROPOSITIONS (4/4)
The Experimenters are a mixture of existing players adopting new business models and new
market entrants who are aiming to grow the online aggregator distribution model
Experimenters
Bingle
iSelect
Developed by AAMI in response to the
entry of aggressive online competitors with
approximate startup costs of $10m - $15m
–
Aggregator website providing quotations
and feature comparisons across a panel of
motor insurance providers
–
Target customers are customers seeking
the cheapest premium
–
–
Brand / Product
–
Lowest cost strategy with no sales, service
or claims call centre (i.e. all online) and
basic product:
Initial market entry was in health insurance,
with a recent expansion into motor
insurance
–
The technology platform is via Auto &
General
–
No claims bonus has been replaced by
“best price on the day”
–
–
No windscreen excess
–
No new car replacement
–
No choice of repairer
Panel includes a range of the Aggressor
brands: Ozicare, Cashback, Budget Direct,
1st For Women, Heels n Wheels, Kudos,
ibuyeco, Retirease Insurance, Dawes and
Silver Fox – these are all Auto and General
brands
Coles
–
–
Coles Insurance is a white-label
arrangement between two Wesfarmers
subsidiaries, Coles and Lumley, launched
as an attempt to extract synergies from its
insurance and retail subsidiaries
–
Aims to leverage the Coles brand and
distribution footprint to provide a mass
market insurance offering
–
Launched in mid-2009 in Tasmania and
due for national launch in early 2010
–
Focus on providing value for money cover
as well as minor product innovations that
reinforce the brand link (i.e. comprehensive
cover for stolen or damaged groceries)
The Incumbent and Mid-tier players are yet
to engage as a supplier to any of the
aggregator sites
Note: Only selected competitors are shown
12

13. DISTRIBUTION CHANNEL BREAKDOWN
Branch networks including bank branches and branches of full service underwriters such as
NRMA represent 29% of direct distribution and 21% of all personal lines
Distribution Channel Breakdown
Direct Mail, 3%
100%
Internet
11%
90%
80%
70%
60%
Branch
Network
29%
Direct
73%
50%
Call Centre
56%
30%
10%
0%
► Direct channels account for the vast majority of
personal lines distribution in Australia, with the
remainder distributed via brokers or a range of other
intermediated channels (including agencies, strategic
alliance partners and affinity groups)
► Online discounting, a common practice in the UK, is
gaining momentum in Australia as insurers seek to
drive customers to lower cost acquisition channels:
– Allianz offer 10% discounts for online policies in
motor and H&C
40%
20%
Key Observations
– GIO offers 15% online discounts for motor and
H&C
Other
Intermediated
20%
► New distribution channels are emerging, particularly
white label arrangements with retailers:
Broker, 7%
– Australia Post has launched a white labelled
motor product underwritten by Auto & General
All Personal Lines
Direct Distribution
There does not seem to be an overall industry
figure for customers using the internet and
whilst we are using the JP Morgan figures we
have our doubts as to whether internet usage
is really as high as 11%
– Coles are piloting H&C and motor offerings in
Tasmania, underwritten by Lumleys (owned by
Coles parent Wesfarmers)
Source: JP Morgan General Insurance Survey 2009
13

14. ROLE OF BANCASSURANCE
Research conducted by Datamonitor suggests that bancassurance accounts for at least ~9% of
motor insurance distribution in Australia
Percentage of products held with primary bank
70%
61%
61%
60%
53%
52%
50%
41%
40%
26%
30%
20%
13%
11%
10%
9%
6%
0%
Transaction
account
Savings
account
Mortgage
Credit card Personal loan Debit card
► Research conducted by Datamonitor suggests that
bancassurance accounts for at least ~9% of motor
insurance distribution in Australia
Other
insurance
Life
insurance
Car
insurance
Pension /
super
► Similar penetration rates for non-motor GI and for life
insurance suggest that bank-based distribution in general
is yet to have a substantial impact in this market
Source: Datamonitor – Cross Selling Financial Services, 2009
14

