Presentation - Institute of Actuaries of Australia
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MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 1 Personal Lines – A Shifting Competitive Landscape Daniel Toohey, Andrei Stadnik © Morgan Stanley This presentation has been prepared for the Actuaries Institute 2014 General Insurance Seminar. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions. PRESENTATION – November 17-18, 2014 MORGAN STANLEY RESEARCH Asia/Pacific Personal Lines – A shifting Competitive Landscape Morgan Stanley Australia Limited+ A presentation for the General Insurance Seminar – Insuring Tomorrow Daniel P Toohey Daniel.Toohey@morganstanley.com +61 2 9770 1315 Andrei Stadnik, FIAA Andrei.Stadnik@morganstanley.com +61 2 9770 1684 This presentation has been prepared for the Actuaries Institute 2014 General Insurance Seminar. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions. Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Consumer loyalty firm, but premium growth struggling • Australian insurance consumers are not becoming less loyal or more price sensitive. • Buying habits: Online now main channel in Motor; Consumers are open to new ways to save – online brokers? • Motor premiums have been stagnant 3 years running, with renewing customers premium unchanged (i.e. flat) for first time. • Home retention rates at 77% are stronger than Motor at 70%, but new customer growth is lower and the shift to Apartment living is a headwind. Source: AlphaWise, Morgan Stanley Research 4 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Challengers are hitting prime time • Challengers surprise with ~18% share of policies in Motor, growing their share of switching customers (37% vs. 19% in 2012). • They are building actionable consumer brand awareness (Youi now No.3 in motor) with “mind share” exceeding “market share”. • Challengers are growing and winning customers from the majors (particularly SUN), they’re not just fighting among themselves. • The Challengers now open war on both fronts by attacking the Home market, where Banks quietly have built a 13% share. • Coles growth under IAG is unclear – but any pullback by Coles opens the door for Youi and other Challengers. Source: AlphaWise, Morgan Stanley Research 5 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 IAG Personal Lines franchise more durable than SUN • Price is less of a factor for IAG customers, they shop around less and it takes a bigger discount for IAG customers to switch. • SUN customers shop around more, demanding a higher share of switchers to grow – yet Challengers win more SUN customers. • SUN and IAG have been growing sub-system in both Home and Motor over the past 3 years. • Retention is key and strong for IAG. SUN needs volume, increasing the risk of competition (discounting) in the switcher segment. • Margins in Personal lines should hold in the near term. Source: AlphaWise, Morgan Stanley Research 6 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Questions we are seeking to answer 1) What level of consumer awareness exists for different Personal Lines insurance brands? 2) What factors influence a purchase decision? 3) What are current retention levels and how loyal are customers? 4) What factors influence retention levels? 5) What factors influence a consumer’s decision to switch? 6) Are the Challenger brands having an impact and gaining consumer acceptance in Home just as in Motor? 7) Are the Banks successfully leveraging their distribution advantage, particularly in Home? 8) Are consumers ready to fit a device to their car to reduce premiums or take up “pay as you New question for 2014 drive”? 9) How much are consumers shopping around at renewal for the best deal? Global Blue Paper with BCG 11) What impact will technology have on the insurance industry? 