selectivity had been the lack of sophisticated management information
systems in many insurance companies, which made it difficult for individ-
ual companies to clearly identify the source of specific segment/broker
profits or losses.
Other companies had attempted to secure their channels of distribution
by integrating forward into broking by acquiring interests in major
broking groups such as Swinton, AA Insurance Services and Hill
House Hammond. Three companies – General Accident, Royal
Insurance and Eagle Star – established their own direct writing operations
between 1988 and 1990. However, these companies were anxious
not to disturb their traditional broker-based channels and thus did
not capitalize on the parent company’s image by identifying closely
with their subsidiaries. During 1991, for example, General Accident was
faced with a brief boycott from brokers angered by its promotion
of direct sales. The continued success of Direct Line and the other
direct writers was forcing a change of attitude amongst the composites
and greater recognition of the new channel seemed an essential strategy for
the 1990s. ‘They have to fish or cut bait. They have to choose
one way or another,’ stated one leading strategic management
consultant, Mr Clive Bannister, insurance specialist at Booz Allen
Hamilton. ‘If they continue to walk down the middle of the road they will
get run over.’^1
The UK motor insurance market
Throughout the 1980s the UK motor market had been expanding slowly as
a result of rising consumer affluence. The number of private cars and light
goods vehicles expanded from 16.3 million in 1980 to 22.1 million in
- There had been a slight swing towards private cars in the late
1980s. This resulted from a decline in the attraction of ‘company cars’ due
to the changes in tax treatment and a rise in the number of two-car
families. This trend was expected to continue and even accelerate in the
1990s.
Premium income for motor insurers rose at a rate greater than GDP but
claims tended to rise even faster. As a result, most motor insurers made a
loss on underwriting, endeavouring to make these up with investment
profits. In 1991, of approximately 600 motor insurers in the UK, only Direct
Line amongst the majors made a net profit on underwriting alone. In addi-
tion, the industry had done little to reduce its expense ratios. This was par-
tially due to the fact that nearly 40 per cent of expenses were related to
commissions to intermediaries but also resulted from insurers failing to
grapple with the issue. The largest motor insurer was the Norwich Union
The customer market domain: Managing relationships with buyers 117