UK Motor Insurance 2005

Published by: Datamonitor

Published: Jan. 25, 2006 - 214 Pages

Table of Contents

CHAPTER 1 EXECUTIVE SUMMARY

Introduction

Market context

Motor insurance GWP fell in 2004 due to soft market conditions

The motor market's underwriting losses increased in 2004 largely due to the poor performance of the private sector

Premium rates fell and claims inflation continued to be a problem

Customer focus

The direct channel is the most important distribution channel of private motor insurance

Brokers are, however, still the most important distribution channel for commercial motor insurance

Customers are generally loyal to their insurer, however customers who arranged their insurance online are more likely to switch insurer

Competitive dynamics

2005 saw several new high-profile entrants to the market

Different appetites for market growth were evident in 2004 among the top motor insurers

While the combined ratio of the 20 largest motor insurers improved in 2004, soft market conditions were in evidence

The future decoded

GWP is predicted to grow to £18.2 billion by 2010

The market is not expected to record an underwriting profit until 2010

CHAPTER 2 INTRODUCTION

What is this report about?

Who is the target reader?

CHAPTER 3 MARKET CONTEXT

Introduction

The UK motor parc grew in 2004

Vehicle registration grew in 2004

The private vehicle motor parc is naturally dominated by cars

Cars make up most of the vehicles on the roads but motorcycles are on the increase

The UK commercial vehicle motor parc is growing

Company cars and light goods vehicles form the largest group of registered commercial vehicles

Company cars are also increasing

New registrations of commercial vehicles increased in 2004

New registrations of company cars is also rising

Increasing competition and falling premium rates caused GWP to decline in both the commercial and the private motor markets

Lloyd's is a fading force in the motor market

The fall in GWP was driven by falls in both commercial and private lines of business

Private motor insurance accounts for the biggest percentage of total motor GWP

Private motor GWP decreased in 2004, with non-comprehensive and motorcycle GWP experiencing the largest reductions

Non-comprehensive policies are becoming increasingly unpopular

The commercial market has started to turn with both fleet and commercial vehicle sectors shrinking in GWP terms

The motor market's underwriting losses increased in 2004 due to the poor performance of the private sector

Total outgoings increased

Claims costs rose by more than the compound average claims growth for the last four years

Commission and expenses also rose in 2004

Both the commercial and the private sector returned a worse underwriting result in 2004 than in 2003

The underwriting loss of the private motor market increased to £187 million in 2004

Private motor's outgoings were driven by increases in commission and expenses

The commercial motor market returned an underwriting profit in 2004, but the market has started to turn

The rise in commercial motor outgoings was driven by rising claims costs

Premium rates fell in 2004, for both the private and the commercial sector

Average premiums for private motor fell in 2004, more so in the comprehensive than in the non-comprehensive sector

Commercial premium rates fell in 2004

The total number of claims fell in 2004

The costs of personal injury claims drives claims inflation

The average private comprehensive claim rose by 3.8 per cent in 2004

The number of non-comprehensive claims increased in 2004 but the total cost of these claims fell

The motorcycle sector saw both falling claims numbers and costs

Commercial vehicle average claims costs rose by 1.8 per cent

The number of fleet claims fell in 2004 but the cost increased

Several factors affect the cost of motor claims, including the costs of repairs, and the levels of vehicle related theft and road traffic accidents

Garage charges and replacement part costs both rose in 2004 in line with the general trend of the last decade

Vehicle costs are not a major claims cost determinant

The number of thefts of and from vehicles is falling

Personal injury claims form the main area of concern within claims inflation, however, the number of road traffic accidents are falling

The number of road accidents fell further in 2004

There are less road traffic accidents even though there are more vehicles on the roads

2004 saw a reduction in the number of fatalities from road traffic accidents

And there were less casualties as well

General trends in driver behavior continued in 2004

More offenses are being detected

The most common action against a motoring offense is a penalty charge notice

Men commit the majority of motoring offenses

Motorists under 21 are over-represented in offense statistics

Concern about the soft cycle, uninsured driving, and FSA regulation continue to affect the UK motor market

The soft cycle may not be as bad as previous soft cycles

The market entered a soft cycle in 2004

The steep competition continued in 2005

2007 may again see a turn in the market

Uninsured driving is still a problem in the UK but the MID may improve the situation

Complying with FSA regulations has cost insurers time and money but they are mainly happy with the actual requirements