10) What are the major channels used to buy insurance? Source: AlphaWise, Morgan Stanley Research 7 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Prompted Brand awareness – Motor easier market to break into • National brands AAMI and Allianz best recognised • Our survey suggests Home is a harder market to build a new brand • Youi a top 3 brand in Motor, ahead of state based NRMA • Supermarkets among the fastest growing • Banks are middle of the pack on brand awareness • iSelect is the best known among online brokers • Some brands left out in the interest of space Source: AlphaWise, Morgan Stanley Research Home brands AAMI Allianz GIO APIA NRMA QBE Youi Real Insurance CGU Budget Direct Coles Insurance RACV Suncorp RACQ ANZ brands iSelect CBA brands WBC brands SGIO Woolworths Bingle Shannons NAB brands 2014 78% 75% 56% 54% 54% 51% 51% 46% 45% 44% 42% 41% 40% 38% 37% 37% 36% 32% 31% 29% 26% 26% 21% Motor brands AAMI Allianz Youi NRMA Budget Direct GIO APIA Coles Insurance iSelect QBE Suncorp Real Insurance CGU RACV Shannons Woolworths Bingle RACQ CBA brands WBC brands NAB brands ANZ brands Insurance Box 2014 99% 99% 91% 89% 89% 86% 85% 85% 83% 82% 82% 77% 77% 76% 73% 73% 72% 72% 71% 64% 60% 60% 19% chng. +1% +2% +6% -2% +1% -1% -1% +16% +2% -0% -3% +3% +1% -1% +2% +22% +5% -3% - 2013 98% 96% 84% 91% 87% 87% 86% 69% 81% 82% 84% 74% 76% 77% 71% 50% 67% 76% - chng. +0% -1% +1% +0% +0% -2% -1% +15% +1% -1% +1% -1% -4% -1% -2% +0% -3% - 2012 98% 97% 83% 91% 87% 89% 87% 54% 80% 83% 83% 75% 80% 78% 73% 67% 79% - 8 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Brand power: if forced to switch, who would you switch to? • AAMI is the strongest brand across Home (15%) and Motor (16%) despite the headwind of its leading market share. • IAG’s state based brands do not translate well to a national level view, but NRMA and RACV combined would edge ahead of Allianz with 11% vs 10% in both Home and Motor. • Challengers surprise with actionable consumer brand awareness in the Motor market. Budget Direct (7%), Youi (6%) and Coles (6%) were prominent. • Challenger brands also featured strongly in Home with Budget Direct 7th (4%) and Coles 8th (4%). • CBA the only Bank to feature – 6th brand in Home with 5%. • iSelect online broker has strong potential in Motor with a 3% choice placing it 10th, but market share remains negligible. Note: * all national brands expect NRMA & RACV; Suncorp is in some ways a state brand Source: AlphaWise, Morgan Stanley Research Motor brands 1 AAMI 2 Allianz 3 Budget Direct 4 Youi 5 Coles Insurance 6 NRMA * 7 RACV * 8 APIA 9 GIO 10 iSelect 1 2 3 4 5 6 7 8 9 10 Home brands AAMI Allianz APIA NRMA * RACV * CBA Budget Direct Coles Insurance GIO Suncorp * % 16% 10% 7% 6% 6% 6% 5% 4% 4% 3% % 15 10 6 6 5 5 4 4 4 4 9 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Brand Groupings We group some brands to better present data that is statistically more robust and visually more digestible. Source: AlphaWise, Morgan Stanley Research Auto Clubs RAA RAC WA RACQ RACT Banks ANZ Aussie Bank of Melbourne Bank of Queensland BankSA Bankwest Bendigo Bank CommInsure Commonwealth Bank National Bank OnePath St George Bank Westpac Challengers AMP Australia Post Budget Direct Bupa Calliden Coles Insurance HBF Progressive Real Insurance Virgin Woolworths Youi 10 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Market share by Policy: Challenger brands come of age Home Market Share by Policy Count Banks CBA WBC ANZ NAB QBE 2% 6% 3% 2% 1% Motor Market Share by Policy Count Other 2% Banks CBA Other Auto Clubs 8% Allianz 8% SUN 29% 1% 1% Banks 2% Other 3% Allianz 8% QBE 2% SUN 29% Auto Clubs 10% Banks 13% Challengers Youi Budget Direct Coles Real Woolworths Other 5% 3% 3% 1% 1% 1% Challengers 14% Challengers 18% IAG 25% IAG + WES is 28% Source: AlphaWise, Morgan Stanley Research Challengers Budget Direct Coles Youi Real Other Woolworths 5% 5% 4% 1% 1% 1% IAG 28% IAG + WES is 33% 11 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Challenger brands winning share among switching customers Motor (by policy count) 100% 10% 90% 8% 80% 70% 18% 5% 11% 8% 4% 28% 40% 13% 60% 28% 29% All surveyed (100%) IAG Challengers 31% Renewing (70%) Banks 8% 9% 13% 13% 14% 9% 24% Switching (22%) Allianz 25% 6% Auto Clubs 0% QBE Other SUN 16% 10% 19% 27% 27% 39% 29% 29% 27% All surveyed (100%) Renewing (77%) Switching (17%) 10% New (8%) 8% 12% 20% 29% 5% 7% 30% 40% 10% 8% 30% 40% 16% 20% 8% 50% 32% 30% SUN 80% 70% 37% 50% 90% 13% 13% 60% 0% 13% 9% Home (by policy count) 100% IAG Source: AlphaWise, Morgan Stanley Research Challengers Banks Allianz Auto Clubs 22% New (6%) QBE Other 12 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 SUN and IAG are losing market share 25% 20% 15% 10% 5% 0% -5% 10% 8% 6% 4% 2% 0% -2% -4% SUN and IAG premium growing sub system in Home 20% 15% 10% 5% 1H12 SUN 2H12 1H13 IAG 2H13 1H14 2H14 APRA Industry SUN and IAG premium growing sub system in Motor 2H12 1H13 IAG 2H13 1H14 2H14 APRA Industry Source: APRA, Company Data, Morgan Stanley Research 10% 9% 2012 18% 15% 11% 2013 2014 Challenger brands share of switching Motor customers 37% 40% 30% 24% 19% 20% by Policy Count 10% 0% 1H12 SUN Challenger brands Motor market share rising by Policy Count by $ of Premium 12% 2012 2013 2014 13 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Challengers have captured mindshare on Price What are the top 10 brands that consumers recognise for lower price? Challenger brands punch above their weight on price with Budget Direct (16%) best known of all insurers for lower Motor prices. In Home, Budget Direct (9%) is 2nd only to AAMI (12%). 6% 5% 5% 5% Source: AlphaWise, Morgan Stanley Research NRMA Coles Insurance Allianz APIA Youi 5% Budget Direct 5% AAMI 5% RACQ Bingle NRMA Youi Coles Insurance AAMI 6% 4% 3% 2% Bingle 9% 6% Budget Direct 9% CBA 9% RACV 10% RAC WA 12% Allianz 12% Home 12% RACV Motor 16% 14 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Consumer spend shows lack of pricing momentum • In Motor, we are seeing a lack of price increases. Average Motor insurance premium was broadly unchanged at $773 in 2014 from $778 in 2013 and $774 in 2012. • Average home premium is~$1030. There is a much higher variability in Home premiums – reflecting substantial differences in CAT / flood risk profiles by geography. 1.0% Motor 1,000 0.6% 0.4% 1,600 1,400 1.2% 1,200 800 1.0% 1,000 0.8% 800 700 0.6% 600 0.4% 400 0.2% 200 0.2% 600 0.0% 500 2012 Allianz 2013 IAG Auto SUN 2014 Banks IAG + ChalleSurvey Clubs Survey WES ngers Survey % spent on insurance (LHS) Annual Income (00s) Annual Premium Home 1.4% 900 0.8% 1.6% 0.0% Source: AlphaWise, Morgan Stanley Research Allianz SUN Banks Home Auto IAG IAG ChallenSurvey Club & WES gers % spent on insurance (LHS) Annual Income (00s) Annual Premium 0 15 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Who is offering cheaper premiums to switching customers? How much did premium reduce for customers switching insurers at last renewal? Motor customers switching insurers paid $41 less for their current policy vs their prior policy ($38 saving in 2013). Those renewing saved $1, whereas in 2013 survey they paid $11 more. Challengers -70 2014 Survey Motor Allianz -41 Challengers Home -82 -77 2013 Survey -38 Home Survey SUN -38 Banks -50 IAG + WES -38 SUN -50 Allianz -20 Auto Clubs -20 IAG Banks IAG + WES -57 -40 Auto Clubs -14 IAG 35 Source: AlphaWise, Morgan Stanley Research -11 16 16 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Are Motor consumers changing their policy excess? Our new question on policy excess reveals that more consumers deliberately increased their excess in 2014 (10%) than decreased (3%). While most consumers did not try to change their excess – this is still an incremental negative as higher excesses are a headwind for topline premium growth. SUN customers (12%) were increasing their excess more often than IAG (7%) – suggesting greater risks to topline growth. New for 2014 At last renewal - what did you do? Motor Auto Allianz Clubs Survey Banks Challengers IAG QBE SUN Deliberately decreased Excess 3% 3% 2% 6% 6% 3% Did not change Excess 87% 84% 93% 83% 84% 90% 94% 85% Deliberately increased Excess 10% 14% 6% 11% 10% 7% 12% Source: AlphaWise, Morgan Stanley Research 6% 3% 17 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Where are insurers winning their switching customers from? Home Motor Insurer | Source of switching customers Allianz 3% 18% 11% 17% Auto Clubs Banks 6% 9% 4% 9% 11% 21% Challengers 7% 7% 8% IAG 10% IAG + WES 10% SUN 12% Allianz 0% 26% 8% 22% 2% 14% 13% 13% 9% 15% 10% 20% Auto Clubs 30% 11% 38% 19% 9% 34% 30% 40% 50% 60% Banks Challengers Source: AlphaWise, Morgan Stanley Research 16% 70% IAG 2% 7% 26% 33% Auto Clubs 9% 28% 18% Allianz 7% 4% 6% 9% 30% 19% 12% 7% 33% Insurer | Source of switching customers Banks