UK Private Motor Insurance 2007

Published by: Datamonitor

Published: Feb. 7, 2008 - 138 Pages

Table of Contents

Overview

Catalyst

Summary

Executive Summary

The UK private motor insurance market started to harden at the end of 2006

Private motor insurance GWP contracted by 0.9% in 2006 as the market only hardened late in the year

Underwriting losses expanded in 2006, driven by high costs and lower net revenue

Distribution of personal lines insurance shifted towards partnerships with banks and brands in 2006

The partnership channel gained market share from brokers in the motor insurance market in 2006

The telephone remained the largest platform for arranging a motor policy in 2007 but the internet platform is growing fast

Conditions remained competitive in 2006, leading some to exit the market

The competitive nature of the private motor market caused some insurers to exit the market

Market leader RBSI maintained its grip on the private motor market in 2006

The market is forecast to reach £12.5 billion by 2012 and regain profitability in 2009

The UK private motor insurance market is forecast to be worth £12.5 billion in 2012

The private motor insurance market is forecast to reach profitability in 2009

Table of Contents

Table of figures

Table of tables

Market Context

Introduction

The UK private motor insurance market started to harden at the end of 2006 and grew in 2007

The market hardened late in 2006, which led to strong gains in premium income for 2007

UK private motor insurance GWP increased to an estimated £10.1 billion in 2007 as the market hardened

Private motor insurance GWP contracted by 0.9% in 2006 as the market only hardened late in the year

The comprehensive and non-comprehensive segments both declined in 2006, but rebounded in 2007

Comprehensive motor GWP suffered the worst contraction of the three private lines in 2006

Non-comprehensive premium income suffered as fewer motorists chose this cover

The motorcycle market was the only part of private motor to increase in 2006, although it contracted in 2007

Late rises in premium rates and low growth in private car numbers depressed GWP in 2006

Private motor insurance premium rates recovered late in 2006 and have climbed in 2007

Comprehensive premium rates grew towards the end of 2006 and continued to increase in 2007

Non-comprehensive premium rates increased significantly in 2006, but trailed the comprehensive market in 2007

The UK private vehicle parc continued to grow slowly in 2006

Private car numbers increased in 2006, although the rate of growth has slowed

New registrations for private cars declined in 2006

Although the private car parc is aging it remains mostly modern in composition

Motorcycle numbers continue to climb, although growth has slowed

Underwriting losses expanded in 2006, driven by high costs and lower net revenue

The private motor underwriting result deteriorated in 2006

Increases in total outgoings were driven by higher commissions and reserving, despite lower claims costs

Commissions and expenses rose 3.1% in 2006, while insurers reserved more than they released

Net claims costs fell in 2006, moderating the increase in total outgoings

Claims inflation continue to plague the market, but accident and theft rates have fallen

Overall claims inflation increased significantly in 2006

Bodily injury claims are more expensive than other claims

Falling road traffic accident rates will have given insurers some respite on their claims bills

Road traffic accident numbers have declined over the last nine years

Road traffic accidents have declined even as car numbers have increased, representing a fall in frequency

Casualty rates have fallen steadily, mirroring the decline in road traffic accidents in 2006

Theft rates continue to fall, representing a positive trend for private motor insurers

A number of initiatives aimed at cost savings were undertaken in 2006 and 2007

The IFB has been very active in the investigation of professional fraud over the year it has been in operation

The tightening up of MID requirements should drive down uninsured driving leading to savings for insurers

Insurers remain divided over whether rehabilitation offers real savings on claims costs

With the arrival of Copart, recycled parts can assist insurers in curbing repair costs

Insurers have pushed online distribution of motor insurance certificates and could save up to £11m a year

Commercial motor GWP declined in 2006, but the market increased its underwriting profit

The commercial motor market contracted slightly more than the private market in 2006

The total motor market's underwriting loss increased marginally to £204m in 2006

Despite being in a soft market, commercial motor improved its profitability in 2006

Customer Focus

Introduction

Distribution of personal lines insurance shifted towards partnerships with banks and brands in 2006

The partnership channel gained market share from brokers in the motor insurance market in 2006

Aggregators have become important to motor insurance distribution

The telephone remained the largest platform for arranging a motor policy in 2007 but the internet platform is growing fast