15. AUSTRALIAN BANCASSURANCE
Despite the significant potential of their branch networks Australian banks have had limited
success in selling general insurance with home and contents providing the greater revenue
•
•
•
•
•
•
•
1264 branches combined
Westpac white labels its motor
insurance through Vero and
underwrites H&C
Westpac‟s St.George and
Bank SA brands white label
motor insurance from CGU
No product bundles including
motor insurance (WBC
Premier Advantage offers
discounts on H&C and life
insurance)
826 branches
ANZ white labels both home
and motor insurance through
QBE & ING
„ANZ Breakfree‟ product bundle
includes 5% discount on first
year of motor insurance
premium
•
•
•
•
•
•
•
1094 branches
CBA underwrites H&C and
motor insurance with claims
outsourced to Lumley, a
subsidiary of Wesfarmers
Has the most effective
bancassurance offering with
significant national market
share
„Wealth Package‟ includes
10% discount on base
premium for motor insurance
1049 branches
NAB white labels its insurance
through Allianz
Motor insurance discounts not
included in any product bundles
(„Choice Package‟ does include
discounts on H&C and life
insurance products)
Key Observations
► With the exception of Suncorp, the success of banks in GI has
been limited with only CBA achieving any minor market share
with around 3% market share in each state
► Home insurance has been the major focus with the banks
focusing on sales at the point of mortgage origination with a
similar strategy being used with motor finance
► CommInsure have had the greatest success in motor because:
– Distribution channels are aligned to sales objectives (i.e.
high levels of staff awareness, training to identify sales
triggers such as bank cheques for purchasing a car, KPIs,
NPS, MI and BDM support)
– The “CommInsure” brand leverages the parent brand equity
and raises customer awareness of the insurance offering
– Aggressive pricing and broad underwriting (pricing is more
rational after two years of +35% growth)
– Products are good quality, competitive with other offers, and
provide limited differentiation from the majors on NCB
•
•
•
•
216 branches
Suncorp underwrites H&C and motor insurance
Although they have the smallest branch network, Suncorp is the largest of
the bancassurance players, having multiple insurance subsidiaries
Does not offer explicit discounts for bundling insurance with bank products
► By contrast, the white label models of WBC, ANZ and NAB have
seen limited differentiation or sales focus, and have had little
impact
► All of the banks have product bundles on offer, primarily
structured as add-ons to home loan customers. Only CBA and
ANZ offer discounts on motor insurance as part of packages (1)
(1): See appendix for further detail of bundles on offer
Source: APRA, Bank websites
15

16. THE VALUE CHAIN & BUSINESS MODELS
Business models follow the value chain with the major players adopting a multi-brand
distribution strategy which stretches all the way across the value chain in order to maximise
margin
1 Full Service Provider
Value Chain
Brand &
Marketing
The activities
undertaken will
define the
business model
and capabilities
Distributors may
move down the
value chain to
capture more
margin
Business
Model
Product &
Pricing
3 Distributor
Post Sales
Service
2 Intermediated
underwriter
Claims
Management
Underwriters may
move up the value
chain in an attempt
to capture
distribution margin
3
Distributor
Examples
Normal reinsurance
Takes the distribution and product margin with all the risks and requires capabilities
across the value chain
IAG, Suncorp
Takes the distribution and product margin and mitigates some risk with reinsurance
arrangements and requires capabilities across the value chain
Lumley
Coinsurance/Reinsurance
Reduces underwriter risk through sharing across partners
Admiral
Profit and equity risk share arrangement
IAG / RACV
Profit Commission
Intermediated
underwriter
Description
Joint venture
2
Full Service
Provider
Variant
Heavy reinsurance
support
1
Business
Model
There are 3
broad
categories of
business
models and
these define the
core capabilities
of the
organisation
Sales &
Distribution
Option to
outsource claims
in order to
concentrate on
product and/or
distribution for Full
Service Providers
and Intermediated
Underwriters
Profits based on business volume
QBE / ING
White labelling
Leverages brand and protects the customer experience and takes distribution margin.
Capabilities concentrated on customer, sales and marketing.
Westpac
Single Insurer alliance
Joint branding between insurer and distributor
RBS / Norwich
Union
Multiple Insurer alliance
Leverage bank brand and provide multiple product solutions
HSBC
Aggregator
Almost becomes an „advisor‟ to the customer to select most suitable product from the
market and leverages internet technology
iSelect
The majority of
bancassurer
business
models are
either Full
Service
Providers or
Distributors.
The
Intermediated
Underwriter
model is only
used when
insurance
forms a strong
strategic
component of
the overall
bank holding
company
16