IAG 8% IAG + WES 80% 90% 100% SUN Others 6% 21% Challengers 8% 6% 9% 8% 9% 12% 27% 20% 4% 13% 16% 9% 5% 11% 11% 8% 5% 13% SUN 11% 10% 3% 12% 0% Allianz 32% 23% 37% 24% 21% 17% 18% 12% 25% 36% 37% 12% 24% 20% 40% 60% Auto Clubs Banks Challengers 13% 15% 37% 24% 80% IAG SUN 14% 15% 100% Others 18 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Did customers last renew or switch? Or on first policy? Consumers are not becoming less loyal – 3 years of our Motor survey show that consumers renewing with the same insurer in 2014 (70%) is stable on 2013 (70%) and 2012 (68%).This supports our view of Challengers growing via greater share of natural consumer turnover. Motor IAG 79% Auto Clubs 78% Home 13% 11% 85% 8% 7% 8% IAG 10% Allianz 81% 13% 6% SUN 79% 16% 5% Auto Clubs 79% 16% 4% IAG + WES 74% 18% 8% SUN 74% 18% 8% 2013 Survey 70% 22% 8% 2014 Survey 70% 22% 8% Banks 79% 13% 2012 Survey 68% 9% IAG + WES 79% 13% 7% 12% Home Survey 23% 64% Allianz Challengers 49% Banks 48% 0% 20% Renewed with same provider 24% 45% 43% 6% Challengers 77% 53% 17% 37% 8% 6% 9% 10% 40% 60% 80% 100% Switched providers This is my first motor policy 0% 20% Renewed with same provider 40% 60% 80% 100% Switched providers This is my first H&C policy Source: AlphaWise, Morgan Stanley Research 19 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 How long have consumers been with current insurer? Consumer longevity is stable with 3 years of our Motor survey showing 44% have been with their insurer >5 years, vs 43% in 2013 and 45% in 2012. Auto Clubs 4% Motor 32% IAG 8% 19% 31% IAG + WES 13% 2014 Survey 15% 17% 35% 15% 40% 45% IAG 43% IAG + WES 37% 16% 40% Home Home Survey SUN 12% 2013 Survey 14% 42% 20% 23% 2012 Survey 16% 39% 22% 23% Allianz 22% Banks 23% Challengers 48% 33% 0% 20% 40% Less than 12 months 1-5 years 27% 13% 50% 15% 55% 60% 5-10 years 32% 13% 13% 5% 80% 100% More than 10 years 42% 39% 14% 33% 30% 43% SUN 10% 17% 16% 33% 14% Auto Clubs 7% 28% 20% 9% 30% 17% 27% 19% 25% 46% Banks 12% 51% 14% 23% Allianz 14% 47% 18% 22% Challengers 32% 0% 20% Less than 12 months Between 6-10 years 53% 40% Source: AlphaWise, Morgan Stanley Research 60% 80% Between 1-5 years More than 10 years 11% 4% 100% 20 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 The Shop Around – did those renewing shop around? Shop around customers are more likely to request a discount on the initial renewal quote, lowering premiums and raising admin costs – negative for margins. New for 2014 Motor Home 65% IAG 10% Banks 63% IAG + WES 63% 10% Auto Clubs 63% 6% SUN Allianz Challengers 16% 55% Motor Total 12% 51% 15% 44% 39% 13% 26% 9% 0% 20% 40% Did not shop around on renewal Shopped 2 other insurers 15% 12% 21% 14% 16% IAG 69% IAG + WES 68% 8% 13% 14% 9% 11% 13% Allianz 65% 10% 10% 15% Auto Clubs 64% 5% 16% 13% 11% 14% 15% 16% 18% Home Survey 61% 18% 17% Banks 59% 15% 9% 14% 37% 60% 80% 100% Shopped 1 other insurer Shopped around with 3 or more 56% SUN Challengers 18% 11% 43% 0% 20% Did not shop around Shopped 2 other insurers Source: AlphaWise, Morgan Stanley Research 13% 40% 24% 10% 16% 16% 13% 17% 21% 60% 80% 100% Shopped 1 other insurer Shopped around with 3 or more 21 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 For what $ saving would you switch motor insurers? We are seeing stable consumer price sensitivity with half of surveyed (50%) ready to switch Motor insurers for a saving of $100 – this is unchanged from our 2013 and 2012 surveys. 66% Challengers Motor 23% 55% Allianz 8% 3% 24% 14% 6% 2013 survey 50% 25% 16% 8% 2014 survey 50% 25% 15% 10% 2012 survey 50% SUN 50% 23% 28% Auto Clubs 46% 22% Banks 45% 25% IAG + WES 45% 24% IAG 0% 10% Up to $100 cheaper 41% 16% 25% 12% 17% 11% 10% 15% 28% 19% 21% 3% 11% 13% 20% 30% 40% 50% 60% 70% 80% 90% 100% $100-$200 cheaper Over $200 cheaper Would not switch 62% Challengers Allianz Home 49% 17% 14% 33% 7% 12% 7% Banks 45% 27% 18% 10% Home Survey 45% 27% 16% 11% SUN 43% 27% IAG + WES 42% 28% 17% 12% IAG 41% 29% 17% 13% Auto Clubs 36% 0% 20% Up to $100 cheaper Over $200 cheaper Source: AlphaWise, Morgan Stanley Research 37% 40% 17% 16% 60% 80% $100-$200 cheaper Would not switch 14% 11% 100% 22 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Online becomes the main channel to buy Motor insurance 40% 35% 30% 36% 34% Distribution - Home vs Motor 37% •Contrasting Home to Motor, Telephone sales still lead in Home but have given way to Online in Motor. 