UK Commercial Motor Insurance 2006

Published by: Datamonitor

Published: Mar. 9, 2007 - 117 Pages

Table of Contents

CHAPTER 1 EXECUTIVE SUMMARY

Introduction

Market context

The commercial motor market shrank in both 2005 and 2006, as continued competition resulted in premium rate decline

Falling Premium rates have been offset by an increasing commercial vehicle parc

Profitability in the commercial motor market declined as outgoings increased faster than NWP

Customer focus

Brokers dominate the distribution of commercial insurance, but other channels are targeting areas such as commercial vehicle

The distribution of commercial insurance has seen little shift away from the face-to-face and telephone platforms, and the Internet is mainly used by brokers to communicate with insurers

However, brokers use the Internet in their dealings with insurers

Retention rates were high in commercial lines, as satisfaction levels are high

Competitor dynamics

The market experienced very little merger or acquistion activity in 2006, but saw new entrants expanding into commercial motor

Only one acquisition involving a UK motor insurer took place in 2006

Brokers have been heavily involved in acquisition activity in 2006

The commercial market saw a number of new entrants in 2006 and at the end of 2005

The top 10 players in the commercial motor market increased their share of the market in 2005

Consolidation increased in 2005, as the top 10 increased their share at the expense of smaller players

Six of the top 10 commercial motor insurers increased their market share in 2005

Soft market conditions led many insurers with a combined ratio already over 100 per cent to suffer further reductions in profitability

The future decoded

Commercial motor GWP is expected to recover in the second half of 2007 and reach a value of £4.1 billion by 2011

2007 is expected to see the end of the soft market, but commercial motor is not forecast to make a profit until 2010

CHAPTER 2 INTRODUCTION

What is this report about?

Who is the target reader?

How to use this report

CHAPTER 3 MARKET CONTEXT

Introduction

The commercial motor market shrank in both 2005 and 2006, as continued competition resulted in premium rate decline

The commercial motor insurance market reached a premium income of £3.4 billion in 2005, declining by 2.4 per cent

Commercial motor GWP continued to contract in 2006, with premium income falling to 3.3 billion

Fleet premium income held up the best in 2005 despite the soft market, but began to fall in 2006

Commercial vehicle GWP declined the most in 2005, while 2006 saw a milder contraction

The slight increase in GWP in 2005 was caused by falling premium rates offset by an increase in the commercial vehicle parc

The commercial motor parc increased in size in 2005

Commpany cars and light goods account for over 80 per cent of the commercial vehicle parc, and also saw the quickest growth in 2005

Company cars grew as a proportion of both the car and total motor vehicle parc in 2005

New registrations of commercial motor vehicles saw strong growth in 2005

New registrations of company cars grew below their average annual increase in 2005

Competitive pricing resulted in reduced premiums in the commercial motor market in 2005 and in 2006

Fleet premium rates declined in 2005

Commercial vehicle premium rates continued to decline in 2005

Profitability declined as outgoings increased faster than NWP

The commercial motor market's underwriting profit declined to £41 million in 2005

Total outgoings rose in 2005, as insurers increased their reserves

Claims incurred dropped as a proportion of total outgoings in 2005

Claims costs in the fleet market moderated in 2005, as accident and theft rates improved

Total fleet claims costs fall by 7.8 per cent in 2005, the result of fewer and less costly claims

Personal injury remains the main driver behind claims inflation leading insurers to attempt to control such costs, though falling accident rates have a positive effect as well

The number of traffic accidents has fallen in recent years, even though the number of vehicles has increased

Road accident casualties fell in 2005

Rehabilitation is increasingly seen as an important strategy in controlling the cost of personal injury claims

Rapid treatment care could save on bodily injury claims costs

Theft of vehicles continues to decline bringing some relief to the claims bill

Insurers are working to reduce claims costs by working with clients to lower accident rates and repair costs

Driving down claims frequency by preventing accidents is a common strategy

Keeping repair costs down is a key strategy for lowering claims infaltion

Insurers are also using telematics technology to control claims costs and offer new product solutions

Overall the motor insurance market declined by 1.5 per cent in 2005, and profitability deteriorated