The telephone and face-to-face platforms have been declining steadily

More consumers are turning to the internet to arrange their motor policies

Retention rates vary by age of consumer and platform used to arrange insurance

The majority of motor consumers will stay with the same provider at the time of renewal

More than a third of consumers who purchased their motor insurance online switched provider at renewal

Consumers purchasing their motor policies face-to-face, by phone or via post are unlikely to change provider

Switching providers is more prevalent among younger consumers

Price remained the main reason for taking out a motor policy across platforms and ages

Consumers purchasing a policy via the internet are more likely to be motivated by cheaper quotes than others

Consumers over the age of 55 are less sensitive to price than younger consumers

The way in which consumers seek information about motor insurance varies relative to age

Previous experience is the most popular source of information and is used more as a consumer gets older

Younger consumers are more likely to use web sources

Television advertisements are used by 14% of consumers overall

Mailshots, brochures and broker advice are mainly used by older people

Advertising for motor insurance products remained dominated by the television campaigns of direct insurers in 2006

Motor insurance advertising increased by 2.3% in 2006 to almost £200 million

Advertising is dominated by insurers, but brokers narrowed the gap in 2006

Most of the top 10 motor advertisers in 2006 are direct insurers

The spend of the top 10 grew slightly in 2006, driven mainly by the substantial increases of four motor insurance advertisers

The top 10 motor advertisers focus on television advertising, reflecting the need for direct insurers in particular to build up brand awareness

Most of the largest motor advertisers spent the majority of their budgets on television advertising in 2006

Direct mail advertising is used by most of the top 10 to complement their television campaigns

Press, outdoor and radio advertising were used sparingly by the top 10 motor insurance advertisers in 2006

The smaller advertising budgets of advertisers ranked 11-20 were more evenly split between television and direct mail

The list of advertisers ranked 11-20 contains a more varied mix of providers

Direct mail was the most favored medium among advertisers ranked 11-20

Television advertising was also very important to competitors ranked 11-20 in 2006

Advertisers ranked 11-20 spent smaller amounts on marketing in radio, the press and outdoor

Television remains the most important medium for motor insurance providers

Direct mail remains an important advertising medium, having increased as a proportion of motor insurers budgets

Direct Line remains the leader in brand awareness in 2007

Competitive Dynamics

Introduction

Two insurers exited the private motor market in 2006 and 2007

Provident sold its motor book to GMAC in May 2007

Legal & General ceased underwriting new private motor policies in 2006

The top 10 private motor insurers lost market share in 2006, although the market remained highly consolidated

Market leader RBSI maintained its grip on the private motor market in 2006

The top 10 private motor insurers lost market share in 2006

A number of the largest private motor insurers grew market share in 2006, despite competitive conditions

Direct Line's GWP remained stable in 2006

Royal & SunAlliance raised its market share and increased premium income in 2006

Fortis grew its private motor insurance market share in 2006 due to an increase in policy numbers

NIG grew its presence in the motor insurance market, gaining market share and GWP in 2006

Competitive conditions resulted in some top 10 players losing market share in 2006

The market leader, Norwich Union, lost the most market share of the top 10 in 2006

Churchill lost market share in 2006 as its non-comprehensive book contracted severely

Zurich's private motor GWP declined in 2006, leading to a contraction in market share

CIS's market share contracted in 2006 due to lower premium income

Two players, UKI and esure, saw no change in market share between 2005 and 2006

esure joined the top 10 private motor insurers despite decreasing private motor premium income

UKI saw its market share increase in 2006, though premium income declined

Mid-tier private motor insurers retained market share overall in 2006

Only a few private motor insurers in the 11-20 bracket managed to increase market share in 2006

AXA's private motor book rebounded in 2006 increasing by a substantial 43.5% in GWP terms

The NFU Mutual experienced modest premium income growth in 2006

Aioi Motor & General increased market share and premium income in 2006

Five mid-tier insurers lost market share in 2006

LV's market share declined by 0.3 percentage points in 2006 as it allowed premium income to contract

Provident's book continued to contract in 2006 as it sought to exit the UK private motor market

Groupama's private motor insurance book declined in 2006

HSBC experienced a decline in its private motor account in 2006

Allianz's GWP declined by more than 10% in 2006

Two mid-tier insurers saw minor declines in premium income but maintained market share in 2006

