Personal Lines Insurance

Published by: Key Note Publications Ltd

Published: Jun. 1, 2007 - 208 Pages

Table of Contents

1. Introduction

OVERVIEW

Research

DEFINITION

2. Strategic Overview

MARKET DYNAMICS AND SEGMENTATION

Market Segmentation

Current Status of the Market

The General Insurance Market

Personal Lines General Insurance

Total Industry Value and Growth

Table 1: The Total UK General Insurance Market by Sector by Net Written Premiums (£m and index 2002=100), 2002-2006

Figure 1: The Total UK General Insurance Market by Net Written Premiums (£m), 2002-2006

Largest Sector and Market Share

Figure 2: The Total UK General Insurance Market — UK Risks —by Sector by Net Written Premiums (£m), 2002-2006

DISTRIBUTION

Table 2: UK General Insurance Premiums† — UK Risks — by Source of Personal-Lines Business (%), 2002-2006

Figure 3: UK General Insurance Premiums† — UK Risks — by Source of Personal-Lines Business (%), 2002-2006

Distribution Channels

Large, Well-Known Insurers

Basic, Cheap Insurers

Specialist Insurers

The Post Office

Supermarkets

Clubs and Associations

COMPETITIVE STRUCTURE

Table 3: Links With Insurers, 2007

Table 4: The Top Ten General Insurers in the UK Ranked by Net Premium Income (£m), 2005

ADVERTISING

Table 5: Main Media Advertising Expenditure by Leading General Insurers (£000), Year Ending December 2006

THE CONSUMER

The Economy

Population

Table 6: UK Resident Population Estimates by Sex (000), Mid-Years 2002-2006

Gross Domestic Product

Table 7: UK Gross Domestic Product at Current and Annual Chain-Linked Prices (£m), 2002-2006

Inflation

Table 8: UK Rate of Inflation (%), 2002-2006

Unemployment

Table 9: Actual Number of Unemployed Persons in the UK (million), 2002-2006

Household Disposable Income

Table 10: UK Household Disposable Income Per Capita (£), 2002-2006

Who is the Consumer?

Table 11: Average Annual Household Expenditure on General Insurance by Type (£ and %), 2003/2004

Figure 4: Percentage of Households Purchasing General Insurance by Type, 2003/2004

Consumer Loyalty

Consumer Factors Affecting the Sector

Consumer Dynamics

REGULATION

Unfair Commercial Practices Directive

Solvency 2 Directive

Insurance Guarantee Schemes Directive

Consumer Reactions to Regulation

Financial Ombudsman Service

Table 12: Number of Complaints About General Insurance to the Financial Ombudsman Service, 2002/2003-2005/2006

Figure 5: Number of Complaints About General Insurance to the Financial Ombudsman Service, 2005/2006

MARKET FORECASTS

Future Prospects for Direct Insurance

Future Impact of Regulatory Changes and Growth in E-Business

3. Motor Insurance

BACKGROUND

MARKET SIZE

Table 13: UK Domestic Motor Insurance† by Net Written Premiums (£m and index 2002=100), 2002-2006

Figure 6: UK Domestic Motor Insurance† by Net Written Premiums (£m), 2002-2006

Claims

Table 14: UK Net Claims Incurred for Domestic Motor Policies† (£m and index 2002=100), 2002-2006

Figure 7: UK Net Claims Incurred for Domestic Motor Policies† (£m), 2002-2006

MARKET SHARE

Table 15: UK Companies' Share of Total Net Premium Income from Motor Insurance Business (%), 2004-2006

Table 16: Market Shares of the Largest Five UK Motor Insurers by Gross Premium Income (%), 2006

CONSUMER TRENDS

Misleading Prices

Rising Costs of Claims

Consumer Dynamics

I Like to Shop Around for My Motor Insurance

ADVERTISING

Table 17: Main Media Advertising Expenditure on Motor Insurance (£000), Year Ending December 2006