CHAPTER 4 CUSTOMER FOCUS

Introduction

2004 saw general trends in distribution continue

In the private market the direct channel is growing while brokers are losing influence

The direct channel has grown to become the most important distribution channel

Brokers and other intermediaries are decreasing

Corporate partnerships have achieved successful growth whereas the amount of private motor insurance distributed via banks remains almost unchanged

Company staff and other company agents distribute less motor insurance in 2005 than in 2000

Most motor insurance is arranged by phone but online arrangements are on the rise

More than 70 per cent of private motor insurance is arranged by telephone

The Internet is increasingly important

For commercial insurance brokers and intermediaries are the main distribution channels

National brokers are the largest intermediary type

Distribution by chain brokers and telebrokers has decreased

Tied agents and company agents play a minor role

Other intermediaries have benefitted from ABI re-classifications

Commercial motor may be a growing area of focus for banks and building societies

Utilities, retailers and affinities see growth potential in commercial motor

Direct channel is posed for growth

iMarket offers both the benefit of quick quotes and the threat of commoditization of commercial insurance

Motor insurance customers are loyal but price sensitive

Customers are generally loyal to their insurer, however customers who arranged their insurance online are more likely to switch insurer

Customers have become more loyal to their motor insurer

Older consumers are more loyal to their provider

Online consumers are most likely to have changed their insurer at their last renewal

People who arranged their motor insurance via an agent's visit or via post were less likely to have changed insurer

Customers who buy online are more price conscious than customers who buy through other platforms

Younger people are more focused on price than older people

Consumers use a variety of sources for finding information about their motor policy

Previous experience is an important source of information so securing a good service for existing customers is key to their retention

Mailshots and brochures are mainly used by older people

Brokers' advice is relatively unimportant in the motor market

TV advertisements are effective across all age bands

Younger consumers rely on recommendations from friends and family

Telephone directories are also a common information source for younger consumers

Unsurprisingly, the young are more disposed to Internet research

The effectiveness of other sources of information varies

Spending on advertising has grown rapidly as competition heats up

Insurers spend most on advertising

Large insurers drive advertising spend

The top 10 advertisers favor the TV

But direct mail is also popular with some insurers

Direct mail is an important tool for mid-sized spenders

The amounts spent on television advertising are growing

Direct mail is an important advertisement medium for some insurers

Other media are less popular

Advertising spending clearly helps to build brand awareness

CHAPTER 5 COMPETITIVE DYNAMICS

Introduction

Several factors played a role in forming the competitive context of the motor insurance market in 2004 and 2005

Acquisitions have not been a major priority for insurers in 2005

2005 saw several new entrants to the private motor market

Women-only insurers have been boosted by the current status quo on gender-specific information

Barclays rebranded its general insurance offering in 2005 with ambitious targets for growth

The commercial market has also seen some new entrants

2004 was competitive and saw cuts in premium rates

2005 also looks very competitive but has seen small increases in premium rates

Differing appetites for market share growth are evident

The top 10 motor insurers have won market share from smaller competitors, demonstrating further market consolidation

The top 10 has only seen one change in ranking position

Five of the top 10 players have won market share

Two players saw no change in market share

Three players lost market shares in 2004

Medium sized insurers displayed a very mixed performance

Some players won large market shares

Some players lost large market shares

Commercial lines are becoming increasingly important to the top 10

The top 10 now includes three players who write exclusively private motor lines but for the rest, commercial lines are becoming more important

The private motor market is increasingly consolidated

There have been several changes to the top 10 private motor insurers in 2004

Private motor insurance is dominated by comprehensive motor insurance

The commercial market is very consolidated

There have been several changes to the top 10 commercial motor insurers in 2004

Fleet insurance is important for most top 10 commercial insurers

While the combined ratio of the 20 largest motor insurers improved in 2004, soft market conditions were in evidence

The loss ratio of the top 20 motor insurers fell marginally in 2004, although only 3 of the top 10 players assisted in this trend

Mid-sized motor insurers displayed more underwriting discipline in 2004 than those in the top 10

Portfolio rationalization has proved successful for several competitors

Conversely, some players have seen loss ratios worsen, while motor books have shrunk

GEP growth came at the cost of higher loss ratios for seven of the top 20 players in 2004

Only four players benefited from a concurrent GEP rise and loss ratio improvement in 2004

Expense ratios are rising slightly in the motor sector, as premium rate increases fail to keep pace with operating expenses