Highway's private motor book experienced a contraction in 2006, but maintained market share

MMA's market share remained stable although GWP reduced by 3.3% in 2006

Most of the top 10 insurers write some non-comprehensive and commercial business

Comprehensive premium income dominated the books of the largest private motor insurers

Six of the top 10 private motor insurers also write commercial motor insurance

The largest private motor insurers also tend to be the largest total motor insurers

The average loss ratio among the top 10 UK motor insurance providers declined in 2006 with AXA, Norwich Union and Churchill recording the biggest improvements

In 2006, the average loss ratio of the top 10 UK motor insurers fell by 3.3 percentage points to 71.1%

AXA, Norwich Union and Churchill recorded the strongest loss ratio reductions

Four insurers recorded loss ratio deterioration

The average expense ratio of the top 10 UK motor insurers declined by 0.7 percentage points in 2006, with Churchill, AXA, NIG and Royal & SunAlliance recording above-average reductions

The average expense ratio of the top 10 UK motor insurers declined by 0.7 percentage points in 2006

Churchill, AXA, NIG and Royal & SunAlliance recorded above-average expense ratio decline

Norwich Union, Zurich and NFU Mutual recorded the highest increases in their expense ratios

The average combined ratio of the top 10 motor insurers fell by four percentage points in 2006, with AXA and Churchill seeing significant declines

The average combined ratio of the top 10 motor insurers declined by four percentage points in 2006

AXA and Churchill recorded significant reductions in combined ratio in 2006

NIG, Direct Line and Zurich recorded combined ratio increases

Future Decoded

Introduction

Private motor GWP is forecast to reach £12.5 billion by 2012 under neutral market conditions

A hardening market in 2008 and 2009 should result in significant premium rate growth

The UK private motor insurance market is predicted to be worth £12.5 billion in 2012

The private motor insurance market is forecast to reach profitability in 2009

Under optimal conditions the private motor market will reach £12.9 billion by 2012

Less competition could allow for greater price increases in 2008 and 2009

The market will grow by over 10% in 2008 allowing it to reach a value of £12.9 billion in 2012

With less competitive pricing the market will produce three years of profits

In the pessimistic scenario GWP will only reach £12.4 billion in 2012 as competition keeps premium inflation down in 2008

More intense competition will keep premium rate increases low according to the pessimistic scenario

The private motor insurance market will only reach a value of £12.4 billion in 2012 in the pessimistic scenario

Underwriting losses will continue throughout the forecast period in the pessimistic scenario

The total motor market, under neutral conditions, will reach a value of £16.6 billion in 2012

The total motor market is forecast to grow at 4.3% a year in the forecast period

The total market is forecast to return an underwriting profit in 2008

APPENDIX

Supplementary data

New registrations of cars and light goods vehicles by taxation class

Definitions

Premium income measures

Earned premiums

Gross Premium

Net Premium

Written premiums

Other definitions

Channel

Direct insurer/writer

Brokers

Bancassurers

Brandassurers

Platform

2005-06 definitions for line of business

Motor

Total private motor

Total commercial motor

Private motor comprehensive

Private motor non-comprehensive

Motorcycle

Fleets

Commercial vehicles (non-fleet)

Pre-2005 definitions for lines of business

Motor

Methodology

Primary and secondary research

Market size

Changes in market size information

Market size methodology

Lloyd's players and underwriting result figures

Competitor data

CIS

GWP versus GEP reporting

Home-Foreign, overseas and facultative reinsurance business

Advertising statistics

Isis MORI methodology and contacts

Sample design

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: UK private motor insurance premium income, 2002-06, (£m)

Table 2: Comprehensive/non-comprehensive split of the UK private car parc, 1996-2006e

Table 3: UK private motor insurance premium income by line of business 2002-07e, (£m)

Table 4: Average quarterly premiums for UK comprehensive and non-comprehensive insurance, 2002-07

Table 5: Cars licensed in Great Britain by body type, 1996-2006

Table 6: New private car registrations in Great Britain by body type as a percentage of the total private car parc, 2002−06

Table 7: Age composition of 2006 car parc, 2006

Table 8: Number of motorcycles and new registrations in Great Britain, 2002-06, (000s)