Total motor market GWP declined in 2005, brought down by private motor as well as the declining commercial motor sector

Commercial motor accounted for just over a quarter of the total motor market in 2005

The total motor vehicle parc increased at a slower rate than the commercial vehicle parc in 2005

The total motor market's underwriting loss increased to £191 million in 2005

The commercial market outperformed the private motor market in terms of underwriting loss in 2005

CHAPTER 4 CUSTOMER FOCUS

Introduction

Brokers dominate the distribution of commercial insurance, but other channels are targeting areas such as commercial vehicle

Brokers account for the overwhelming majority of the commercial insurance market in the UK

The direct channel has seen a marginal increase in market share

All other distribution channels remain marginal distributors of commercial insurance

Brokers also dominate commercial insurance distribution among the SME segment of the market, though some consumers are interested in buying via other channels

Brokers form the most important distribution channel for SMEs

Brokers would be the first choice for SMEs if they were to switch provider

However, when prompted some SMEs would consider alternative distribution channels, if they could get a better deal that way

The distribution of commercial insurance has seen little shift away from the face-to-face and telephone platforms, and the Internet is mainly used by brokers to communicate with insurers

Many SMEs have face-to-face interaction with their insurance provider at least once a year

The Internet is still only used by a small proportion of companies to buy insurance

However, brokers use the Internet in their dealings with insurers

imarket is an Internet portal for brokers that allows multiple quotes to be generated from one application form

imarket added two new carriers in 2005 and 2006

Further integration with software houses would benefit imarket

SMEs are generally loyal to their provider, and base their decisions on a mixture of price and service

Overall retention levels remain high in the SME market

The main reason SMEs give for choosing a provider is the price of insurance premiums, though SMEs also value service

CHAPTER 5 COMPETITIVE DYNAMICS

Introduction

The market experienced very little merger or acquistion activity in 2006, but saw new entrants expanding into commercial motor

Acquisition activity involving UK motor insurers was muted in 2006

Australian insurer IAG purchased the Equity Group in December 2006, strengthening its UK presence following the acquisition of Hastings earlier in the year

The sale of Royal & SunAlliance's US legacy business led to possible acquisition rumours

Brokers have also been heavily involved in acquisition activity in 2006, and insurers showed interest in buying brokers as well

The commercial market saw a number of new entrants in 2006 and at the end of 2005

Three new start-up underwriting agencies entered the commercial insurance market in 2006, targeting the SME sector

Fortis expanded its motor presence to include commercial vehicle at the end of 2005

The top 10 players in the commercial motor market increased their share of the market in 2005

Consolidation increased in 2005, as the top 10 increased their share at the expense of smaller players

Six of the top 10 commercial motor insurers increased their market share in 2005

Royal & SunAlliance increased its premium income by 23.0 per cent, and became the market leader

NIG also increased its premium income and market share in 2005

Highway increased its market share with a large increase in premium income

NFU Mutual maintained its standing with a 0.1 percentage point increase in market share

Brit retained its tenth position, growing premium income and market share

AXA accounted for 4.4 per cent of the commercial motor market in 2005

Decliners were in the minority among the top 10 in 2005, as only three competitors shed market share

Norwich Union lost the most market share and premium income in 2005

Zurich continued to lose market share and GWP in 2005

Allianz saw its commercial motor book decline by 1.2 percentage points in market share

QBE was the 6th largest commercial motor insurer in 2005

A varied motor book is the norm among the top motor insurers

All of the top 10 commercial motor insurers wrote both fleet and commercial vehicle business in 2005

Only three of the top 10 motor insurers lacked any commercial presence

CHAPTER 6 THE FUTURE DECODED

Introduction

Commercial motor GWP is expected to recover in the second half of 2007, with stronger growth to come

Rate increases are expected to lead to an improvement in commercial motor GWP in 2007

The commercial motor market is forecast to reach a value of £4.1 billion by 2011

2007 is expected to see the end of the soft market, but commercial motor is not forecast to make a profit until 2010

