Add-On Insurance Strategies in UK Personal Insurance 2007

Published by: Datamonitor

Published: Aug. 16, 2007 - 58 Pages

Table of Contents

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

Abstract

• 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

• 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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