Three competitors benefited from an improved expense ratio, as they scaled back their motor books in 2004

However, a similar number saw expense ratios rise while their premium income fell

Churchill and Highway suffered, with an increase in expense ratio despite premium income growth

UKI and Esure see rising costs offset by robust rises in premium income

A slight improvement in the combined ratio of the top 20 motor insurers masks a mixed performance and irrefutable signs of market softening

Profitability analysis presents a mixed picture for the top 20 motor insurers overall

Several players are better placed to tackle softer market conditions than others

CIS, Esure and AXA must move towards more profitable underwriting

CHAPTER 6 THE FUTURE DECODED

Introduction

The neutral forecast scenario is based on limited premium rate increases in 2006 and 2007

In the neutral scenario GWP is expected to grow to £18.2 billion by 2010

In the optimistic scenario premium rate increases are expected to be higher

In the optimistic scenario GWP is predicted to grow to £19 billion in 2010

In the neutral scenario the compound annual growth rate is 0.8 percentage points smaller between 2005 and 2010 than in the optimistic scenario

The underwriting results for the total, private and commercial markets follow the same general pattern

The total market will be unprofitable until 2010

The cycle is expected to be less volatile

Private motor is expected to return an underwriting loss of £326 million in 2007

Commercial motor is predicted to reach the trough of the soft cycle in 2007

CHAPTER 7 APPENDIX

Supplementary data

Definitions

Definitions of general terms

Research methodology

Distribution estimates methodology

Ipsos MORI methodology and contacts

Sample design

Timescale

Explanatory notes to competitor tables

SynThesys Non-Life database

Future readings

Relevant links

Datamonitor's custom research capabilities

SPP writing team

List of Tables

Table 1: Number of vehicles registered in the UK, 1994-2004

Table 2: Number of new vehicle registrations in the UK, 1994-2004

Table 3: Numbers of vehicles registered in the UK by body type, 2003-4

Table 4: Vehicles registered by taxation class, 2000-4

Table 5: New registrations by taxation class, 2000-4

Table 6: Commercial vehicles by body type, 2003-4

Table 7: Registered commercial vehicles, by body type, 2000-4

Table 8: Number of company cars compared to all cars, 2000-4

Table 9: Registered vehicles by taxation class, 2003-4

Table 10: New registrations of commercial vehicles by taxation class, 2000-4

Table 11: New registrations of company cars, 2000-4

Table 12: Total motor GWP, 2000-4

Table 13: Motor GWP split between ABI members, Lloyd's and Other, 1994-2004

Table 14: Motor GWP by sector, 2000-4

Table 15: Market share by sector, 2000-4

Table 16: Private motor market GWP split by line of business, 2000-4

Table 17: Private motor market share by line of business, 2000-4

Table 18: Proportion of private cars with comprehensive cover, 1994-2004

Table 19: Commercial motor insurance GWP by line of business, 2000-4

Table 20: Commercial market share by line of business, 2000-4

Table 21: Total motor underwriting account, 1994-2004

Table 22: Detailed total motor underwriting account, 2000-4

Table 23: Claims as a percentage of total outgoings, 2000-4

Table 24: Commission and expenses as a percentage of total outgoings, 2000-4

Table 25: Comparison between private and commercial underwriting results, 2000-4

Table 26: Private motor underwriting account, 1994-2004

Table 27: Detailed private motor underwriting account, 1994-2004

Table 28: Commercial motor underwriting account, 1994-2004

Table 29: Detailed commercial motor underwriting account 1994-2004

Table 30: Average premium prices for private motor, 2000-4

Table 31: Average premium rates for commercial vehicle and fleet, 1994-2000

Table 32: Total number of motor claims against total cost of claims, 1994-2004

Table 33: Private comprehensive claims, 1994-2004

Table 34: Private non-comprehensive claims, 1994-2004

Table 35: Motorcycle claims, 1994-2004

Table 36: Commercial vehicle claims, 2000-4

Table 37: Fleet claims, 2000-4

Table 38: Motor price indices compared to retail price inflation (RPI), 1999-2004

Table 39: Theft of and from motor vehicles, 1994-2004/05

Table 40: Total number of road accidents in the UK, 1994-2004

Table 41: The number of accidents relative to the number of registered vehicles, 1994-2004

Table 42: Road accident casualties in the UK, 2000-4

Table 43: Actions taken against motoring offenses, 1993-2003

Table 44: Motoring offenses by age and gender, 2003

Table 45: Distribution of private motor insurance, 2000-4

Table 46: Distribution of private motor insurance by platform, 1999-2005

Table 47: Commercial insurance by distribution channel, market share and GWP, 2000-4