DISTRIBUTION

Table 18: UK Personal Motor Insurance Premiums by Source of Business (%), 2002-2006

4. Household Insurance

BACKGROUND

MARKET SIZE

Table 19: UK Domestic Property Insurance† by Net Written Premiums (£m and index 2002=100), 2002-2006

Figure 8: UK Domestic Property Insurance† by Net Written Premiums (£m), 2002-2006

Claims

Table 20: UK Net Claims Incurred for Domestic Property Policies† (£m and index 2002=100), 2002-2006

Figure 9: UK Net Claims Incurred for Domestic Property Policies† (£m), 2002-2006

MARKET SHARE

Table 21: Market Shares of the Largest Five UK Property Insurers by Gross Premium Income (%), 2006

CONSUMER TRENDS

Spending on Household Insurance

Consumer Dynamics

I Like to Shop Around for My Household Insurance

I Get My Buildings Insurance from My Mortgage Lender

I Get My Contents Insurance from My Mortgage Lender

MARKETING ACTIVITY

ADVERTISING

Table 22: Main Media Advertising Expenditure on Household Insurance (£000), Year Ending December 2006

DISTRIBUTION

Table 23: UK Property Insurance Premiums by Source of Business (%), 2002-2006

5. Travel Insurance

BACKGROUND

MARKET SIZE

MARKET SHARE

Table 24: The Largest Five UK Travel Insurers by Gross Premium Income, 2006

CONSUMER TRENDS

I Take Out Travel Insurance Each Time I Travel

I Take Out Annual Travel Insurance

MARKETING ACTIVITY

ADVERTISING

Table 25: Main Media Advertising Expenditure on Travel Insurance (£000), Year Ending December 2006

DISTRIBUTION

6. Home Appliances, Emergency, and Income and Mortgage Protection

BACKGROUND

Payment Protection Insurance

MARKET SIZE

MARKET SHARE

Table 26: Market Shares of the Largest Five UK Miscellaneous and Pecuniary Loss Insurers by Gross Premium Income (%), 2006

CONSUMER TRENDS

I Generally Insure My Loans in Case I Lose My Job or Cannot Work

I Generally Insure My Domestic Appliances

I Have Insurance Covering My Plumbing and Drains

MARKETING ACTIVITY

ADVERTISING

Table 27: Main Media Advertising Expenditure on Home Appliance, Emergency, Income Protection and Mortgage Repayment Protection Insurance (£000), Year Ending December 2006

DISTRIBUTION

7. Pet Insurance

BACKGROUND

MARKET SIZE

Table 28: UK Pet Insurance by Net Written Premiums (£m and index 2002=100), 2002-2006

Figure 10: UK Pet Insurance by Net Written Premiums (£m), 2002-2006

CONSUMER TRENDS

It is Worthwhile Insuring a Pet

MARKETING ACTIVITY

ADVERTISING

Table 29: Main Media Advertising Expenditure on Pet and Livestock Insurance (£000), Year Ending December 2006

DISTRIBUTION

8. Private Healthcare and Accident Insurance

BACKGROUND

Table 30: Percentage of Households with Health Insurance, 2004/2005

MARKET SIZE

Table 31: UK Accident and Health Insurance† by Net Written Premiums (£m and index 2002=100), 2002-2006

Figure 11: UK Accident and Health Insurance† by Net Written Premiums (£m), 2002-2006

Private Medical Insurance

Table 32: UK Health Insurance† by Net Written Premiums (£m and index 2002=100), 2002-2006

Claims

Table 33: UK Net Claims Incurred for Health Policies† (£m and index 2002=100), 2002-2006

Figure 12: UK Net Claims Incurred for Health Policies† (£m), 2002-2006

MARKET SHARE

Table 34: Market Shares of the Largest Five UK Medical Insurers by Gross Premium Income (%), 2006

CONSUMER TRENDS

I Take Out Insurance Against Accidents

I Take Out Personal Medical Insurance

MARKETING ACTIVITY

ADVERTISING

Table 35: Main Media Advertising Expenditure on Accident and Healthcare Insurance (£000), Year Ending December 2006