17. BANCASSURER BUSINESS MODEL IMPLICATIONS
The choice of business model has some fundamental implications in terms of potential
profitability, operational and reputational risk, and strategic differentiation in the market
1
Strengths
–
–
Full Service Underwriter
Potential to maximise profitability through
controlling margins and cost throughout the end to
end value chain (i.e. Setting premium levels, risk
appetite, operational costs etc) though this can be
cyclical and volatile
–
Control the strategic positioning of brands in the
market according to customer segmentation and
buying behaviours
–
–
Complete control over the customer base
–
Control of service standards and quality tailored to
your customers needs
–
Additional levels of capital required for book – can
be an advantage if capital can be secured at a
cheaper rate than your competitors
–
Significant and ongoing brand investment needed
–
–
Intermediated Underwriter
Opportunity for multi-brand distribution without
significant brand and marketing investment and
ability to add revenues through targeting new
areas of the market through alternative distribution
channels
Distribution costs can be lower than direct
distribution since sales networks are already in
place (particularly for bancassurance or retail
partnerships where insurance is not the core
product)
3
Distributor
–
Potentially lower operational and reputational risk
–
Opportunity to leverage distributors brand,
customer base and customer insights
–
Marginal distribution costs since existing sales
force and infrastructure can be leveraged
–
No capital is required to be held
The end to end value chain become your core
competencies and the organisation‟s resources do
not have to compete against other
products/services in a portfolio
–
Weaknesses / Risks
2
Today
COMPANY A
is a Distributor
based on a
white labelling
approach
–
Retain control of service standards and quality
tailored to customers needs
–
Reliant on partner for sales and marketing to
generate business volumes
–
May be perceived as a low-volume channel by
underwriter and hence de-prioritised
–
Partner may prioritise other product lines if
insurance is not a core product
–
High potential for operational and reputational risk
–
High potential for operational and reputational risk
Limited pricing control and high risk that
underwriter may price uncompetitively to ensure
margins are preserved vs. direct business
Expertise required across the capabilities in the
value chain (e.g. distribution, marketing, pricing,
claims management, systems)
–
Control over the customer base is deferred
–
–
Levels of capital still required for the book - can be
an advantage if capital can be secured at a
cheaper rate than your competitors
No control over claims process risks poor
customer experience and brand damage as
underwriter prioritises risk recovery over customer
experience
–
Expertise required across the capabilities in the
value chain (e.g. pricing, claims management,
systems)
Bancassurers can combine elements of
these business models to have a “hybrid”
model e.g. both underwriter and
distributor depending on
brand/product/customer segment
17

18. RECENT COMPETITOR ACTIVITY
The internet continues to be the primary source of competitive activity, and although industry
impacts remain weak so far IAG and Suncorp are struggling to respond
Growing Focus on Marketing
► The entry of new players has resulted in the launch of a number of
aggressive market campaigns, both from the Aggressors seeking
to gain market share and the Incumbents seeking the defend it
► As a result, marketing spend as a percentage of GWP has
increased for most players, and the industry may see a
corresponding uptick in switching activity
Experimenter Brands Struggling
► As part of its mid-year results, IAG announced in February
2010 that „The Buzz‟ had lost money in the first half of the
financial year
► Despite this, the Experimenter brands are proving to have
broader appeal outside of younger and more web-savvy
customers. IAG revealed that the average customer of The
Buzz‟s is 35 years old and tends to live in wealthier suburbs
Increased Aggregator Activity
Entry of Progressive
Recent
Activity
► US-based Progressive entered the Australian market at the start
of 2010 with the launch of Progressive Direct, a direct online
distribution model which aims to gain some of the alternative
online market occupied by lower cost internet players
► Progressive hopes to leverage its expertise in online business
models and segmentation, and aims to rollout online claims
management which it believes will help differentiate it within the
Australian market
Competitor Premium Increases
► Additional players have entered the aggregator space in recent
months, with health insurance aggregator iSelect entering the
motor insurance market
► Suncorp and IAG have announced increases to motor premiums in
the first two months of 2010, indicating a hardening of the market
and moves from the major players to recover margins
► The aggregators continue to struggle with low participation from
the incumbent brands, which limits the credibility and
trustworthiness of their offerings
► As yet this has not been met by fierce undercutting from
competitor brands (beyond their existing discounting strategies)
► Recent fierce weather events in Victoria have generated extremely
large claim volumes and will likely result in further premium
increases
Source: Media articles
18

19. BANCASSURANCE IN THE UK
The banks are split between the underwriting and distributor business models and this has
implications for brand positioning in the UK general insurance market
Bank
Model
Underwriter/
Joint
Venture
Multiple
Partner
Distributor
Single
Partner
Distributor
Hybrid
Brands
Multiple
Single
Single
Single
% of Group
Profits*
Multiple
Strategy
Biggest personal lines insurer in the UK with
direct and partnership brands as well as
commercial presence
Having built up leadership in direct and partnership
business, are currently developing commercial
offerings and consolidating different brand
infrastructure
Mainly distribution model but with some
underwriting of own PPI products
Embarked upon a significant growth ambition for
general insurance though has found it difficult to
make an impact
4.9%
Underwrite own PPI but partner with Aviva
(formerly Norwich Union) for all other
products under a distribution model
Formed a distribution partnership joint venture with
NU in 2005 announcing significant growth plans &
price focused proposition. Have enjoyed a
moderate degree of success through leverage of
bank‟s customers
5.5%
Hybrid model, partnering for motor & SME,
underwriting own creditor and underwriting
some home, passing rest to a panel
Have a growing GI presence, looking to selectively
develop underwriting expertise and “cherry pick”
risks to underwrite
5.3%
Hybrid Model underwriting own home & PPI,
partnering for commercial. Own E-sure Direct
Motor Brand
Growing home insurance offering under the Halifax
brand and growing motor direct under the E-sure
brand
16.9%
6.8%
Now form
Lloyds
Banking
Group
Underwriter
Operating Model
* % of Group Profit attributable to Home & Motor insurance 2005
19