Table 9: UK private motor underwriting result, 1996-2006, (£m)

Table 10: Detailed private motor underwriting account in the UK, 2002-06, (£m)

Table 11: UK net claims as a proportion of total outgoings, 2002-06, (£m)

Table 12: Average motor claims costs, 2002-06, (£)

Table 13: UK Average claims cost of bodily injury claims notified two years previous, 2002-06, (£)

Table 14: Total number of road accidents in the UK, 1996-2006, (000s)

Table 15: Road traffic accidents relative to registered vehicles in Great Britain 1996-2006, (000s)

Table 16: Deaths, seriously and slightly injured casualties resulting from UK road traffic accidents, 2002-06

Table 17: Theft of and from motor vehicles in the UK, 1996-2006/7

Table 18: UK motor insurance premium income, 2002-06, (£m)

Table 19: UK motor insurance underwriting account 1996-2006, (£m)

Table 20: UK private and commercial motor underwriting results, 1996-2006, (£m)

Table 21: Motor insurance GWP distribution by channel, 2002-06

Table 22: Distribution of private motor insurance, by platform, 2003-07

Table 23: Private motor retention rates, 2003-07

Table 24: Propensity to switch motor provider and likelihood of getting other quotes, by distribution platform, 2007

Table 25: Private motor retention rates by age, 2003-07

Table 26: Motivations for taking out a motor insurance policy, by distribution platform, 2007

Table 27: Reasons for choosing current motor insurance policy by age, 2007

Table 28: Sources of information for motor policy, by age, 2007

Table 29: Advertisement spending by type of insurance provider, 2006

Table 30: Top 10 motor insurance advertisers, 2004-06

Table 31: Top 10 motor insurance advertisers' spend by media, 2006

Table 32: Motor insurance advertisers' spending by media, 2006

Table 33: Top 10 TV advertisers, 2006

Table 34: Top 10 direct mail advertisers, 2005-6

Table 35: Top 10 motor insurers by advertising spend and brand awareness of motor insurers, 2007

Table 36: Top 10 insurance providers by spontaneous recognition, 2007

Table 37: Top 10 UK private motor insurers' market share in 1996, 2005 and 2006

Table 38: Top 10 UK private motor insurers by market share, 2002-06

Table 39: Top 10 UK private motor insurers by premium income, 2002-06, (£000s)

Table 40: UK private motor insurers ranked 11-20 by market share, 2002-06

Table 41: UK private motor insurers ranked 11-20 by premium income, 2002-06, (£000s)

Table 42: Top 10 UK private motor insurers' comprehensive and non-comprehensive shares of total GWP, 2005-06, (£000s)

Table 43: Top 10 UK private motor insurers' GWP split by private and commercial, 2006, (£000s)

Table 44: Top 10 UK motor insurers' GWP split by private and commercial, 2006, (£000s)

Table 45: Change in premium income compared to change in loss ratio, top 10 UK motor insurers, 2005−06

Table 46: Change in premium income compared to change in expense ratio, top 10 UK motor insurers, 2005−06

Table 47: Change in premium income compared to change in combined ratio, top 10 UK motor insurers, 2005−06

Table 48: Key variables affecting private motor insurance GWP, neutral scenario, 2002-12f

Table 49: UK private motor insurance GWP forecast, neutral scenario, 2002-12f

Table 50: UK private motor insurance underwriting account forecast, neutral scenario, 2002-12f, (£m)

Table 51: Key variables affecting private motor insurance GWP, optimistic scenario, 2002-12f

Table 52: UK private motor insurance GWP forecast, optimistic scenario, 2002-12f

Table 53: UK private motor insurance underwriting account forecast, optimistic scenario, 2002 -12f, (£m)

Table 54: Key variables affecting private motor insurance GWP, pessimistic scenario, 2002-12f

Table 55: UK private motor insurance GWP, pessimistic scenario, 2002-12f

Table 56: UK private motor insurance underwriting account forecast, pessimistic scenario, 2002-12f, (£m)

Table 57: Total UK motor insurance GWP 2002−12f, neutral scenario, 2002-12f

Table 58: UK total motor insurance underwriting account, 2002-12f (£m)

Table 59: Cars and light goods vehicles registered by taxation class, 1996-2006, (000s)

