As insurance buyers increasingly shop online, aggregators have found that they can make money by crafting sites that facilitate policy comparison shopping—and then refer leads to their carrier partners.

But, in the long run, lead referral is probably not the most profitable or sustainable business model for aggregators.  After all, rudimentary comparison shopping tends to be a race to the bottom in terms of price.  And lead referral fees are much smaller than margins on closed deals.

That’s why aggregators will likely have to move up the value chain and become true online agents by offering customers the ability to not only compare carriers’ products, but also purchase them.

A recent study of aggregators in Latin America by Boston, MA-based insurance consultancy Celent revealed that most focus on relatively simple products such as travel insurance.  This is at least in part because aggregators are not typically tied into carrier’s rating systems—so they are unable to price out more complex products.

This lack of integration also underlies the inability of aggregators to complete the policy sale.

It’s also worth noting that as long as aggregators only provide information and don’t actually sell coverage, they don’t have to be licensed.  Once they do start selling product, they then have to comply with the regulatory mandates to which all agents are subject.  This places new operational burdens on them and changes their cost structure significantly.

That said, there is likely a big upside for aggregators that move up the value chain by integrating with carrier underwriting systems, clearing the regulatory hurdles for transactional authorization and investing in delivery of a richer customer experience.

“We would encourage aggregators to do more in the way of giving customers intelligent advice, so that their value proposition goes beyond merely making it easier to price-shop,” says Celent senior analyst and report co-author Juan Mazzini.  “In fact, given the changes taking place in the way people use the web to research their prospective purchases, we believe there is a significant market opportunity for aggregators that figure out how to help customers make better personal choices about coverage across more lines—and do so on other criteria other than just price.”

Given the probable ascent of aggregators in the marketplace, carriers have to decide how to best leverage that ascent as part of their own digital strategies.  Some, like Progressive are adopting some aggregating behaviors themselves—ceding the loss of some business to competitors for a bigger share of consumer clicks.  Other are shunning aggregators altogether out of concerns that price-based competition is unhealthy for margins and for feature-based brand differentiation.

Mazzini, however, suggests that carriers may want to adopt a more selective approach.  “It may often be the case that certain products are especially appropriate for the aggregator channel—and even for certain specific aggregators—while others are not,” Mazzini says.  “That’s, whatever they eventually wind up dong, carriers should make sure they have a fact-based understanding of the aggregator channel and its changing role in the only insurance ecosystem.”

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