UK Commercial Motor Insurance 2007

Published by: Datamonitor

Published: Feb. 20, 2008 - 114 Pages

Table of Contents

OVERVIEW

Catalyst

Summary

Executive Summary

The commercial motor market declined in 2006, before growing marginally in 2007

Commercial motor GWP contracted to £3.37 billion in 2006 before a modest recovery in 2007

GWP was influenced by declines in premium rates and slow growth in vehicle numbers in 2006 and 2007

The commercial motor parc grew in 2006, though the number of company cars fell

Competitive pressures have forced down premium rates in both segments of the commercial motor market

Commercial motor underwriting profits unexpectedly rose in 2006 as outgoings fell

Brokers continued to dominate the distribution of commercial insurance

National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers

The direct channel increased its share of commercial insurance GWP by 1% in 2006

Many top 10 commercial motor insurers experienced shrinking books in 2006

The market remained highly concentrated despite the top 10 losing market share

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

The commercial motor market is forecast to harden in 2008 and reach £4.1 billion by 2012

The commercial motor market is forecast to harden in 2008 and reach £4.1 billion by 2012

Commercial motor underwriting profits are forecast to reach a height of £327 million in 2010

Table of Contents

Table of figures

Table of tables

Market Context

Introduction

The commercial motor market declined in 2006, before growing marginally in 2007

Commercial motor GWP contracted to £3.37 billion in 2006 before a modest recovery in 2007

Commercial motor premium income contracted by 1% in 2006, driven by premium rate decreases

The commercial motor insurance market grew slightly in 2007 and was worth an estimated £3.4 billion

Fleet premium income contracted in 2006 but rebounded slightly in 2007

The commercial vehicle market declined slightly in 2006 before increasing by an estimated 1.3% in 2007

GWP was influenced by declines in premium rates and slow growth in vehicle numbers in 2006 and 2007

The commercial motor parc grew in 2006, though the number of company cars fell

Company cars declined as a proportion of the commercial motor parc

Company cars fell as a proportion of the total car parc

New registrations were down in 2006 as fewer new goods vehicles, buses and coaches were registered

New company car registrations also declined as a proportion of car registrations in 2006

Competitive pressures have forced down premium rates in both segments of the commercial motor market

Fleet premium rates saw declines in 2006 and 2007 due to competitive pressure

Commercial vehicle premium rates have come under pressure from insurers targeting SME business

Commercial motor underwriting profits unexpectedly rose in 2006 as outgoings fell

Underwriting profits increased to £244 million in 2006, despite the soft market

The drop in total outgoing was caused by a decrease in claims incurred, as commissions and expenses grew

Claims incurred dropped as a proportion of total outgoings in 2006

Growth in commissions and expenses constrained the growth in profits

Claims inflation remains dominated by rising personal injury costs, though falling accident rates have given insurers some respite

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

Insurers have tried a variety of solutions to limit the cost and volume claims caused by traffic accidents

Some early adopters have begun using telematics to control fleet claims costs

Smart Drive and online training have also been used to correct bad driving behavior

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

The commercial and private motor market both contracted in 2006 but diverged in terms of profits

The private motor market contracted along with the commercial market in 2006

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

Despite both being in a soft market, the private and commercial markets record very different underwriting results

Distribution Dynamics

Introduction

Brokers continued to dominate the distribution of commercial insurance

National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers

The direct channel increased its share of commercial insurance GWP by 1% in 2006

Affinity groups remain a small channel for the distribution of commercial insurance

Banks and building societies continue to play a small role in the distribution of commercial insurance

Commercial motor is the line of business most at risk to the direct channel

The SME market is dominated by brokers but direct players have grown

Most SMEs buy insurance via brokers, but direct insurers also distribute a significant part of the market

Brokers remain the top choice for SMEs to approach if they had to switch provider

Many SMEs are willing to consider alternative channels when prompted

Up to 44% of SMEs would consider using a bank as an insurance provider

Almost three quarters of SMEs would be willing to consider direct insurers, in the hope of cost savings

Buying insurance via the internet and telephone is becoming more popular with SMEs

Many SMEs are open to purchasing insurance by telephone

Even more SMEs are willing to buy their insurance via the internet, showing the potential of this platform

Commercial motor and property insurance are most likely to be purchased through alternative platforms

Only a small group of SMEs are willing to switch provider, usually for a lower price

Almost 90% of SMEs are not considering a change of provider in the next year

Only 16% of SMEs have changed insurance provider in the last two years

One in 10 SMEs are considering switching their insurance provider in the next 12 months

Competitor Focus

Introduction

A few new competitors entered the market in 2007

Direct Line entered the commercial market with an SME targeted proposition in 2007

LV's broker arm ABC Insurance launched its first products in 2007 with commercial motor policies to follow

Underwriting agency Arista rolled out multiple products for the commercial motor market in 2007

