Motor insurance is hardly a profitable business yet, as Marketing Week revealed last week, Ford Credit is launching a branded insurance scheme for all UK Ford customers.
Figures from the Association of British Insurers for 1996 reveal motor insurers received 5.9bn in premiums, but paid out nearly 6.6bn in claims. As George Shippam, a consultant at Datamonitor, says: “It’s almost the worst market to be in from the underwriting point of view.”
However, it does not take much insight to see what Ford is up to. With retail sales stagnant, the move is widely seen as a means of enhancing the customer loyalty the brand desperately needs.
Ford has the largest share of the UK’s car market – 18.26 per cent, according to the Society of Motor Manufacturers. This is a slight fall compared with 1997, when the manufacturer had 18.43 per cent.
It may not be a dreadful decline, but it is a stagnant performance in a growing market: 903,095 new cars were registered in the UK in 1997 and, it’s estimated, 967,103 cars will be registered this year.
Car companies’ business is divided into two parts: fleet (company cars) and retail (individual consumers). Fleet sales are traditionally dominated by Ford and Vauxhall, but, as one car industry expert says: “The first thing a rep wants to do is avoid buying a rep’s car.” He says employees nowadays are given greater choice over which car brand they drive and, as a result, Peugeot and Renault – “non-rep” cars – are doing well.
This throws more emphasis on the retail car market. By launching a branded insurance package, Ford hopes to enhance customer loyalty.
One source says: “The scheme has less to do with making money and more to do with building relations with customers.”
Ford wants its customers to drive off the forecourt, insured and with vehicle registration, within an hour of purchase.
The offer will no doubt prove attractive to excited new car buyers and, as Toyota marketing director Mike Moran says: “Loyalty comes from getting customers hooked into as many aspects of your business as possible.”
Ford is not the first car manufacturer to offer customers branded insurance schemes, though it claims its package will be “revolutionary”. Vauxhall launched its version in 1992 and, according to a spokesman, about 35,000 policies are taken out each year. This represents just over one third of the marque’s annual sales. Toyota also has a scheme.
Insurers, including Direct Line and Norwich Union, claim to be relaxed about Ford’s entrance to the motor insurance market. A spokeswoman for Direct Line says: “Various people have entered the market in the last year – and left it. It’s a very competitive market.
“Over the past couple of years it has been very hard as prices have been cut. Our strength is that our costs are lower than our competitors and we are a well-known brand. We will watch Ford with interest.”
Ford is unwilling to reveal any details of its insurance scheme, which it is planning to unveil this autumn. However, a spokesman does admit that the company is in talks with external underwriters.
A spokeswoman for Norwich Union, which underwrites for Vauxhall, says: “We do not regard Ford’s entrance as a threat, we regard it as an opportunity because it presents traditional insurance through a new distribution channel.” This may be evidence, perhaps, that Norwich Union, which underwrites Peugeot’s insurance scheme, may be expecting to pick up some of the business.
Whoever does enter into partnership with Ford will get a large slice of market share and a guaranteed source of continuous new business. However, Datamonitor’s Shippam warns: “There is a potential risk as Ford will call the shots. If it’s not happy with the rate being charged, it could force the price down.”
The price of buying motor insurance has come down sharply (by 15 per cent in 1995 alone), a factor which most attribute to the entrance of Direct Line to the market in 1985. Quotes are now easy to obtain quickly over the phone, which has been a key factor in reducing loyalty in the market. Shippam says: “Most consumers are aware that if they shop around they can get a good price.
“There is no doubt that consumers are more loyal to a car brand than to an insurance brand.” This factor is what will make most insurers jump at the chance to underwrite Ford’s business.
Underwriters’ brands have become more important since the advent of Direct Line. Shippam says: “The market has changed over the past decade with the decline of the broker and the rise of the tele-insurers. Direct Line has focused the attention of consumers onto who their insurer is.”
Working for the motor manufacturers may provide the underwriters with guaranteed business, but the part they play is once again invisible to consumers. Implicit is a long-term risk to their brands.