Add-On Insurance Strategies in UK Personal Insurance 2007
Datamonitor
August 16, 2007 58 Pages - SKU: DFMN1548680
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Countries covered: United Kingdom
Introduction
This brief provides an overview of insurance providers' strategies for selling add-on policies, with a focus on motor breakdown, home emergency and legal expenses cover. The brief includes market size and profitability information as well as analysis of the competitive landscape. Future opportunities and challenges for the add-on market are also discussed.
Scope- Consumer data on the motor breakdown market
- Analysis of the challenges facing providers in selling add-ons in future
- Advertising statistics for home emergency insurance by competitor
Highlights
Insurers follow two strategies in regards to add-on insurance products. First, add-on policies can be provided free of charge with motor or household insurance policies. Second, add-on policies can be provided as optional extras. The first strategy treats add-ons as value adders, while the second strategy treats add-ons as revenue generators.
Insurance providers are an important distribution channel for breakdown cover, with over half of consumers who arranged their own breakdown cover doing so via an insurance provider. Insurance providers have a natural point of sale for this extra cover, accounting for the fact that so much breakdown cover is distributed via this channel.
Household insurance providers are thought to distribute a significant number of home emergency insurance policies. Interviews with industry executives for this brief suggest that insurers experience up-sell rates of between 10 and 30 per cent when selling home emergency insurance policies alongside buildings policies.
Reasons to Purchase- Help in planning your market entry into the breakdown, home emergency or legal expenses markets
- Understand the competitive landscape of the add-on insurance market
- Incorporate into your distribution strategy
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- DATAMONITOR VIEW
- CATALYST
- SUMMARY
- Add-on insurance strategies
- Insurance providers follow two main strategies for add-on insurance products
- The main add-on insurance products are motor breakdown, home emergency and legal expenses
- Add-ons are either used as revenue generators or value adders
- As value adders add-ons help differentiate an insurers' offering and can be used in advertising
- Drawing attention to add-ons provided as standard allows companies to avoid focusing on price
- When sold as optional extras, add-ons generate revenue and improve expense ratios
- Add-ons also play the role of keeping customers happy by providing them with extra services
- Add-ons are profitable, but up-sell rates depend on the product and the sales platform
- Motor breakdown insurance, home emergency insurance and legal expenses insurance are thought to all be profitable lines
- The three main add-ons have different average up-sell rates
- Up-sell rates also depend on the sales platform
- Motor breakdown cover
- Roadside assistance cover is common among consumers
- Roadside assistance cover offers help to stranded motorists whose car has broken down
- Three quarters of car insurance policyholders have some form of roadside assistance cover
- An estimated 18.1 million cars had breakdown cover in 2006
- The price of breakdown cover varies greatly relative to cover levels and providers
- Insurance providers are not seeing strong growth in sales of motor breakdown cover
- Cover levels increase with the age and income of consumers
- Older consumers are more likely to have roadside assistance than younger consumers
- Consumers with high household incomes are most likely to have cover
- Insurance providers are an important distribution channel for breakdown cover
- Over half of breakdown cover is sold by insurance providers, which sell it as an add-on to motor policies
- Many motor insurers offer breakdown cover from their own subsidiaries
- The AA is the largest breakdown provider followed by RAC and Green Flag
- Insurance providers mainly sell cover as optional extras to their motor policies
- Most of the top 10 motor insurers sell breakdown cover as an optional extra
- Banks, brokers and affinities will also often offer breakdown cover with motor policies
- Home emergency insurance
- Home emergency cover is sold by insurance providers with home insurance
- The cover sold by insurers pays for call out charges and repairs in case of emergency
- Similar products are sold by utility companies, but these are generally sold on a utility specific basis
- The home emergency and home services markets are substantial and thought to be profitable
- Home emergency claims frequency and profitability is linked to weather-related claims
- Home emergency insurance is believed to be profitable for providers
- Offering home emergency may improve the claims costs on home insurance policies
- Claims frequency is linked to weather-related claims, which vary between years
- Storm damage accounted for the largest part of the weather claims bill for household in 2006
- Insurance providers are the main providers of home emergency cover
- Most of the top home insurers sell home emergency policies
- Brokers and some affinity partners also sell the cover
- Insurance providers face competition from utilities which sell alternative policies focused on service
- The service policies offered by utilities provide competition to home emergency policies sold by insurers
- British Gas Services is a key player in the home emergency insurance market with 7.2 million service policies in force in 2006
- British Gas Services offer a range of home service policies
- In 2006, British Gas had 7.2 million service contracts in force
- Homeserve is a key player in the home service and home emergency insurance marketplace
- Homeserve is comprised of two divisions: Policy Membership and Emergency Services
- Homeserve offers a range of products
- Homeserve's utility branded policies reached 5.8 million in March 2007
- Homeserve and British Gas's offering are supported by large advertising spends
- Home emergency providers mainly advertise via direct mail
- Legal expenses
- Introduction
- Legal expenses insurance is sold as an add-on to motor and household insurance
- Motor legal expenses insurance is sold as an add-on to motor policies
- Family legal expenses insurance is also sold as an add-on to household products
- The total UK legal expenses insurance market was estimated to be worth £344 million in 2005 and is thought to be a profitable line overall
- The legal expenses market was worth £344 million in GWP in 2005