Many top 10 commercial motor insurers experienced shrinking books in 2006

The market remained highly concentrated despite the top 10 losing market share

The soft market led to a reduction in market share for four of the top 10 commercial motor insurers in 2006

Norwich Union continued to lose market share in 2006

Zurich experienced a contracting book in 2006, leading to a decline in its commercial motor market share

Allianz suffered a decline in its commercial motor market share in 2006 due to the competitive market

Brit's market share declined marginally as premium income fell by 3.4%

Four top 10 commercial motor insurers increased market share in 2006

NFU Mutual expanded its commercial motor book in 2006, leading to an increase of market share to 5.5%

QBE increased market share in 2006 by maintaining its premium income despite soft market conditions

AXA increased market share in 2006 by rebuilding its commercial motor book

NIG grew its market share by 0.4 percentage points in 2006 and achieved growth of 10.9% in GWP

Two competitors saw no change in market share in 2006

The market leader Royal & SunAlliance maintained its market share in 2006 at 18.2%

Highway pursued a more selective commercial motor strategy in 2006 that led to a decline in premium income

Mid-sized commercial motor insurers gained market share in 2006

The majority of insurers ranked 11-20 gained market share in 2006

Tradex and CIS lost market share in 2006, while St Paul and Ecclesiastical saw no changes

Tradex declined to 1.5% of the commercial motor market in 2006

CIS's market share in commercial motor declined in 2006

St Paul and Ecclesiastical's market share was unchanged in 2006

A majority of the top 10 have mixed motor insurance portfolios

Fleet premium income dominated the commercial motor books of the largest insurers in 2006

The top 10 commercial motor insurers are also active in the private motor market

Private motor dominates the books of the top 10 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

The commercial motor market is forecast to harden in 2008 and reach £4.1 billion by 2012

Premium rate increases are expected to lead to an improvement in the commercial motor market

The UK commercial motor insurance market is forecast to reach a value of £4.1 billion in 2012

Commercial motor underwriting profits are forecast to reach a height of £327 million in 2010

More competitive pricing will depress future commercial motor market performance

In the pessimistic scenario, competitive pricing will depress premium income growth

The market will reach a value of £3.9 million in 2012 under more competitive conditions

The market will make a loss of £17m in 2012, the last year of the forecast period

The pessimistic scenario results in £44 million less profit for insurers

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

Motor vehicles registered by taxation class

Definitions

Premium income measures

Earned premiums

Gross Premium

Net Premium

Written premiums

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

SME

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

Home-foreign, overseas and facultative reinsurance business

UK commercial broker survey H2 2007

Datamonitor's SME Insurance Survey Q1 2007

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Commercial motor GWP, 2002-07e (£m)

Table 2: Commercial motor GWP, by line of business, 2002-07e (£m)

Table 3: Commercial motor parc in Great Britain by body type, 2002-06 (000s)

Table 4: Commercial motor parc in Great Britain by body type, 2005-06 (000s)

Table 5: Company car parc's share of total car parc, 2002-06 (000s)

Table 6: New commercial vehicle registrations in Great Britain by body type, 2002−06 (000s)

Table 7: Company cars new registrations in Great Britain, 2002-06 (000s)

Table 8: Commercial motor underwriting account, 1996-2006 (£m)

Table 9: Net claims as proportion of total outgoings, 2002-06 (£m)

Table 10: Total commercial motor gross claims costs, 2002-06 (£m)

Table 11: Detailed commercial motor underwriting account, 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 road traffic accidents, 2002-06

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

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

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

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

Table 21: Market share of distribution channels in the commercial general insurance market, 2003-6

Table 22: Market share of the market leader, the rest of the top 10 and the remainder, 1996, 2005, 2006

Table 23: Top 10 commercial motor insurers by market share, 2002-06 (%)

Table 24: Top 10 commercial motor insurers by premium income, 2002-06 (£000s)

Table 25: Commercial motor insurers ranked 11-20 by market share, 2002-06 (%)

Table 26: Premium income of commercial motor competitors ranked 11-20, 2002-06 (£000s)

Table 27: Top 10 commercial motor insurers' fleet and commercial vehicle shares of total GWP, 2006 (£000s)

Table 28: Split between commercial and private markets for the top 10 commercial motor insurers, 2006 (£000s)

Table 29: Top 10 motor insurers' GWP split by private and commercial, 2006 (£000s)

Table 30: Change in premium income compared to change in loss ratio, top 10 UK motor insurers, 2005−06

Table 31: Change in premium income compared to change in expense ratio, top 10 UK motor insurers, 2005−06

Table 32: Change in premium income compared to change in combined ratio, top 10 UK motor insurers, 2005−06

Table 33: Key variables affecting commercial motor insurance GWP, neutral scenario, 2002-12f

Table 34: UK commercial motor insurance GWP forecast, neutral scenario, 2002-12f (£m)