20. EUROPEAN BANCASSURANCE
Europe has the highest bancassurance penetration in the world, with a share of distribution
channels accounting for more than half of premium income in many markets
Key Observations
►
Traditionally the focus is on life insurance
rather than non-life products
►
Share of non-life insurance for new
business in 2006:
– UK
10%
– Germany
12%
– Italy
2%
– France
9%
– Spain
10%
(Source: “Bancassurance“ Oliver Wyman Study 2008)
►
►
Northern Europe – Non-integrated
Model
Southern Europe – Integrated Model
•
•
•
•
•
Usually involves distribution rather than
product manufacturing
Distribution agreements are often on an
exclusive basis in Germany though UK
is multi partnered
Use of multiple brands for particular
segments
Focus on use of direct channels
•
•
•
Joint ventures or full integration more
likely
Success based on integration of
insurance and banking business
models
Appeal to existing bank relationships
through active targeting
Distribution of products by bank staff
(i.e. Non direct channels)
Excluding the UK, agents and brokers play
a major role in all European markets
However, bancassurance has steadily
gained market share in motor insurance
since 2000 in France, UK Belgium and
Spain
►
In most countries bankers are targeting
motor insurance where they see some
potential for cross selling and profits
►
In France, Spain and Italy, banks benefit
from having a special relationship of trust
with their customer and are perceived to be
better than insurance companies at
handling financial issues and they value
the face to face relationship
20

21. LEARNINGS FROM OVERSEAS OPERATING MODELS
While no definitive model for successful bancassurance exists, there are a number of lessons
that can be learnt from the models which have succeeded overseas
►
There is no “right model” (distributor vs. underwriter) for bancassurance, it is circumstantial to the overall corporate strategy, market and
internal business capabilities
►
Though there are a number of “get rights”:
–
High level of direct distribution
–
Relative profitability through maintaining margin
–
Relative lack of brand proliferation
–
Relative size of market
►
Traditional bancassurance models have typically struggled due to tension between underwriter profitability and distributor margin versus
ultimate price to customer
►
There are a number of successful bank-owned models:
–
TD – Meloche-Monnex (Canada) – stand alone direct insurer
–
Royal Bank of Canada – RBC Insurance (Canada) – stand alone insurer with proximity to the bank, clear customer proposition and
leveraging brand name
–
HSBC – HSBC Insurance (worldwide) – leverage brand name and customer capture
21

22. LEVERAGING THE BANK’S BRAND STRENGTH
HSBC, Worldwide
Bank of America, US
Leverage the powerful bank brand with different
business models appropriate to the market
Gave their customers the perception of value to
help them save money
HSBC have a hybrid model across the world and act as either
aggregator, distributor or full service underwriter depending on the
market and the opportunities therein. Central to all markets and models
though is the use of the single and worldwide HSBC brand.
► In the UK they have partnered with BISIL, who act as an aggregator,
to arrange their customer‟s motor insurance
► They also offer Premier Car Insurance for their Premier customers
through a single distributor model (Equity Red Star)
► In Australia they have a white label approach to leverage the HSBC
brand with Allianz
► In Singapore and Hong Kong they act as the underwriters and
distributor
► In Asian markets they also act as the underwriter and partner with
others for the distribution aspect of the value chain (e.g. Auto
Insurance)
► Common to all these models is that the HSBC brand is at the front
and central to the proposition
► Employees across all branches and countries are aware of the
product and able to sell it regardless of channel – this sales
effectiveness is key to penetrating their customer book
► A lot of effort is also invested in understanding their customer book in
terms of segments and propensity modelling allowing HSBC to
accurately target the product at customers that will offer them the
most value and long term revenues
► Investment has been made in the internet capability to ensure that the
brand is strongly represented online and that the customer
experience is strong
A small team of Bank of America employees in conjunction with a
research team observed the banking and buying habits of their various
customer segments. They discovered:
► Certain savings tricks by customers who would round up the amount
of anything they bought to the nearest dollar to provide a small
cushion in their transaction account
► Taking this idea, the BoA team 18 months later rolled out a
programme entitled “Keep the Change”
► The product works by rounding up the amount of any purchase to the
nearest whole dollar when they use their Visa Debit Card and stores
the excess balance in an electronic savings jar, in effect a savings
account, which is linked to their transactions account
► As an incentive the bank matched 100% of the transactions for the
first 3 months and after that they will contribute between 5% up to a
total of $250 annually
► Both the 100% and 5% contributions are paid annually on the
anniversary of opening the account
► 12 months after the inception of the programme, over 3 million
customers had signed up for the programme – including 1.3 million
new customers – and had cumulatively saved up $200m
► The use of debit card transactions had increased as a result of the
programme which in itself generated extra fee income
► Dependencies for the success of the programme were in the main
effective marketing and the back end systems to record the amount
which went to the merchant and the amount that is transferred to the
electronic savings jar
► As for the customers, it seemed to strike a chord with people
emotionally and the inherent desire to save
22