Table 48: Retention rates among motor insurance consumers, 2001-5

Table 49: Retention rate by age, 2005

Table 50: Retention rate by distribution platform 2005

Table 51: Reasons for choosing a policy, by distribution platform, 2005

Table 52: Reason for choosing a policy, by age, 2005

Table 53: Sources of information for motor policy, by age, 2005

Table 54: Advertisement spending by provider, 2004

Table 55: Top 10 advertisement spenders, 2004

Table 56: Top 10 advertisement spenders by media, 2004

Table 57: The spending of advertisers ranked 11-20 by media, 2004

Table 58: Top 10 TV advertisers, 2004

Table 59: Top 10 direct mail advertisers, 2004

Table 60: Brand awareness of motor insurers, 2004

Table 61: Top 10 advertising spenders compared to their awareness rates

Table 62: Average spending 2003-4 compared to consumer awareness

Table 63: Market share of motor competitors grouped into top 10, 11-20 and the remainder, 2000-4

Table 64: Top 10 total motor insurers by market share, 2000-4

Table 65: Top 10 total motor insurers by GEP, 2000-4

Table 66: Market share of motor insurers ranked 11-20, 2000-4

Table 67: Motor insurers ranked 11-20 by GEP, 2000-4

Table 68: Top 10 motor insurers' GEP split between private and commercial, 2004

Table 69: Top 10 private motor market share in 1994, 2003 and 2004

Table 70: Top 10 private motor insurers by market share, 2000-4

Table 71: Top 10 private motor insurers by GEP, 2000-4

Table 72: Top 10 private motor insurers' comprehensive and non-comprehensive shares of total GEP, 2003-4

Table 73: Top 10 commercial motor market share in 1994, 2003 and 2004

Table 74: Top 10 commercial motor insurers by market share, 2000-4

Table 75: Top 10 commercial motor insurers by GEP, 2000-4

Table 76: Top 10 commercial motor insurers' split between fleet and commercial vehicle business, 2003-4

Table 77: GEP compared to loss ratio, top 20 motor insurers, 2003-4

Table 78: Expense ratio of the top 20 motor insurers, 2003-4

Table 79: GEP compared to combined ratio, top 20 motor insurers, 2003-4

Table 80: Neutral scenario: motor GWP forecast by sector, 2000-10f

Table 81: Optimistic scenario: motor GWP forecast by sector, 2000-10f

Table 82: Comparison of neutral and optimistic scenarios, 2000-10f

Table 83: Total motor underwriting result, 2000-10f

Table 84: Private motor underwriting result, 2000-10f

Table 85: Commercial motor underwriting result, 2000-10f

List of Figures

Figure 1: Direct distribution and the rise of corporate partnerships have eroded brokers' presence in the sale of private motor insurance

Figure 2: The market is more consolidated today than 10 years ago

Figure 3: The number of vehicles registered increased by 3.4 per cent in 2004

Figure 4: There were fewer new registrations in 2004 than in 2003

Figure 5: Cars constitute the majority of vehicles on the roads

Figure 6: New registrations of motorcycles have fallen while total registrations have increased

Figure 7: Company cars and light goods vehicles make up the largest part of commercial vehicles

Figure 8: The number of commercial vehicles increased in 2004

Figure 9: The number of company cars increased in 2004

Figure 10: New registrations of commercial vehicles increased in 2004

Figure 11: Total motor GWP fell in 2004

Figure 12: The share of the motor market written by Lloyd's, while always relatively small, has declined since 2001

Figure 13: Both commercial and private GWP fell in 2004

Figure 14: GWP fell across all private motor sectors in 2004

Figure 15: Non-comprehensive policies are increasingly unpopular

Figure 16: Fleet is the largest sector within commercial motor insurance, but both sectors have decreased between 2003 and 2004

Figure 17: The total motor market is now far less volatile in terms of profitability

Figure 18: Both the private and commercial sectors returned a worse underwriting result in 2004 than in 2003

Figure 19: The private motor underwriting loss has increased since 2001

Figure 20: The commercial cycle has started to turn

Figure 21: Non-comprehensive premium rates are increasing faster than comprehensive premium rates

Figure 22: Average premium rates grew in both the comprehensive and non-comprehensive sectors in 2005