Table 35: UK commercial motor insurance underwriting account forecast, neutral scenario, 2002-12f (£m)

Table 36: Key variables affecting commercial motor insurance GWP, pessimistic scenario, 2002-12f

Table 37: UK commercial motor insurance GWP forecast, pessimistic scenario, 2002-12f (£m)

Table 38: UK commercial motor insurance underwriting account forecast, pessimistic scenario, 2002-12f (£m)

Table 39: UK commercial motor underwriting result forecast, neutral and pessimistic scenarios, 2002-12f (£m)

Table 40: Total motor insurance GWP forecast, neutral scenario, 2002-12f (£m)

Table 41: UK total motor insurance underwriting account, 2002-12f (£m)

Table 42: Motor vehicles registered by taxation class, 2002−06 (000s)

Table 43: New motor vehicle registrations by taxation class, 2002-06 (000s)

Table 44: Q: What business sector are you involved in?

Table 45: Q: How large is your company in terms of number of employees?

Table 46: Q: How large is your company in terms of turnover?

List of Figures

Figure 1: Commercial motor vehicles continued to increase in number in 2006

Figure 2: The top 10 commercial motor insurers have grown their share of the market since 1996

Figure 3: Commercial motor premium income grew slightly in 2007 after three years of declines

Figure 4: The commercial motor market declined in 2006 but saw a small increase in 2007

Figure 5: Commercial motor vehicles continued to increase in number in 2006

Figure 6: Light goods vehicles and company cars account for most of the commercial motor parc

Figure 7: The company car parc has remained largely stable as a proportion of the overall car parc

Figure 8: New registrations of commercial motor vehicles fell in 2006

Figure 9: New registrations for company cars declined after a rally in 2005

Figure 10: Despite falling NWP, the market attained its highest underwriting profit in 2006

Figure 11: Average motor claims costs have risen every year since 2002 in the UK

Figure 12: The average UK claims cost for bodily injury claims was higher than for other claim types in 2006

Figure 13: Road accidents peaked in 1997 and have fallen ever since

Figure 14: Accidents in the UK have fallen despite a steady increase in the number of vehicles

Figure 15: Casualties continued to decline across all categories in 2006

Figure 16: Theft of and from motor vehicles continued to decline in 2006/7

Figure 17: Commercial motor GWP declined slightly more than private motor in 2006

Figure 18: The UK motor insurance market reported a loss of £204 million in 2006

Figure 19: The private and commercial motor underwriting results diverged after 2001

Figure 20: National brokers dominate the distribution of commercial general insurance in the UK in terms of GWP

Figure 21: Commercial motor is the line of business most at risk to the direct channel

Figure 22: The distribution of insurance to SMEs remained largely under the control of brokers in 2007

Figure 23: SMEs have become more likely to consider direct insurers if they were to change provider

Figure 24: The prospect of cheaper premiums is the primary reason given for being willing to consider using a bank as an insurance provider

Figure 25: Price is the top reason given by SMEs that would consider switching to a direct insurer

Figure 26: Speed of concluding their insurance purchase is the primary reason given by SMEs willing to consider buying via the telephone

Figure 27: SMEs are willing to consider buying via the internet if it is quicker and cheaper than other platforms

Figure 28: Over half of SMEs would consider buying commercial motor online or via the telephone

Figure 29: Most SMEs do not consider dropping their current insurance provider

Figure 30: The number of SMEs staying with their provider for more than five years has increased since 2005

Figure 31: The price of insurance premiums is the most important reason why some SMEs plan to change insurance provider in the next year

Figure 32: The top 10 commercial motor insurers have grown their share of the market since 1996

Figure 33: The top insurers retained a firm grip on the market in 2006 with a 76.3% market share

Figure 34: Mid-tier competitors accounted for 10.5% of the commercial motor market in 2006

Figure 35: Most of the top 10 commercial motor insurers' books are dominated by fleet business

Figure 36: Most of the top 10 commercial motor insurers also have a large presence in the private market

Figure 37: The top private insurers dominate the top motor rankings due to the size of their private books

Figure 38: 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 39: Norwich Union saw the biggest increase in private motor expense ratio in 2006

Figure 40: NIG saw the biggest increase in combined ratio in 2006

Figure 41: The commercial motor market is predicted to harden in 2008, resulting in an increase in GWP

Figure 42: The market is forecast to return underwriting profits between 2008 and 2012

Figure 43: Future market size is constrained by more competitive pricing in the pessimistic scenario

Figure 44: Underwriting profits are forecast to decline quickly after 2009 in the pessimistic scenario

Figure 45: The forecast underwriting results of the two scenarios diverge after 2009

Figure 46: After four years of declines, the total motor market is expected to begin growing again in 2008

Figure 47: The motor market is forecast to be profitable for a total of four years starting in 2008

Abstract

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