The reduced volitility of the cycle will also hit profits during the hard market

The optimistic and pessimistic scenarios for commercial motor reach vastly different levels of profit, highlighting the importance of premium increases in 2007 and 2008

GWP is forecast to grow throughout the forecast period, in both scenarios

GWP in the optimisitic scenario is forecast to outgrow GWP in the pessimistic scenario by 0.8 per cent on a compound annual average basis

The rate increases of the optimistic scenario lead to three years of profits, whereas the lower premium rate increases in the pessimistic scenario lead to continued losses

The total motor market's premium income is forecast to rise to £17.2 billion in 2011

Total motor insurance GWP growth will pick up in 2007 as the private market gains momentum

The total motor market will approach profitability in 2010 but fail to return a profit due to the losses of the private market

CHAPTER 7 APPENDIX

Supplementary data

Definitions

SME

Definitions of ABI terms

Brokers

National brokers

Other intermediaries & brokers

Chain brokers & telebrokers

Direct

Other company agents

Utilities/retailers/affinity groups

Company staff

Banks/building societies

Definitions of general terms

Channel

Platform

Earned premiums

Gross premiums

Net premiums

Written premiums

2005 definitions for motor

Total private motor

Total commercial motor

Private motor comprehensive

Private motor non-comprehensive

Motorcycle

Fleets

Commercial vehicles (non-fleet)

Pre-2005 definitions for motor

Methodology

Datamonitor's Commercial Broker Survey

Datamonitor's SME Survey

Datamonitor's SME Insurance Survey Q3 2005

Datamonitor's SME Insurance Survey Q1 2006

Competitor data

GWP versus GEP reporting

Ratio analysis by competitor

Current readings

Future readings

Relevant links

Do you need more information?

Datamonitor Financial Services Consulting

SPP writing team

List of Tables

Table 1: Total commercial motor GWP, 2001-6e

Table 2: Commercial motor GWP, by line of business, 2001-6

Table 3: UK commercial vehicle parc by body type, 2001-5

Table 4: Commercial motor vehicle parc by body type, 2001-5

Table 5: The number of company cars compared to all cars and the total motor parc, 2001-5

Table 6: New registrations of selected motor vehicles by taxation class, 2001-5

Table 7: New registrations of company cars, 2001-5

Table 8: Average premium rates for commercial vehicle and fleet, 1995-2005

Table 9: Commercial motor underwriting account, 1995-2005

Table 10: Detailed commercial motor underwriting account, 2001-5

Table 11: Claims as proportion of total outlay, 2001-5

Table 12: Fleet claims, 2001-5

Table 13: Total number of road accidents in the UK, 1995-2005

Table 14: The number of road accidents relative to the number of registered vehicles in the UK, 1995-2005

Table 15: Road accident casualties in the UK, 2001-5

Table 16: Theft of and from motor vehicles, 1995-2005/6

Table 17: Total motor insurance market GWP by line, 2001-5

Table 18: Total motor market by line of business, 2001-5

Table 19: Total motor parc by body type, 2001-5

Table 20: Total motor market underwriting account, 1995-2005

Table 21: Private and commercial underwriting results, 1995-2005

Table 22: Market share of distribution channels in the commercial general insurance market, 2002-5

Table 23: Market share of the market leader, the rest of the top 10 and the remainder, 1994, 2004, 2005

Table 24: Market share of top 10 commercial motor competitors, 2001-5

Table 25: Top 10 commercial motor competitors, by premium income, 2001-5

Table 26: Top 10 commercial motor competitors by premium income split by line of business, 2004-5

Table 27: Split between commercial and private markets for the top 10 total motor insurers, 2005

Table 28: Commercial motor GWP forecast, neutral scenario, 2001-11f

Table 29: Forecasts for commercial motor NWP and underwriting result, neutral scenario, 2001-11f

Table 30: Commercial motor GWP forecast, pessimistic and optimistic scenarios, 2001-11f

Table 31: Commercial motor underwriting result forecast, optimistic and pessimistic scenarios, 2001-11f

Table 32: Total motor GWP forecast by line of business, neutral forecast, 2001-11f

Table 33: Total motor underwriting account forecast, 2001-11f

Table 34: Total motor vehicle new registrations by taxation class, 2001-5

Table 35: Motor vehicles registered by taxation class, 2001-5

Table 36: Motoring offences divided by gender and age, 2005

Table 37: What business sector are you involved in?

