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Price comparison websites struggle to crack European insurance market

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Price comparison websites struggle to crack European insurance market

Pricecomparison websites may have taken the British motor insurance marketby storm, but thebusiness model is unlikely to capture an equally large share of the market inother European countries due to consumers' deeply entrenched loyalty to brokersand agents, according to S&P Global Ratings.

Pricecomparison websites are now responsible for two-thirds of sales in the Britishmotor insurance market, but have only a marginal impact in Europe, with a 10%market share in Spain, 8% in Italy and just 1% in France, the agency said in areport.

Inthis environment, companies such as Britain's would struggle tomount a serious challenge to brokers and agents, analysts told S&P GlobalMarket Intelligence.

Difficult market

"Youngpeople tend to do more shopping online, and that may mean that more will buyinsurance from price aggregators in the future. But European colleagues feelthat there are stronger barriers to entry in Europe," Robert Greensted,associate at S&P Global Ratings and one of the report's authors, said in aninterview. "For example, the German market is a tough nut to crack. Mostof the market renews their insurance at the same time, and it doesn't lenditself to price comparison."

InGermany, nearly all motor insurance policies come up for renewal Jan. 1, whichonly leaves a small window in the year in which consumers typically makepurchasing decisions, Greensted said. Spain, however, seems to be morehospitable to the business model, and there are already a number of pricecomparison sites for insurers to choose from, he added.

Yetaccording to Eamonn Flanagan, director at Shore Capital, one problem forcompanies trying to establish a price comparison website in Europe is thatthese businesses need a "large and ongoing" spend on marketing andadvertising in order to achieve critical mass. Another challenge is thevariable quality of internet connectivity in continental Europe compared withthe U.K., he said.

"TheU.K. is ahead of many territories in Europe both in terms of broadband speedand propensity to shop online," Flanagan toldS&P Global Market Intelligence.

Headded that, anecdotally speaking, it appeared that insurers in the U.K. werefar more willing to share their data with price aggregators compared to theirpeers in continental Europe, which could limit growth in the market segment.

Mixed results

Thatcould be the reason why British price comparison website operators Compare theMarket, Money Supermarket and Gocompare.Com Holdings Ltd. — which is about to bedemerged fromesure Group Plc —have not yet expanded into continental Europe.

Bycontrast, Admiral has not only a profitable and growing price comparisonbusiness in the U.K. — Confused.com, which was launched in 2002 —but also rolled out Rastreator in Spain in 2009 and LeLynx in France thefollowing year. Admiral's push into the European price comparison space wasspearheaded by former CEO Henry Engelhardt, who in May, and frequently saidhe believed in the "irresistible" power of the internet.

Butnot all of the company's business ventures on the Continent were successful.Admiral soldoff its Italian price comparison business, Chiazerra, in 2012. The parentgroup did not disclose individual figures for the Italian site, but its trio ofEuropean price comparison businesses had made an annual loss of £5.6 million in2011.

AlthoughConfused.com increased its first-half pretax profit to £8.3 million in 2016from £4.8 million a year earlier, its global price comparison business — whichincludes lossmaking U.S. site Compare.com and a fledgling Chinese business —made an operatingloss of £1.1 million. Admiral did not publish profit figures forits Spanish and French businesses, but their combined turnover rose year overyear to €21.5 million from €19.6 million in the first six months of 2016.

"Admiraltook a 'test and learn' approach to price comparison sites in Europe, and insome places it's taken off better than others," Greensted said.

Butgrowth in Europe appears to be a long game for the company.

"They'vegot to take solace from the U.K. experience," Flanagan said, pointing outthat "it took them a while to get off the ground in the British market."

S&P Global Ratingsand S&P Global Market Intelligence are owned by S&P Global Inc.