27% 25% 20% 11%11% 12% 15% 10% 4% 5% 0% Via Insurer telephone online Insurer branch Home Source: AlphaWise, Morgan Stanley Research Bank branch 4% 3% 3% 3% 2% 2% 1% 1% Price Insurance By mail Via my compare Agent employer website Motor •Bank branch sales are much higher in Home (12%) than in Motor (4%). 23 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Why are consumers buying Home insurance with Banks? 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 30% 25% 20% 15% 10% 5% 0% 44% Why did you purchase Home cover in a Bank with a Home Loan? 13% More Understand convenient the policy better 28% 9% 8% 8% 6% Other More personal Habit Cheaper this way 6% 6% Didn’t This was realise there the only were other option ways available Consumers buying Home insurance in a Bank value the convenience, the personal touch and explanation of the policy. This is a service, not price led sale. Why did you purchase Home cover in a Bank separate to a Home Loan? 26% 22% 8% More convenient More personal Understand the policy better Habit 8% Other 4% Cheaper this way 4% 1% Didn’t This was realise there the only were other option ways available Source: AlphaWise, Morgan Stanley Research 24 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Consumers are open to innovative ways to save Home Survey: would you use a Price Comparison Website? Motor Survey: would you use a Price Comparison Website? 33% 35% 30% 26% 19% 9% Disagree 14% 13% 9% 7% Partially disagree Neutral Partially agree Agree Motor Survey: would you use a Telematics device? Disagree Partially disagree 6% Neutral 11% Agree 34% 23% 24% 11% 8% 23% 9% 2% 1% Disagree Partially disagree Neutral Partially agree Already use Motor Survey: would you use Pay-As-You-Drive? 30% 23% Partially agree Agree Already use Disagree Partially disagree Neutral Partially agree Agree Already use There is unmet demand for price comparison websites with 4% buying Home this way in 2014 but 8% would like to do so next time, and 6% of Motor customers already use. But almost 50% of Home customers and >50% of Motor are comfortable with price comparison sites. Source: AlphaWise, Morgan Stanley Research 25 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Overall – why do consumers choose their insurer? •Challengers standout with customers choosing them on the basis of price •IAG majors on multi-policy discounts, SUN has a strong reputation for paying claims. Home Motor Top 3 reasons Lower Price Trustworthy Brand Habit - I know them Multi-policy discounts Reputation for paying claims Reputation for customer service Hassle to change motor insurers No claims bonus Flexible & comprehensive cover Can buy over the internet Australian owned insurer Can buy direct over the phone Other Can buy face to face Motor ChalleIAG + Auto Allianz Banks SUN IAG Clubs Survey ngers WES 81% 52% 38% 42% 43% 38% 63% 49% 38% 48% 45% 45% 47% 53% 57% 63% 33% 40% 43% 41% 40% 34% 42% 37% 17% 21% 41% 39% 27% 14% 25% 21% 24% 29% 27% 11% 12% 25% 24% 22% 23% 30% 30% 26% 18% 25% 21% 20% 20% 23% 18% 26% 23% 18% 20% 20% 20% 20% 16% 5% 12% 23% 23% 22% 14% 22% 12% 16% 14% 13% 14% 14% 12% 15% 4% 16% 28% 14% 6% 9% 8% 5% 11% 5% 10% 7% 8% 10% 5% 5% 3% - 7% 5% 4% 4% 5% 4% 2% 5% 4% 6% 5% 5% 4% 2% 4% 3% 5% 5% 5% 5% Top 3 reasons Lower Price Trustworthy Brand Multi-policy discount Reputation for customer service Reputation for paying claims Habit - I know them Flexible & comprehensive cover Can buy over the internet Australian owned company Can buy direct over the phone Can buy together with Home Loan Can buy face to face Home Auto ChalleIAG + Allianz Banks SUN IAG Survey Clubs ngers WES 51% 52% 41% 38% 86% 53% 38% 43% 45% 44% 55% 47% 24% 47% 52% 48% 38% 26% 43% 14% 44% 38% 54% 52% 31% 32% 33% 21% 19% 38% 34% 33% 27% 35% 27% 18% 11% 34% 28% 26% 27% 24% 27% 34% 12% 27% 30% 27% 22% 27% 17% 19% 24% 24% 18% 19% 14% 18% 8% 8% 35% 13% 9% 13% 11% 18% 20% 10% 9% 16% 17% 11% 17% 9% 5% 27% 9% 7% 8% 11% 11% 4% 50% 5% 4% 4% 4% 9% 5% 16% 25% 1% 5% 10% 9% Source: AlphaWise, Morgan Stanley Research 14% 