Figure 23: Average premiums have fallen for fleet and commercial vehicle in 2004

Figure 24: Claims costs continue to rise though the number of claims has fallen since 2001

Figure 25: The price of replacement parts and garage rates have increased while the price of cars fell

Figure 26: Total vehicle thefts fell in 2004/05

Figure 27: The number of road accidents has fallen over the last seven years

Figure 28: The number of accidents is falling while the number of registered vehicles is rising

Figure 29: Road accident fatalities have fallen sharply in 2004

Figure 30: Injuries from road traffic accidents are declining

Figure 31: Use of the penalty charge notice has increased steadily since its introduction in 1994

Figure 32: Men commit the majority of all motoring offenses

Figure 33: Drivers under 21 are over-represented in offense statistics

Figure 34: Direct distribution and the rise of corporate partnerships have eroded brokers' presence in the sale of private motor insurance

Figure 35: More and more people arrange their motor insurance over the Internet

Figure 36: Brokers are still the biggest distribution channel in commercial insurance distribution

Figure 37: Customers have become more loyal to their motor insurer

Figure 38: Older consumers are less likely to have changed company at the last renewal of their motor insurance

Figure 39: Internet consumers are least likely to have stayed with the same insurer

Figure 40: The price of a policy is the most important reason why people choose a company, but it becomes less important with age

Figure 41: Broker advice, previous experience and mailshot marketing are increasingly important with age

Figure 42: Younger people are more responsive to recommendations from friends and family and use the internet more

Figure 43: Direct insurers spend the most on motor insurance advertising

Figure 44: Top 10 insurance advertisers' spend by media, 2004

Figure 45: Direct mail is a popular advertising form among spenders ranked 11-20

Figure 46: There is a clear correlation between brand awareness and advertising spend

Figure 47: Consistent advertising over time has an even bigger impact on brand awareness

Figure 48: The top 10 have won market share from smaller players

Figure 49: Norwich Union is still the market leader

Figure 50: Four of the top 10 motor insurers do not write commercial business

Figure 51: The private motor market is more consolidated today than 10 years ago

Figure 52: Norwich Union is still the market leader in private motor and increased its market share in 2004

Figure 53: Comprehensive premiums are the biggest source of income in private motor insurance

Figure 54: The commercial market is more consolidated today than 10 years ago

Figure 55: The three biggest providers together make up 50 per cent of the commercial motor market

Figure 56: Three of the top 10 commercial motor insurers do not offer fleet insurance

Figure 57: Only four of the top 20 motor competitors combined a growing book of business with an improved loss ratio in 2004, highlighting the onset of softening conditions in this sector

Figure 58: The majority of large motor insurers saw only a minor change in expense ratio in 2004

Figure 59: Around half of the top 20 motor insurers achieved underwriting profitability in 2004

Figure 60: Key to the relative importance of forecast variables

Figure 61: Neutral scenario: factors affecting future motor GWP, 2005e-2010f

Figure 62: Neutral scenario: factors affecting future motor GWP, 2005e-2010f, cont.

Figure 63: Neutral scenario: motor GWP forecast by sector, 2000-10f

Figure 64: Optimistic scenario: factors affecting future private motor GWP 2005e-10f

Figure 65: Optimistic scenario: factors affecting future motor GWP, 2005e-10f, cont.

Figure 66: Optimistic scenario: motor GWP by sector 2000-10f

Figure 67: The optimistic scenario sees quicker GWP growth, demonstrating the beneficial effects of disciplined underwriting

Figure 68: The total motor market is expected to return a profit by 2010

Figure 69: The private motor market is also expected to return to profitability in 2010

Figure 70: The commercial motor market's worst underwriting result is expected in 2007

Figure 71: Datamonitor's core consulting capabilities

Abstract

• Extensive coverage of GWP, underwriting result and claims is provided for comprehensive, non-comprehensive, motorcycle, fleet and commercial vehicle
• Consumer data provides insight into motor insurance purchasing habits and competitor data reveals key players' performances and strategies
• Analysis of the major competitive issues, supported by interviews with senior industry executives and data from a range of secondary sources
• GWP and underwriting result forecasts to 2010, based on Datamonitor's in-house expertise and proprietary models

• Benchmark your performance against that of your competitors
• Understand consumer purchasing and switching behaviour in order to tailor your proposition and optimise retention and acquisition rates
• Develop your business strategy with confidence using Datamonitor's exclusive sector forecasts

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