- Legal expenses is profitable but the market is not believed to be growing
- The product is profitable as insurers can set their price according to their claims experience
- Due to high up-sell rates the market is not believed to be growing
- Most insurers sell legal expenses insurance as an optional extra
- Most of the top 10 motor insurers sell motor legal expenses as an optional extra
- Some brokers, affinities and banks also sell motor legal expenses insurance with motor policies
- Most of the top 10 household insurers sell family legal protection as an optional extra
- Many brokers, banks and affinities will also offer family legal protection with household insurance policies
- Specialist providers DAS and Brit are among the top legal expenses underwriters
- The Future Decoded
- Modest growth in the add-on insurance sector can be expected as a result of the growth in the number of cars on the road and households and improved up-sell rates
- The number of households in the UK is expected to grow
- The number of cars in Britain is expected to grow, albeit at a slow rate
- Growth in up-sell rates could be achieved in some lines
- The predicted rise of Internet sales and aggregators is likely to have a negative impact on the add-on insurance market
- The predicted rise in Internet sales will prove a challenge to add-on sales
- The rise of aggregators and increased price sensitivity will have a negative effect on the penetration of add-on insurance policies
- More insurers may incorporate add-ons as standard, however, it is likely that the majority will continue to sell add-ons as an optional extra
- More insurers may incorporate add-ons to appeal to customers who want extensive cover but in a simple policy
- The majority of insurers are expected to continue to sell add-ons as optional extras to appeal to the price-conscious
- APPENDIX
- Definitions
- Banks/Building societies
- Brokers
- Brandassurers
- Direct writers
- Gross premiums
- Written premiums
- Definitions of terms specific to this report
- Home emergency insurance
- Single utility emergency insurance
- Home service
- Methodology
- Ipsos MORI methodology and contacts
- Sample design
- Further reading
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Tables
- Table 1: Penetration of roadside assistance, H2 2006
- Table 2: Insurers are estimated to have sold breakdown cover to around 10 million cars in 2006
- Table 3: Penetration of roadside assistance by age, 2006
- Table 4: Penetration of roadside assistance, by household income, 2006
- Table 5: Distribution of roadside assistance cover by channel, H2 2006
- Table 6: Partnerships between breakdown companies and top 10 private motor insurers
- Table 7: Ranking of the top roadside assistance companies, H2 2006
- Table 8: The top 10 private motor insurers' offering of motor breakdown insurance
- Table 9: Examples of brokers, bank and affinities that offer breakdown cover motor insurance policies, H1 2007
- Table 10: Domestic property insurance claims by peril, 2002-6
- Table 11: Gross claims incurred for domestic property weather claims, 2002-6
- Table 12: Home emergency insurance offering of the top 10 household insurers
- Table 13: Examples of brokers, banks and affinities that offer home emergency insurance with home insurance policies, 2007
- Table 14: British Gas Services turnover and operating profit, 2005-6
- Table 15: British Gas Services contracts in force, 2005-6
- Table 16: Homeserve's revenue and operating profit, 2006-7
- Table 17: Homeserve's UK utility policies-in-force, 2006-7
- Table 18: Home emergency advertising spend by competitor, 2006
- Table 19: Home emergency advertising send, by medium, 2006
- Table 20: Legal expenses insurance offering of the top 10 private motor insurers
- Table 21: Examples of brokers, banks and affinities that offer motor legal expenses insurance with motor insurance policies, 2007
- Table 22: Legal expenses insurance offering of the top 10 private motor insurers
- Table 23: Examples of brokers, banks and affinities that offer family legal expenses insurance with household insurance policies, 2007
- Table 24: Legal expenses premium income by competitor, 2001-5
- Table 25: Registered cars by body type in the UK, 2002-6
- Table 26: Homeserve's utility partners, 2007
- Table 27: The size of UK households by the number of people, 1971-2005
- Table 28: Trends in household tenure for England, 1995-2005
- List of Figures
- Figure 1: More Th>n offers free breakdown cover as standard on its motor policies
- Figure 2: More Th>n draws attention to the fact that home emergency insurance is included as standard when outlining its home insurance offering to potential Internet customers
- Figure 3: Three quarters of consumers are covered by roadside assistance
- Figure 4: Insurers are estimated to have sold breakdown cover to around 10 million cars in 2006
- Figure 5: The proportion of consumers with roadside assistance cover increases with age
- Figure 6: The proportion of consumers with roadside assistance cover is highest among higher income groups
- Figure 7: Over half of consumers with roadside assistance cover arranged cover through an insurance provider
- Figure 8: Most of the top 10 private motor insurers sell breakdown cover as an optional extra
- Figure 9: Home emergency policies cover a variety of emergencies that can befall house owners
- Figure 10: The total cost of domestic property claims fell slightly in 2006, as a result of a reduction in weather-related claims
- Figure 11: The cost of weather insurance claims fell in 2006 for domestic property
- Figure 12: The top 10 household insurers offer home emergency in different ways
- Figure 13: Revenue from central heating services products accounted for the majority of British Gas Service's total revenue in 2006
- Figure 14: The most popular British Gas policy is the Central heating service contract
- Figure 15: Homeserve offers a range of insurance policies which are sold direct and by utility companies
- Figure 16: Homeserve had 5.8 million utility branded policies in force in the UK in March 2007
- Figure 17: Homeserve was the largest advertiser of home emergency insurance in 2006
- Figure 18: Direct mail is the most popular medium for advertising home emergency insurance
- Figure 19: Most of the top 10 private motor insurers sell legal expenses insurance as an optional extra on motor policies
- Figure 20: Most of the top 10 household insurers sell legal expenses insurance as an optional extra on home insurance policies
- Figure 21: Das, Direct Line and Brit were the largest legal expenses underwriters in 2005
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