List of Figures

Figure 1: The percentage of consumers arranging their motor insurance online in the UK has been increasing steadily since 2003

Figure 2: The top 10 UK insurers controlled more of the market in 2006 than in 1996

Figure 3: The UK private motor insurance market grew in 2007 as premium rates hardened

Figure 4: Fewer vehicles had non-comprehensive cover in the UK in 2006

Figure 5: The main UK private motor lines once again declined in 2006 before recovering in 2007

Figure 6: Both sectors of the UK private motor market experienced significant premium rate inflation in 2007

Figure 7: UK comprehensive premium rates increased significantly in 2007

Figure 8: New private cars in Great Britain have declined in number since 2002

Figure 9: Less than a third of the UK car parc was older than 12 years old in 2006

Figure 10: In Great Britain, growth in motorcycle numbers has been slowing since 2005

Figure 11: The UK underwriting result deteriorated sharply in 2006

Figure 12: Average motor claims costs have risen every year since 2002 in the UK

Figure 13: The average UK claims cost for bodily injury claims was higher than for other claim types in 2006

Figure 14: UK road accidents peaked in 1997 and have fallen ever since

Figure 15: Accidents in the UK have fallen despite a steady increase in the number of vehicles

Figure 16: Casualties continued to decline across all categories in 2006

Figure 17: Theft of and from motor vehicles continued to decline in 2006/7

Figure 18: Commercial motor was the weaker market in 2006 declining more than private motor

Figure 19: The UK motor insurance market reported a loss of £204m in 2006

Figure 20: The UK private and commercial motor underwriting results diverged after 2001

Figure 21: The partnership channel has increased its share of the private motor market in recent years

Figure 22: The percentage of consumers arranging their motor insurance online has been increasing steadily since 2003

Figure 23: Around three quarters of motor insurance consumers stay with the same company at renewal

Figure 24: Consumers purchasing their motor insurance online were more likely to change their insurance provider in 2007

Figure 25: Older consumers were more likely to stay with their current providers in 2007

Figure 26: Obtaining a cheaper quote was the most common reason for choosing a provider across all distribution platforms in 2007

Figure 27: Reputation was a factor more valued by older consumers than younger ones in 2007

Figure 28: Use of web-based materials was most common among young consumers in 2007

Figure 29: Most older consumers value previous experiences with providers in 2007

Figure 30: Insurers dominate advertising spend for motor insurance, but brokers' spend grew in 2006

Figure 31: Television remained the medium of choice for most of the top 10 advertisers in 2006

Figure 32: Television and direct mail account for almost 90% of spending by advertisers ranked 11-20

Figure 33: Spontaneous consumer awareness of motor insurers against advertising expenditure, 2006

Figure 34: The top 10 insurers controlled more of the market in 2006 than in 1996

Figure 35: Norwich Union remained the single largest insurer in the UK market in 2006

Figure 36: Insurers in the 11-20 segment showed very little difference in market share in 2006

Figure 37: None of the top 10 insurers wrote a substantial part of their business in the non-comprehensive market

Figure 38: Most of the top 10 UK private motor insurers also maintain a presence in the commercial market

Figure 39: The top 10 UK private insurers dominate the top motor rankings due to the size of their private books

Figure 40: While the average loss ratio of the top 10 UK motor insurers fell in 2006, NIG and Direct Line saw increases in their ratios

Figure 41: Norwich Union saw the biggest increase in private motor expense ratio in 2006

Figure 42: NIG saw the biggest increase in combined ratio in 2006

Figure 43: Private motor GWP is forecast to grow significantly in 2008 and 2009

Figure 44: Private motor is forecast to make a small profit in 2009

Figure 45: Less competition allows for a stronger rally in comprehensive premium income and higher private motor GWP in the optimistic scenario

Figure 46: In the optimistic scenario stronger premium growth results in three years of underwriting profits

Figure 47: In the pessimistic scenario, GWP growth is expected to be subdued from 2008 onwards

Figure 48: In the pessimistic scenario, the market fails to reach a profit in the forecast period

Figure 49: After four years of declines, the total motor market is expected to begin growing again in 2008

Figure 50: The UK motor market is forecast to be profitable for a total of four years starting in 2008

Figure 51: New cars and light goods have declined again as a proportion of the total parc

Abstract

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