26 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Home insurance customers key to cross-selling Home customers are more likely to hold other types of insurance – making this a core product for the customer relationship and cross-sell of other policies. Motor Home 100% Motor insurance Home insurance 78% Private health insurance 62% CTP insurance 46% Life insurance 34% Home & Contents 100% Motor insurance 89% Private health insurance 18% Income protection Travel insurance 17% Travel insurance 8% Source: AlphaWise, Morgan Stanley Research 39% Life insurance Income protection Other types of insurance 66% Other types of insurance 23% 21% 16% 27 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 1.8 1.8 1.8 1.8 1.9 2.1 2.1 2.2 2.2 2.3 2.3 2.6 2.6 2.9 Actual cross-sell: how many policies with your insurer? Motor Coles • IAG is strong on the cross-sell and multi-policy discounts – though we note that it has higher cross-sell potential in NSW CTP via NRMA. 1.4 CBA 1.7 1.8 Allianz 1.9 Banks 2.0 Budget Direct 2.1 QBE Youi 2.1 2.0 AAMI 2.1 Survey Total 2.2 Auto Clubs 2.3 SUN 2.3 IAG + WES 2.3 2.4 IAG 2.5 2.7 NRMA Home • This shows total number of policies with main Home / Motor insurer. Budget Direct Coles Allianz QBE AAMI Auto Clubs SUN Survey Total RACV GIO YOUI CGU IAG + WES IAG Suncorp NRMA • QLD brands also benefit from the higher CTP cross-sell. Source: AlphaWise, Morgan Stanley Research 28 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Global Blue Paper: Technology could reduce industry risk pools From our Global Blue Paper: Evolution & Revolution in a Digital World (co-authored with BCG). 29 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Global Blue Paper: Technology can also reduce combined ratios • Our Global Blue Paper highlights that companies born in the digital age can operate at lower costs. • Meanwhile, better risk selection thanks to new data sources, claims management, loss prevention techniques can drive lower loss ratios. • Technology could reduce combined ratios by as much as 21% in medium term. With price reductions lagging the claims and cost improvement – innovative insurers can sustain margins for longer. 30 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 What impact will Apartments have on Home Insurance? • The challenge for insurers is how to increase penetration of the apartment market – and this is becoming more topical with apartments share of total Australia dwellings rising to ~45%. • This also creates an opportunity in Strata Insurance on property side. Home / Building Source: AlphaWise, Morgan Stanley Research Contents Home & Contents Jul-2014 Jul-2012 Jul-2010 Jul-2008 20% Jul-2006 15% Jul-2004 25% Jul-2002 0% 17% 30% Jul-2000 10% 11% 35% Jul-1998 20% 41% Jul-1996 30% 43% Jul-1994 40% 40% Jul-1992 50% Those living in an apartment are just as likely to buy standalone contents as combined H&C 45% Jul-1990 60% Australia Apartments / Units as % of Total Dwellings 50% 74% Jul-1988 70% Those living in a house more likely to buy both Home and Contents Jul-1986 80% Apartment (10% of survey) Jul-1984 House (90% of survey) vs Note: 12m moving average; Source is ABS, Morgan Stanley Research 31 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Underinsurance – a source of growth in Home? Digging deeper into our Home & Contents survey Home / Building only - purchased via Strata 4% Don’t hold any Home or Contents 34% But 83% of these could have taken out H&C insurance • In checking eligibility for our Home survey, the last question was around “What type of Home cover do you hold?” Have Home or Contents, not sure what type 3% • What we found was that 34% of the almost eligible consumers did not hold any Home cover. But 83% of these could have taken out Home cover. Made active choice to buy Home or Contents (main survey) 59% Rent and could take out home or contents, but choose not to Do not rent and could take out home or contents, but choose not to Total - could take out home or contents Not possible for me to take out home or contents cover % 66% 16% 83% 17% • The potential new market is significant – though not necessarily easy to get right. But it likely becomes more attractive now that insurers are entering a low