List of Figures

Figure 1: Commercial vehicle parc continues growing, 2001-5

Figure 2: The commercial motor market has seen significant consolidation since 1994

Figure 3: The UK commercial motor market declined again in 2005

Figure 4: Commercial vehicle lost premium income faster than fleet in 2005, after having gained GWP at a faster rate in the past

Figure 5: The commercial vehicle parc grew between 2001 and 2005

Figure 6: All but goods vehicles and buses saw growth in 2005, with company cars increasing their share of the parc

Figure 7: Company cars have grown as a proportion of the total car parc since 2003

Figure 8: Commercial motor premiums declined in both fleet and commercial vehicle in 2005

Figure 9: The commercial underwriting result declined for the second consecutive year in 2005

Figure 10: The number of road traffic accidents in the UK has been declining steadily since 1997

Figure 11: Although vehicle registrations rose again in 2005, road traffic accidents continued to fall

Figure 12: Road accident casualties continued to decline in 2005, following a steep fall in 2004

Figure 13: Total UK vehicle thefts continued to decline in 2005

Figure 14: The total motor market experienced a decline in GWP in 2005, as both the private and the commercial line contracted

Figure 15: The total motor parc grew less than the commercial parc

Figure 16: The profitability of the total motor market continued to deteriorate in 2005

Figure 17: Past cycles have seen much greater volatility in the private underwriting result than in the commercial underwriting result, with greater losses as a result

Figure 18: Brokers dominate the distribution of commercial insurance

Figure 19: Most SMEs buy their insurance from a broker

Figure 20: Most SMEs would approach another broker if looking to change their provider

Figure 21: Many SMEs would consider buying direct if they could get a cheaper and better deal

Figure 22: The main reason given by SMEs for considering buying from a bank or building society is price

Figure 23: 70 per cent of SMEs see their insurance provider at least once a year

Figure 24: Most brokers generate none of their GWP via their websites

Figure 25: imarket generates a number of quotes, while the user only has to input the risk details once

Figure 26: 43 per cent of SMEs have been with their insurance provider for more than 5 years

Figure 27: The price of premiums is the main reason for SMEs' choice of provider

Figure 28: The commercial motor market has seen increased consolidation since 1994

Figure 29: Royal & SunAlliance was the largest commercial motor insurer in 2005

Figure 30: The top four commercial motor insurers are all heavily weighted to the fleet sector

Figure 31: Of the top 10, only RBSI subsidiaries Direct Line, UKI and Churchill have no commercial motor offering

Figure 32: Key to the relative importance of forecast variables

Figure 33: Key variables affecting commercial motor GWP, neutral scenario, 2006e-11f

Figure 34: GWP is forecast to begin growing again in 2007 as the motor market recovers

Figure 35: The commercial motor market is forecast to be profitable by 2010

Figure 36: Key variables affecting commercial motor GWP, optimistic and pessimistic scenarios, 2006e-11f

Figure 37: GWP growth is not significantly altered by the change in growth for 2007

Figure 38: 2007 can mean the difference between profit and continued loss for the commercial motor market

Figure 39: Both private and commercial motor are forecast to experience GWP growth between 2007 and 2011

Figure 40: The total motor market mirrors the private market, peaking in 2010 but failing to return a profit in the forecast period

Figure 41: The SMEs surveyed in Q1 2006 come from a variety of business sectors, though most are involved in retail

Abstract

• Extensive analysis of GWP and underwriting result for the commercial motor market, placed in the context of the performance of the total motor market.
• An examination of commercial insurance distribution trends.
• 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 2011, based on Datamonitor's in-house expertise and proprietary models

• Benchmark your performance against that of your competitors using current and past data.
• Understand the trends behind SMEs insurance purchasing behavior, to better target this market segment.
• Develop your business strategy with confidence using Datamonitor's exclusive sector forecasts.

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