DISTRIBUTION

9. An International Perspective

MARKET SIZE

Belgium

France

Germany

Spain

Italy

Portugal

10. PEST Analysis

POLITICAL FACTORS

ECONOMIC FACTORS

SOCIAL FACTORS

TECHNOLOGICAL FACTORS

11. Consumer Dynamics

OVERVIEW

Summary of Results

Table 36: Summary of Responses Relating to Personal Lines Insurance (% of respondents), 2007

SHOPPING AROUND FOR MOTOR AND HOUSEHOLD INSURANCE

I Like to Shop Around for My Motor Insurance

I Like to Shop Around for My Household Insurance

Table 37: Shopping Around for Motor and Household Insurance (% of respondents), 2007

PURCHASING BUILDINGS AND CONTENTS INSURANCE

I Get My Buildings Insurance from My Mortgage Lender

I Get My Contents Insurance from My Mortgage Lender

Table 38: Purchasing Buildings and Contents Insurance (% of respondents), 2007

TAKING OUT ACCIDENT AND PERSONAL MEDICAL INSURANCE

I Take Out Insurance Against Accidents

I Take Out Personal Medical Insurance

Table 39: Taking out Accident and Personal Medical Insurance (% of respondents), 2007

TAKING OUT TRAVEL INSURANCE

I Take Out Annual Travel Insurance

I Take Out Travel Insurance Each Time I Travel

Table 40: Taking Out Travel Insurance (% of respondents), 2007

TAKING OUT INSURANCE FOR LOANS AND FOR DOMESTIC APPLIANCES

I Generally Insure My Loans in Case I Lose My Job or Cannot Work

I Generally Insure My Domestic Appliances

Table 41: Taking Out Insurance for Loans and for Domestic Appliances (% of respondents), 2007

ATTITUDE TOWARDS PET INSURANCE AND TAKING OUT INSURANCE FOR PLUMBING AND DRAINS

It is Worthwhile Insuring a Pet

I Have Insurance Covering My Plumbing and Drains

Table 42: Attitude Towards Pet Insurance and Taking Out Insurance for Plumbing and Drains (% of respondents), 2007

CHOOSING INSURANCE COMPANIES

I Like to Use a Large Well-Known Insurer

I Usually Choose the Cheapest and Most Basic Insurance

I Prefer to Go to Specialist Companies for Cover

Table 43: Choosing Insurance Companies (% of respondents), 2007

ATTITUDES TOWARDS ALTERNATIVE INSURANCE PROVIDERS

I Would Be Happy to Insure Through the Post Office

I Would Be Happy to Insure Through a Supermarket

I Would Be Happy to Insure Through a Club or Professional Association of Which I Am a Member

Table 44: Attitudes Towards Alternative Insurance Providers (% of respondents), 2007

INVESTIGATING INSURERS AND UNDERSTANDING POLICIES

I Would Be Happy to Investigate Insurers on the Internet, Then Visit a Broker

It is Easier to Understand Insurance Policies Than It Used to Be

Table 45: Investigating Insurers and Understanding Policies (% of respondents), 2007

12. Company/Supplier Profiles

ALLIANZ INSURANCE PLC

Corporate Strategy

Strengths and Weaknesses

New Product and Brand Development

Advertising

Distribution

Profitability

Table 46: Financial Results for Allianz Insurance PLC (£000, % and £), Years Ending 31st December 2003-2005

Future Company Developments

AVIVA PLC

Corporate Strategy

Strengths and Weaknesses

New Product and Brand Development

Advertising

Distribution

Profitability

Table 47: Financial Results for Aviva PLC (£000, % and £), Years Ending 31st December 2004-2006

Future Company Developments

AXA INSURANCE UK PLC

Corporate Strategy

Strengths and Weaknesses

New Product and Brand Development

Advertising

Distribution

Profitability

Table 48: Financial Results for AXA Insurance UK PLC (£000, % and £), Years Ending 31st December 2004-2006