growth environment. Source: AlphaWise, Morgan Stanley Research 32 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Home non-insureds more likely to be Male, from QLD, Young Total 58% 23% 6% 28% 6% 4% 3% Made active choice to buy H&C insurance (our main survey) Rent and could take out home or contents insurance but choose not to Do not rent and could take out home or contents but choose not to Total non-insurance by choice It is not possible for me to take out home or contents insurance Home / Building insurance only - purchased via Strata Have H&C insurance but not sure what type • Made active choice to buy H&C insurance (our main survey) Rent and could take out home or contents insurance but choose not to Do not rent and could take out home or contents but choose not to Total non-insurance by choice It is not possible for me to take out home or contents insurance Home / Building insurance only - purchased via Strata Have H&C insurance but not sure what type AUS NSW VIC 58% 56% 58% 23% 22% 21% 6% 7% 6% 28% 29% 28% 6% 7% 6% 4% 7% 4% 3% 2% 4% Made active choice to buy H&C insurance (our main survey) Rent and could take out home or contents insurance but choose not to Do not rent and could take out home or contents but choose not to Total non-insurance by choice It is not possible for me to take out home or contents insurance Home / Building insurance only - purchased via Strata Have H&C insurance but not sure what type Total 58% 23% 6% 28% 6% 4% 3% Male 59% 24% 5% 30% 6% 4% 1% QLD WA 56% 65% 28% 20% 4% 3% 32% 23% 5% 7% 3% 4% 3% 1% 18-24 28% 33% 12% 46% 12% 9% 6% 25-29 40% 37% 8% 45% 8% 5% 3% Female 57% 21% 6% 27% 5% 5% 5% SA 59% 23% 4% 27% 6% 2% 6% 30-39 54% 27% 6% 32% 5% 6% 2% TAS 71% 14% 5% 19% 4% 0% 6% 40-49 63% 20% 5% 25% 6% 3% 4% ACT 70% 14% 0% 14% 7% 3% 6% 50-64 73% 13% 3% 16% 5% 3% 3% Source: AlphaWise, Morgan Stanley Research 33 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Most of the Home non-insureds have other insurance Rent and It is not Made active Do not rent and Have H&C possible for Home / Building could take out choice to buy insurance could take out me to take out insurance only home or H&C insurance home or but not home or contents purchased via (our main contents but sure what contents insurance but Strata survey) type choose not to insurance choose not to Motor insurance 89% 54% 63% 50% 81% 75% Private health insurance 66% 35% 42% 25% 57% 52% Life insurance 39% 21% 21% 11% 34% 20% Income protection 23% 11% 9% 4% 26% 16% Travel insurance 21% 11% 10% 4% 31% 10% Other insurance 16% 9% 6% 7% 17% 3% No insurance 0% 23% 24% 35% 0% 0% • Total <$40k Made active choice to buy H&C insurance (our main survey) Rent and could take out home or contents insurance but choose not to Do not rent and could take out home or contents but choose not to Total non-insurance by choice It is not possible for me to take out home or contents insurance Home / Building insurance only - purchased via Strata Have H&C insurance but not sure what type 58% 23% 6% 28% 6% 4% 3% 40% 35% 6% 41% 11% 4% 4% $4060k 57% 26% 5% 31% 5% 4% 2% $6080k 59% 24% 5% 29% 6% 3% 3% $80- $100- $120>$140k 100k 120k 140k 65% 68% 67% 74% 18% 16% 11% 10% 5% 6% 8% 6% 22% 21% 19% 16% 3% 3% 3% 2% 6% 3% 9% 5% 4% 5% 2% 3% Source: AlphaWise, Morgan Stanley Research 34 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 AlphaWise Methodology – Home & Contents Insurance Survey Morgan Stanley’s AlphaWise team surveyed a nationally representative adult population (based on regional spread, income, age, gender) via online survey methodology in May, 2014. We surveyed 1210 home & contents insurance customers in the main survey and 181 in the booster survey (1391 combined) to gain more precise data on switching and new customers. We use the main survey for most measures, and the boosted survey for customer switching data. Margin of error for conclusions based on total random sample is +/-2.82% at 95% confidence level. Findings based on sub-groups will have higher margin of error. All data is in AUD. Gender TAS, 4% SA, 9% State Age ACT, 2% NSW, 29% WA, 9% Female, 51% Household Income 18-29, 4% >$100k, 33% 50-64, 13% < $65k, 37% 30-39, 9% Male, 49% QLD, 20% VIC, 27% Source: AlphaWise, Morgan Stanley