Peter Wood has chosen a “comfort cocoon” as the logo for Esure, his new online insurance venture which is majority owned by Halifax, the mortgage bank. The chairman of Esure already enjoys legendary status in the insurance industry for founding Direct Line – now part of Royal Bank of Scotland – which became the UK’s biggest motor insurer by selling policies over the phone.
He devised the giant red telephone on wheels for Direct Line which is still used today. Now he has turned his attention to Esure, which will be formally launched later this year, offering general insurance such as motor and household.
Halifax, which is investing £150m, is hoping that Mr Wood, who left Direct Line four years ago, will shake up the insurance industry in much the same way as he did 15 years ago.
Fears about security over the internet and lack of simplicity in buying insurance have been cited as two reasons why online insurance sales have been slow to take off. The california car insurance online for cheap market is tiny. About 2-4 per cent of all general insurance is sold online.
Forrester Research estimates that this could rise to 20 per cent by 2005 creating an online market worth £3.1bn. Although the formal launch of Esure is due to take place later this summer, the company has already taken its first tentative steps into the market with the launch of a Halifax-branded california car insurance online for cheap operation available over the phone.
But in a market dominated by names such as Norwich Union Direct and Directline.com, some analysts question how easy it will be to launch and market a new standalone internet insurer.
Esure is entering the market at a difficult time, even though premiums are rising. The motor insurance industry, for example, last made a profit in 1994. In 1999, £8.3bn was paid out in claims, while just £7bn was received in premiums, according to the Association of British Insurers.
And in recent weeks, there has been a shake-out of smaller standalone internet insurance businesses. It appears that the majority of consumers are not actually buying online. They are using the web as a research tool to look for quotes before buying over the telephone.
Benjamin Ensor, analyst at Forrester Research, said: “Unlike the internet banks, insurers have not offered fantastically lower rates to those buying online, so there is not that much incentive to switch behaviour.”
Norwich Union Direct puts the number of household, motor and travel policies sold online in the tens of thousands, despite a 10 per cent discount on some policies written on the internet. Some websites can also be complex and slow to use.
“It can take you three minutes to get a quote by phone but a lot longer to search around on the internet,” says Brent Escott, managing director of Club Direct, the travel insurer.
But other insurers believe internet insurance sales are starting to gain momentum. Direct Line says it has a 30 per cent share of the online insurance market and is confident of exceeding its original targets of selling 15 per cent of its motor insurance online by 2003.
Peter Wood also believes it is a good time for Esure to move into the market. “Premiums are rising and there are no new players in the market. None of the existing companies, apart from perhaps Direct Line, have such a low expenses base.”
Esure is looking at cutting the price of motor cover by as much as 10-15 per cent.
“But it will not just be about price,” Mr Wood says. “You attract customers on price and keep them on service. The claims processing service will be different: it will be more open.”
Mr Wood says that although Direct Line was perceived to be an overnight success it actually reached that position over several years. Esure, he argues, has the added advantage of being able to target Halifax’s 21m existing customer base.
Peter Wood is understood to have taken an undisclosed equity stake in Esure. But it remains to be seen whether the venture will make as much money for him as Direct Line did. There he earned £18.2m in a single year, thanks to his bonus scheme.