23. BROAD & NARROW MARKET POSITIONING
RBS, UK
Bingle, e car, Progressive, Australia
Made General Insurance a strategic priority with a
multi brand presence and full business model
Internet only propositions look to take market
share based on low cost model
RBS in the UK has positioned general insurance as a key income
provider to the overall bank based on:
► Creating a separate business division within the bank - RBSI
► A multi channel and multi brand approach matched to key customer
segments in the UK Motor Insurance market
► The portfolio of brands was created through start ups, joint
ventures, and acquisitions
► The distribution of motor insurance through the bank‟s distribution
channels (Nat West and RBS branches) was an optional benefit
rather than the primary focus
► Strong „direct‟ offering through call centres and internet channels
► Income from General Insurance is a strong contributor to overall bank
incomes at circa 20%
► Joint ventures with other leading retail brands e.g. Breakdown
providers (Green Flag), supermarkets (Tesco) enabled diversification
for the distribution approach and leverage through well known retail
and motoring associated brands
► In short, the components of the business were:
– Churchill Insurance provided scale and appealed to a
particular geography of the UK and mass affluent customer
segment
– Direct Line run as a separate business for mass market
– Green Flag Breakdown Services allowed for an affinity play
– Tesco joint venture allowed a new distribution approach
► Overall the RBSI model was a combination of Full Service
Underwriter and Intermediated Underwriter
► Andy Cornish was the former Managing Director of RBSI for over 9
years and is now IAG‟s Direct Insurance Chief Executive
Bingle (underwritten by AAMI) and e car (underwritten by Southern Rock
Insurance co) were launched in 2007 with a value proposition based on
low premium prices accessed using only the internet as a channel thus
achieving a low cost model. Progressive (US) have a similar model and
entered the Australian market in January 2010. Features of this business
model are:
► Leverages the models common in the UK where „direct‟ is popular
due to broadband take up and use
► Quote, purchase, renewal and claims are all completed online
► There is no provision of phone numbers for contact – only email and
internet contacts
► There is no choice of repairer
► The target market for these types of propositions is a younger market
(Gen X and Y)
► Focused advertising to raise initial awareness
► Early positioning to take advantage if internet usage for car insurance
in Australia surges
► Strong positioning for “cheap car insurance” and heavy above the line
advertising spend matched with strong online capabilities
► Strategic proposition is based on industry data that Australians maybe
overpaying by $3.4bn for car insurance
► Aiming to sideswipe customers from the market incumbents through
price reductions
► The incumbents have set up their platforms to check this aggressive
market play (e.g. IAG own The Buzz )
► The success of this market challenge is predicated on greater internet
use by customers and that they are more price sensitive than brand
loyal
23

24. PRODUCT BUNDLING & INNOVATION
Telstra, Australia
Norwich Union, UK
Have successfully used product “bundling” to
prevent churn of their customer book
Embracing new technologies for innovation only
works if you can convince customers to take it up
The key strategic driver for Telstra was to reduce churn of their customer
book.
► Defensive strategic move as had 70-80% of the market
► Achieved through a strong capability and understanding of the
customer book through segmentation and propensity modelling
focused on those customers that were most likely to switch
► Propensity modelling showed that customers with 4 products were
very unlikely to switch and hence became the aim
► Some customers were not offered the choice of bundling because of
reduced margins
► The added extras were at a low marginal rate to Telstra but perceived
by customers as high value
► Success was based on an „anchor‟ product of fixed line telephones
and cross sell from there
► The success came from Big Pond (broadband), and Foxtel,
customers saw mobiles as a separate purchase
► Achieved 450,000 customers with 4 products with very high retention
rates
► Main issue of churn was driven primarily by price (64% of customers
mentioned this as primary reason) and then service
► Started through a trial of asking all fixed line customers about
broadband services, it then was about scale
► Product Bundling has been a success for Telstra in meeting its
strategic objective of reducing churn and protecting its customer base
► Furthermore, it has become a key approach to marketing its products
and services that conveys value and convenience to the customer
Pay as you drive (PAYD) is a metric based “user pays: insurance
product.
► PAYD is a product development that bases insurance costs on how
much the customer drives, when and where to
► The proposition is that customers are bale to reduce their risk through
accurate vehicle usage measurement and only paying for when the
vehicle is in use whilst insurers are able to price more accurately for
the risks actually undertaken
► Other insurers using this technology are Hollard Insurance in South
Africa, AIOI Insurance in Japan and Progressive (TripSense) and
GMAC in the US whilst AAMI have begun to actively investigate
adoption in the Australian market
► This may cause the size of the traditional motor vehicle to reduce if an
insurer introduces PAYD into a geographical area and customers take
up the product in numbers – therefore suited to a non-incumbent to
launch this strategy to take market share
► Greater accuracy to price risk and segment customers an d more
positive underwriting results
► There is obviously a technology dependence on this innovation
► Norwich Union suspended the scheme 2 years after launching as
take up from the market was too low to overcome the costs of
administration and fitting vehicles with the GPS receivers
► This is despite customers being involved in the pilot saving up to 30%
which was particularly suited to low car usage and young car drivers
► It seemed customers were not keen on having a “big brother” device
in their cars
► Patrick Snowball was the Chief Executive of NU at this time, he is
now with Suncorp
24

