YOU ARE probably feeling a bit gloomy as you peruse Times Money today. The summer is over, interest rates are on the rise and house prices are no longer racing ever upwards. But this final week of the summer has also brought a reason to be very cheerful: Norwich Union is putting up its car insurance premiums by 16 per cent.
Admittedly, this may not seem like a reason to be chipper. One in seven of us is insured by Norwich Union (NU). But look closely at the motives of Britain’s biggest insurer and the the picture brightens.
Once upon a time, Britain’s big insurers had a stranglehold on us. Insurers would offer cracking deals to new customers, working on the assumption that, once hooked, we would sign up for inflated renewal quotes rather than switch company. Like sheep, we agreed to this one-sided contract, effectively bleating “fleece me, fleece me” at the insurer.
But times they are a’changing. Small, nimble insurers were born, ones that eschewed the marble-clad offices favoured by the big boys. Why load your premiums with the cost of luxuries such as offices and staff
if you can conduct your business over the internet? We were resistant at first, wedded to our phones and face-to-face contact. But alongside these small insurers came the price comparison websites. Shopping around no longer involved laborious phone calls. There are pitfalls in using these websites, as we explain on pages 6-7, but in essence they transferred the power from insurer to insured.
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Norwich Union is feeling the pressure. It can no longer rely on apathetic renewals to boost its coffers. Drivers are now far more likely to accept the good first-year deal, then shop around for a better deal.
The insurer said this week that car insurance is not profitable and its competitors will follow its lead. It is far more likely that the market will split into two camps: online and offline. Those who want a good deal will be able to find it by shopping around using the power of the internet. Bad news for the luddites and the apathetic, perhaps. But for the rest of us, NU’s admission of defeat can only be greeted with joy.
Growing pains are fading fast for the dot-com generation
NORWICH UNION is not alone in its dilemma as traditional companies struggle to accommodate the internet into their business plans. When the internet was born, its gurus prophesied a revolution in the way we shop, communicate, even fall in love. We bought into the story, piling into any stock with a dot-com tag. When the market tumbled it became briefly fashionable to sneer at the net.
But we are in the middle of a revolution, albeit quieter and slower than that predicted by the original technology bulls. In the past week alone I have banked online, researched
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a holiday and booked a hotel. I have bought books, theatre tickets and even ordered a box of organic vegetables so I can pretend to be close to the soil. Tally up your own internet transactions and ask yourself how this compares with the turn of the millennium, when going online still felt unnatural to most of us. It is a profound development, yet one so recent that the spellcheckers on many computers still balk at the word internet.
Nevertheless, the tag “technology stocks” still invokes fear in retail investors who were burnt last time. This is a more mature sector now, with purely dot-com stocks only a small part of the whole. There are reasons to be cautious about technology stocks, as we report on pages 10-11, but the fear of getting caught up in the hype surrounding an internet company started by a 12-year-old in a bedroom is not one of them. This grown-up sector deserves a more grown-up response.
But as shareholders, as well as consumers, it is important to keep an eye on how traditional blue chip companies respond to the questions posed by the internet. It may be good news for you as a driver that the big insurers are suffering from the web’s empowerment of insurance shoppers. But this internet revolution will not stop at car insurance. Our willingness to shop around easily and effectively looks set to snowball. If the big financial services institutions do not keep up and find new sources of profitable business in this new world, then pity your pension fund.
Big spenders give clued-up borrowers a sporting chance
IF YOU’RE reading these words, the chances are that you are not paying your mortgage lender’s standard variable rate (SVR), unless you got lost on your way to the sports section. Only the financially unaware, those poor souls who do not read Times Money, for example, will shell out for an SVR.
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But the mortgage lenders who rely on their SVRs are suffering. Over the past year alone the number of borrowers who pay the SVR has halved from 7.2 million to 3.8 million. The lenders’ response has been to try to squeeze more out of the remaining few, see page 2.
The sly manipulation of rates by our banks and building societies provokes mixed feelings. The good deals on the market are subsidised by those 3.8 million borrowers. So while you may want to proselytise the advantages of cheap fixed rates and discount mortgages, the temptation is to keep quiet and keep paying under the odds for your loan. If you’re one of the 3.8 million, here because you got lost on the way to Times Sport, it was a lucky page turn. Remortgage now by all means. Join the club of those in the know. But keep it quiet.