The platformisation of the UK motor insurance market: an empirical study

Abstract

The body of literature on platform businesses is growing exponentially: In this research I provide a structure to the growing body of literature on transactional multi sided platforms framed around the Business Model Canvas first articulated by Osterwalder and Pigneur (Osterwalder & Pigneur, 2010) in 2010. I isolate theorems developed by Andre Hagiu which provide design “rules” for platform business leaders in respect of business model and pricing decisions.

The UK motor insurance market provides a valuable environment to test platform theory. I show that the UK motor insurance market is a finite, closed profit pool with no product substitutes. Furthermore, I show that the UK motor insurance market demonstrates characteristics consistent with market definitions of perfect competition. The UK motor insurance market went through a period of rapid platformisation in the period 2005-2015 with the emergence of price comparison websites which have grown to become a dominant distribution channel. Detailed panel data on the profitability of individual insurers who provide UK motor insurance is available through analysis of regulatory returns. Insurers can be segmented into those who sell through price comparison websites and those who prefer to sell direct to consumers. I have analysed this data to show that users of price comparison websites deliver a consistent improvement in profitability when compared to those who only sell direct to consumers.

This differential profitability can be partially explained through applying Hagiu’s theories of when platform or reseller business models are most appropriate to the UK motor insurance market. Additionally, Hagiu’s theories on pricing in a platformised industry can be tested. I conclude by identifying further avenues which could support these initial findings which I hope will prove valuable to academics and practitioners in platformised industries.