25. MOTOR INSURANCE INDUSTRY ECONOMICS (1/2)
Premium growth has tended to lag behind inflation over the long term, reflecting increasing
competition and declining margins
Average Vehicle Kilometres per
Year (thousands)
Motor Insurance Premium
Growth
Claims Frequency & Average
Claim Size
15.5
130
140
15.0
140
120
120
100
14.5
110
80
100
14.0
90
60
13.5
80
40
70
13.0
20
60
50
12.5
2001 2002 2003 2004 2005 2007 2008 2009
Average Motor Insurance Premium (index)
0
2000 2001 2002 2003 2004 2005 2006 2007
Passenger Vehicles
All Vehicles
CPI
► Motor insurance premiums have
tended to increase more slowly than
CPI over the past 10 years, although
the gap has narrowed in the last 2
years
2001 2002 2003 2004 2005 2006 2007 2008 2009
Claim Frequency (index)
Average Claim Size (index)
► Kilometres travelled per vehicle declined
over the last decade, indicating a
reduction in car use or trip length
► Over time this trend is likely to limit the
frequency of claims resulting from driving
incidents
► Claims frequency shows some
volatility (linked to weather
events) but reflects a general
increase as additional customers
enter the market
► Average claim sizes have been in
decline since the start of 2008
25

26. MOTOR INSURANCE INDUSTRY ECONOMICS (2/2)
Industry participants forecast falling loss ratios resulting in improved profitability in 2010 and
2011
Motor Insurance Combined Ratios
90
80
Loss ratios in 2009 declined from the peak in 2008 but
remained high by historical standards
Industry participants expect loss ratios to improve over the
coming two years, however the driver of this move is unclear
►
The industry’s weighted average expense ratio increased to
20%, however this may have been skewed by the inclusion in
2009 by a number of new entrants who do not benefit from
scale
►
16
Combined ratios in domestic motor insurance have hovered
around 90, the result of high loss ratios driven primarily by
weather events
►
89
93
►
►
Forecasts
100
If industry forecasts hold, combined ratios should improve to
85 in 2010 and 2011, driving margin improvements and
higher profitability in the sector
91
85
16
20
85
17
17
70
60
50
40
73
77
71
30
68
68
20
10
0
2007A
2008A
2009A
Expense Ratio
2010F
2011F
Loss Ratio
Source: JP Morgan General Insurance Survey 2009
26

27. AUSTRALIAN GI OPERATING MODELS
Business models are focused around either full service (direct) or intermediated
distribution, with the major players adopting a multi-brand strategy which straddles both
models
Players who underwrite and directly distribute
their own products.
Full service
providers
Split roughly into 4 sub-groups:
• The two incumbents who operate through a
range of brands
Incumbents
Mid-tier Players
• IAG:
NRMA, RACV, SGIC, SGIO, The
Buzz
• CommInsure
• Suncorp:
Suncorp, GIO, AAMI, APIA, Just
Car, Shannons, RACQ, Bingle
• The mid-tier players who are established
but hold single-digit market shares
• The aggressors, who have all launched in
the last 5 years and favour low-cost
distribution
• Allianz: Allianz, 1Cover (1)
• Zurich
Aggressors
• Auto & General: Budget
Direct, ibuyeco (1)
• The Challengers, which are start-up brands
launched by the incumbents to attempt to
compete with the low-cost Aggressors
Challengers
• Bingle (Suncorp, via AAMI)
• Hollard: Real, PAYD
• Youi
• Progressive
Players who underwrite business which is
distributed through brokers or third parties
(including banks). Some of these players also
have some direct distribution.
Intermediated
underwriters
• CGU (IAG)
(2)
• Lumley (subsidiary of
Wesfarmers)
• QBE
• Westpac (Vero)
• Virgin (Auto & General)
• St.George / BSA (CGU)
• Australia Post (Auto & General)
• NAB (Allianz)
Distributors
(partnered with)
Distribute products underwritten by
intermediated underwriters, occasionally on a
white label basis
• Vero (Suncorp)
• Coles (Lumley)
• ANZ (ING & QBE)
(1): Primarily direct distribution but also involved in some
intermediated distribution
(2): Primarily intermediated business but also
involved in some direct distribution
27