Research 40-49, 10% $65-100k, 30% 35 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 AlphaWise Methodology – Motor Insurance Survey Morgan Stanley’s AlphaWise team surveyed a nationally representative adult population (based on regional spread, income, age, gender) via online survey methodology in July/August 2014. This year we surveyed 2060 motor insurance customers, building on our 2013 (2006 motorists) and 2012 (1266 motorists) surveys. Margin of error for conclusions based on total sample of our 2014 survey sample is +/-2.16% (+/-2.19% 2013) at 95% confidence level. Findings based on sub-groups will have higher margin of error. Age Annual Household Income 18-29 17% Over $120k, 20% Gender Below $50k, 26% State SA 9% 50-64 38% WA 8% 30-39 21% 40-49 24% Source: AlphaWise, Morgan Stanley Research $80k to $120k, 29% $50k to $80k, 24% Other 6% Female 52% Male 48% QLD 19% NSW 30% VIC 28% 36 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 AlphaWise conducts proprietary evidence-based investment research. Click to read AlphaWise Market Research and Web Research whitepapers on evidence gathering. For further information, please contact alphawise@morganstanley.com. Other Recent Morgan Stanley Research Based on AlphaWise Evidence NA Managed Care 10/07/2014 Andrew Schenker 3Q Survey: Is Competition Starting to Increase? Our September AlphaWise survey of 154 brokers points to continued deceleration in individual rate increases and slight acceleration in small group rate increases vs. our July survey. Brokers reported an individual Y/Y increase of 341bps and a small group Y/Y increase of 549bps this quarter. NA Industrials 10/07/2014 Nigel Coe 3Q14 Preview: Beauty in the Eye of the Beholder Our September AlphaWise distributor survey implies a stronger than expected quarter in the US Auto market, with positive sequential momentum from our 2Q14 survey NA Healthcare Services 10/07/2014 Ricky Goldwasser HCIT Spending Environment to Remain Strong According to Our Survey Our AlphaWise survey of 153 hospital executives points to overall continued favorable HCIT spending trends over the next 12 months. Large hospitals are still more likely to spend more, followed by small hospitals. NA Medical Devices 10/10/2014 David Lewis A Small Step for Volumes Our AlphaWise survey lends credence to a modest utilization improvement. Drivers (economy or ACA), sustainability and derivative impact on capex is less clear, but the multi-quarter trend bears watching. EMEA Medical Devices 10/07/2014 Michael Jungling Q3 14 US Hospital Survey Our AlphaWise survey of 152 non-public hospital executives provides interesting insights into utilization and capital equipment trends. EU Leisure & Hotels 10/03/2014 Jamie Rollo Cruise Lines "Cruise Chat" Treading Water Until 2015? Quantitative web-scraping of cruise prices show another slight improvement in pricing, with low to mid single digit yield growth for most cruise lines for the next 9 months at this stage. EU Consumer & Retail 09/252014 Nicolas Ashworth Survey shows Russia food consumer's resilience Our AlphaWise survey of the Russia food landscape shows a pragmatic consumer that has seen food prices rise of late and expects continued rises. But it also sees household finances improving and substitution for unavailable SKUs, all helping the continuing shift to modern retail P lease note that all im portant disclosures including personal holdings disclosures and M organ Stanley disclosures appear on the M organ Stanley public w ebsite at w w w .m organstanley.com / researchdisclosures. 37 MORGAN STANLEY RESEARCH General Insurance Seminar – Insuring Tomorrow November 17-18, 2014 Morgan Stanley ModelWare is a proprietary analytic framework that helps clients uncover value, adjusting for distortions and ambiguities created by local accounting regulations. For example, ModelWare EPS adjusts for one-time events, capitalizes operating leases (where their use is significant), and converts inventory from LIFO costing to a FIFO basis. ModelWare also emphasizes the separation of operating performance of a company from its financing for a more complete view of how a company generates earnings. 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