Future Company Developments

BUPA INSURANCE LTD

Corporate Strategy

International Insurance

Care Homes

Hospitals

Strengths and Weaknesses

New Product and Brand Development

Advertising

Distribution

Profitability

Table 49: Financial Results for BUPA Insurance Ltd (£000, % and £), Years Ending 31st December 2003-2005

Future Company Developments

ROYAL AND SUNALLIANCE INSURANCE PLC

Corporate Strategy

Strengths and Weaknesses

New Product and Brand Development

Advertising

Distribution

Profitability

Table 50: Financial Results for Royal & SunAlliance Insurance PLC (£000, % and £), Years Ending 31st December 2003-2005

Future Company Developments

THE ROYAL BANK OF SCOTLAND GROUP PLC

Corporate Strategy

Strengths and Weaknesses

New Product and Brand Development

Advertising

Distribution

Profitability

Table 51: Financial Results for The Royal Bank of Scotland Group PLC (£000, % and £), Years Ending 31st December 2004-2006

Future Company Developments

ZURICH FINANCIAL SERVICES (UKISA) LTD

Corporate Strategy

Strengths and Weaknesses

New Product and Brand Development

Advertising

Distribution

Profitability

Table 52: Financial Results for Zurich Financial Services (UKISA) Ltd (£000, % and £), Years Ending 31st December 2004-2006

Future Company Developments

13. The Future

THE ECONOMY

Population

Table 53: Forecast UK Resident Population by Sex (000), Mid-Years 2007-2011

Gross Domestic Product

Table 54: Forecast UK Growth in Gross Domestic Product in Real Terms (%), 2007-2011

Inflation

Table 55: Forecast UK Rate of Inflation (%), 2007-2011

Unemployment

Table 56: Forecast Actual Number of Unemployed Persons in the UK (million), 2007-2011

FORECASTS

Motor Insurance

Table 57: Forecast UK Domestic Motor Insurance† by Net Written Premiums (£m and index 2007=100), 2007-2011

Household Insurance

Table 58: Forecast UK Domestic Property Insurance† by Net Written Premiums (£m and index 2007=100), 2007-2011

Travel Insurance

Home Appliances, Emergency, and Income and Mortgage Protection

Pet Insurance

Table 59: Forecast UK Pet Insurance by Net Written Premiums (£m and index 2007=100), 2007-2011

Private Healthcare and Accident Insurance

Table 60: Forecast UK Accident and Health Insurance† by Net Written Premiums (£m and index 2007=100), 2007-2011

CONCLUSION

14. Consumer Confidence

METHODOLOGY

KEY FINDINGS THIS QUARTER

THE WILLINGNESS TO BORROW

Confidence Improves

Table A: The Average Amount Consumers Are Willing to Borrow in Order to Purchase Expensive Items at Current and Constant November 2004 Prices (£ and £bn), February 2006-2007

Willingness to Borrow Slips Slightly

Table B: The Number of Adults Willing to Borrow in Order to Purchase Expensive Items (000 and %), February 2006-2007

SPENDING FROM SAVINGS

Slight Increase in Spending from Savings

Table C: The Average Amount Consumers Are Willing to Spend from Savings in Order to Purchase Expensive Items at Current and Constant November 2004 Prices (£ and £bn), February 2006-2007

Saving Grows in Relative Importance

Table D: The Average Amounts Adults Are Confident Spending to Purchase Expensive Items (£ and %), February 2006-2007

15. Further Sources

Associations

Publications

General Sources

Government Publications

Other Sources

Bisnode Sources

Abstract

Personal lines insurance, which refers to products taken out by, or for, individuals or households in a private capacity, comprises private motor insurance; buildings and contents household insurance; accident and health insurance; pet insurance; travel insurance; and insurance for domestic appliances. The insurance is divided into five formal categories: motor, property, accident and health, general liability and pecuniary loss.