28. MOTOR INSURANCE POLICY FEATURES
The majority of players in the market are ranked similarly on policy features, indicating a
competitive environment where policy innovations are swiftly replicated by competitors
Policy Features
Insurer
GIO
Suncorp
RACT
RAA
HBA
Mutual Community
CGU
CommInsure
ING
AAMI
QBE
HBF
NRMA
SGIC
RACV
SGIO
TIO
Allianz (Gold)
Allianz (Plus)
Real Insurance
Ansvar Insurance
Pay As You Drive
Apia
The Buzz
Youi
Budget Direct (Gold)
Australia Post
Budget Direct (Std)
Just Car Insurance
Bingle
Valuation
Option
No Claims
Bonus
Choice of
Repairer
24-hour
Helpline
Agreed Value
Either
Agreed Value
Higher of both
Either
Either
Either
Either
Either
Agreed Value
Either
Agreed Value
Either
Either
Either
Either
Market Value
Either
Either
Either
Market Value
Agreed Value
Either
Agreed Value
Either
Either
Either
Either
Agreed Value
Agreed Value
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Choice.com.au Policy Rating
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
89
88
88
87
81
81
80
78
78
77
77
77
75
75
75
75
73
72
71
71
70
70
69
63
63
60
Yes
53
53
34
30
►
Mass market brands offering
extensive policies with similar
levels of features
►
Competitive pressures are strong,
meaning that most feature
innovations are matched by
competitors
►
It should be noted that certain new
market entrants (e.g. Real
Insurance) offer policy features
which are broadly competitive with
the fully-featured incumbents
►
The lower end of the features
range is unsurprisingly dominated
by players whose business models
are based on highly competitive
pricing
Source: Choice.com.au
28

29. AUSTRALIAN BANK PRODUCT BUNDLES
While all of the major banks offer product packages these almost all require a mortgage as
their base, and only two (CBA and ANZ) include discounts on motor insurance
Premier Advantage Package
► Primarily offered to home loan customers
(but available to other lending customers)
► Provides discounts on lending
rates, transaction account and credit card
fees, insurance products
(H&C, landlord‟s, mortgage, and life) and
wealth and super products
► $395 annual fee
Westpac Choice Student Package
► Available to full time students
► Fee free transaction account, lending rate
discount for personal lending, interest bonus
on savings account
Wealth Package
► Requires $150k total home lending with CBA
► Lending rate discounts for home and
personal loans, fee free transaction account
and credit cards, bonus interest on
TDs, financial planning discounts, and life
insurance discounts and GI discounts as
follows:
–
10% off residential H&C base premium
–
5% off investment H&C base premium
–
10% off motor base premium
–
5% off loan protection premiums
► $350 annual fee
NAB Choice Package
► Requires $150k or more of mortgage lending
► Offers lending rate discounts, lending fee
discounts, no transaction account and credit
card fees, bonus interest on TDs, premium
and discounts on life and H&C insurance
► $395 annual fee
NAB Shareholders Package
► Available to NAB shareholders
► Bonus TD interest, no credit card or lending
application fees, life insurance discount
NAB Graduate Package
► Credit card and low interest loans for recent
graduates
Advantage Package
► Home loan based package
► Offers discounts on home lending rates and
fees, transaction account fees and credit
card fees
► $395 annual fee
ANZ Breakfree
► Home loan package, plus a broad range of
package options, but no life insurance
► Offers lending rate discounts and fee
waivers on home and personal lending, fee
free transaction and credit cards, discounts
on margin lending and online
trading, financial planning discounts, 1 free
month of H&C cover in first year, 5% off
motor premium in first year
► $375 annual fee
Money Manager – My Home Package
► Home loan based product
► Provides rate discounts on lending greater
than $150k
► Also offers fee discounts on home and
personal lending, transaction accounts, and
credit cards
► Discounts on “a range of other banking and
insurance products” (however similar
discounts available outside the package)
► $300 annual fee
29

30. CUSTOMER DEMAND DRIVERS
Value for money and trustworthiness are ranked as the top two factors in selecting a
provider, with customers who switched placing a greater emphasis on price
Top factors in selecting a motor insurance provider
All Customers
Customers who switched in the last 6 months
54%
Value for Money
66%
Value for Money
Trustworthiness
36%
Trustworthiness
Customer Service
35%
Customer Service
33%
Level of Cover
28%
34%
32%
Level of Cover
Overall Reputation
23%
Overall Reputation
21%
Flexible Payment Options
22%
Flexible Payment Options
22%
15%
Range of Benefits / Features
13%
Ease of Understanding Policy
18%
Range of Benefits / Features
Ease of Understanding Policy
9%
Speed of Quotation
9%
Speed of Quotation
8%
Loyalty Rewards / Incentives
9%
Loyalty Rewards / Incentives
9%
Professional Advice
6%
Professional Advice
6%
Simple Product Solutions
5%
Simple Product Solutions
6%
Recommendation of Friend
2%
Recommendation of Friend
3%
Overall Quality of Website
1%
Overall Quality of Website
2%
Other
3%
Other
3%
0% 10% 20% 30% 40% 50% 60% 70%
0% 10% 20% 30% 40% 50% 60% 70%
Source: AC Neilsen
30