With the exception of niche markets, such as specialist car insurance, domestic appliance insurance or high net-worth insurance, personal lines business is viewed by the industry as being unprofitable. Companies have been consolidating and merging their commercial and personal lines businesses. Brokers, too, are consolidating, as regulations tighten and competition from supermarkets such as Tesco or Moneysupermarket.com offer speedy standard products to the increasingly competent broadband user.

In 2007, it is clear that motor insurance premiums are rising faster than in the last 4 years, as Norwich Union leads the market upwards. By 2006, premiums had been driven down by fierce competition to levels where the costs allowed very little profit margin. Household insurance rates were not so heavily affected, so rates have remained steady. The personal lines insurance sector is still at the low point in the insurance cycle (low premiums and low market concentration).

In the accident and health insurance market, the levels of premiums have risen to reflect the high costs of medical care, as well as the high levels of claims. Most individuals cannot afford full health insurance, but chaos in the NHS drives demand. Premium income has risen, but the number of people covered has fallen. Reinvention of private medical insurance (PMI) awaits a radical rethink of healthcare funding.

Weather disasters (winds, floods and drought) have been rare during the mid-2000s, apart from localised problems, such as the Carlisle and Northampton floods. However, the growing awareness of global warming among the population means that risks are becoming more serious and insurance is generally seen to be inadequate. The localised Kent earthquake in spring 2007, like the Birmingham tornado in 2005, is likely to cost insurers in the region of £15m. In 2007, there is little sign of widespread action either to offer adequate compensation for the consequent effects of disasters, or to avert danger by improving flood defences or ceasing to build on flood plains, for example. Inadequate protection against the effects of terrorist attacks and other human-generated disasters is also a modern hazard that is yet to be addressed. Property insurance premiums are not rising appropriately.

The depolarisation of financial services means that there has been a widespread consolidation of financial advisers and brokers. The insurance companies have bought, and are continuing to buy, broker and adviser networks. Often, independent brokers, owned by an insurer, offer other insurers' products. There has been considerable change in the marketplace in the last 5 years, as Royal & SunAlliance (RSA) left the long-term insurance market, and other insurers began to restructure to cut their costs and combined ratios.

Over the past 5 years, IT has been increasingly employed by the major insurers in order to catch up with banks. Mergers and increasing staff costs mean that flexibility and the ability to transfer functions across borders are necessary. Insurers are increasingly aware that developing new personal lines products that meet the needs of customers before rivals can coax them away, requires high levels of IT adaptability. Products have to be cheap to service, easy to use, quick to approve and fast to implement. At the same time, staff training has to be upgraded, with closer links between insurers and the Chartered Insurance Institute. Training and experience are recognised as being necessities throughout insurers' operations, and they need to be focused on specific applications too. Several insurers have recently restructured their product lines to separate personal lines from commercial lines, or to place responsibility for the provision of insurance to small firms with the insurers' direct insurance operations.

The introduction of regulations that require insurers to calculate their risk levels and introduce adequate capital reserves to cover their likely liabilities means that crises — such as those that arose widely in the early 2000s with the fall of stock-market values — can be better handled in the future. However, in personal lines insurance, with the high liquidity levels experienced in the mid-2000s, there is little difficulty in raising adequate market capital to cover liabilities at a low cost.

Direct operations have become so widespread in personal lines insurance that, for some institutions, they have become lead operations: for example, Direct Line has been instrumental in changing The Royal Bank of Scotland (RBS) into a leading bancassurer. Even AXA has become a direct insurer with its purchase of Swiftcover, a highly successful start-up in 2005 funded with private-equity capital. No significant personal lines insurer now lacks the direct distribution channel.

Future change in the UK market will be driven by regulatory considerations, as the regulator seeks greater fairness and clarity, as well as equity in insurers' dealings with their customers. The opportunity for the UK personal lines retail model to repeat its success in other countries depends on similar regulatory reform in partner countries in the EU. In addition, insurers are looking at Asian and US markets to achieve the returns they are unlikely to see again in the UK.

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