31. TOP CUSTOMER DEMAND DRIVERS BY PLAYER
Deviations in customer responses from the market average show how the differing value
propositions of the players is reflected in the priorities of their customers
•
Price is a significant
differentiator, and is clearly
valued more highly by budget
brand customers than those
that have stayed with the
traditional players
•
Trustworthiness is more of a
hygiene factor with less of a
spread in customer responses
•
Brands with strong statebased roots (e.g. Suncorp
show high trust levels)
•
Customer service is a hygiene
factor for the incumbent
brands, but less critical to
price-sensitive customers
•
Value for Money
There is a low spread in
responses on level of
cover, suggesting that most
brands are competitive on this
factor
54%
Market Average
Trustworthiness
36%
Market Average
Good Customer Service
35%
Market Average
Level of Cover
33%
Market Average
Source: AC Neilsen
31

32. ROLE OF TRUST IN FINANCIAL SERVICES PURCHASES
There is a strong bias towards trustworthiness when it comes to the purchase of financial
products, with 68% of the market only willing to buy from established brands
“I would only buy financial products from an established provider”
Breakdown of Responses
Disagree, 4%
Strongly
disagree, 3%
Strongly
agree, 24%
Neither agree
nor
disagree, 23
%
Agree, 46%
Source: Datamonitor Australian Financial Services Consumer Trends Survey, 2007
32

33. LIKELIHOOD TO SWITCH BY PROVIDER
Brands with high trust levels and/or strong regional footprints (APIA, RACQ, NRMA, RACV)
have the highest incidence of customer stickiness
Likelihood to switch providers at next renewal (by provider)
Highly Likely
Likely
Market Average
5%
Budget Direct
5%
11%
Allianz
6%
9%
CGU
5%
Suncorp
6%
AAMI
5%
8%
25%
GIO
4%
9%
24%
RACV
4%
Unsure
7%
APIA
0%
33%
35%
26%
36%
25%
37%
25%
21%
38%
25%
44%
28%
19%
10%
23%
23%
12%
44%
28%
45%
22%
20%
29%
25%
19%
4%
25%
27%
6%
Highly Unlikely
41%
29%
9%
4% 4%
5%
26%
30%
8%
NRMA 3% 6%
RACQ
22%
Unlikely
30%
57%
40%
50%
60%
70%
80%
90%
100%
Source: AC Neilsen
33

34. LIKELIHOOD TO SWITCH BY CHANNEL
Customers who have used the internet as a purchase channel are a higher risk of
switching, while customers using face to face channels are the lowest
Likelihood to switch providers at next renewal (by original purchase channel)
Highly Likely
Market Average
5%
Likely
7%
Unsure
22%
Face-to-Face 3% 5%
9%
19%
Other
5%
7%
21%
Telephone
5%
7%
22%
7%
0%
9%
10%
41%
26%
4%
48%
20%
48%
24%
43%
26%
28%
20%
Highly Unlikely
26%
18%
Post
Internet
Unlikely
30%
40%
26%
40%
50%
60%
30%
70%
80%
90%
100%
Source: AC Neilsen
34

35. BUNDLING OF BANK PRODUCTS (1/3)
There is a strong bias from customers towards accessing product bundles from their bank to
satisfy emerging product needs
What approach would you take to purchasing a new financial product?
Strongly agree
Agree
70%
60%
50%
40%
30%
20%
10%
0%
In taking out a new In taking out a new
product I would
product I would first
review as many
go to my bank
providers as
possible
I am more inclined I am more inclined I am more inclined
to get several
to get several
to go to separate
products from my
products from my providers to get the
bank to make it
bank because I
best rates
easier for me
know and trust them
Source: Datamonitor Australian Financial Services Consumer Trends Survey, 2007
35

36. BUNDLING OF BANK PRODUCTS (2/3)
Drivers for customers to want to bundle financial services products are primarily driven by
price (reduced fees or lower interest rates), with convenience a secondary factor
What reasons would you have for bundling products with the same bank?
Very important
Quite important
80%
70%
60%
50%
40%
30%
20%
10%
0%
Help with life
events
Single website
to manage all
financial
services
Single point of Lower rates for Better rate for Reduced fees
contact
mortgage / loan high-interest (banking, cards
/ credit card
saving account
etc)
Source: Datamonitor Australian Financial Services Consumer Trends Survey, 2007
36

37. BUNDLING OF BANK PRODUCTS (3/3)
Bundled products have been shown to provide a reason to switch to and a disincentive to
switch away from the bundle provider, however this was only a factor for some customers
How has product bundling influenced your choice of bank?
14%
12%
10%
8%
6%
4%
2%
0%
Switched transaction account due Didn't change transaction account Didn't change high interest savings
to getting bundle with different
provider due to holding bundle
account provider due to holding
provider
bundle
Source: Datamonitor Australian Financial Services Consumer Trends Survey, 2007
37