UK Private Motor Insurance 2009

Published by: Datamonitor

Published: Jun. 22, 2009 - 13 Pages

Table of Contents

Overview

Catalyst

Summary

Executive Summary

Liverpool Victoria Group and Lloyds Banking Group have made significant progress

Liverpool Victoria Group has made a big step forward in the private motor market

Lloyds Banking Group has become the second biggest distributor of motor insurance

The market is starting to see growth and premium rate increases, spurred by unprofitability

The market is estimated to have grown by approximately 4% in 2008

Increasing premium rates were the primary reason for the expansion of the market, though rates have risen faster than GWP

Private motor insurance losses worsened in 2008

The direct channel is the primary route to market and aggregators are increasingly important

The direct channel continues to be the dominant route to market for private motor insurance

Motor insurance advertising expenditure rose as aggregators raised their marketing spend

Internet and telephone distribution are prerequisites for significant market share

Nearly half of consumers purchased their motor insurance over the internet

Many consumers continued to arrange their motor cover over the telephone

Price is the primary factor for consumers regardless of the platform they used to arrange their cover

AXA, Liverpool Victoria Group, Lloyds Banking Group and Zurich gained market share in 2008

Lloyds Banking Group recorded the largest growth in both GWP and market share in 2008

The market leading RBS group had a superior COR compared to the overall market

Lloyd's market insurers have significant exposure to the UK motor market, much of it accounted for by ERS

Losses in the market are expected to reduce as premiums increase

The UK private motor insurance market is predicted to be worth £12.5 billion in 2013

Losses are expected to reduce as premium rates rise

Table of Contents

Table of figures

Table of tables

Market Issues

Introduction

Liverpool Victoria Group and Lloyds Banking Group have made significant progress

Liverpool Victoria Group has made a big step forward in the private motor market

Lloyds Banking Group has become the second biggest distributor of motor insurance

All providers need a pricing strategy to deal with the large role aggregators have in motor distribution

Aggregators were estimated to have generated over 40% of new private motor business GWP in 2008

Over half of consumers that obtained quotes from an aggregator went on to buy one of the policies

Brokers can compete more effectively with direct insurers and affinity brands through partnering with aggregators

Aggregators have taken steps to increase the number of brokers appearing on their sites

GoCompare.com became an associated member of BIBA in May 2008

Aggregators have reinforced the commoditization of motor insurance by focusing the consumer on price

Insurers that operate on aggregators must operate on a low cost model as most consumers will choose the cheapest quote

Younger consumers are more likely to seek motor insurance quotes from price comparison sites

Aggregators' role in the market is likely to increase as more consumers seek to economize on their motor insurance

Aggregators significantly increased their marketing efforts in 2008

A number of insurers feel that aggregators are holding down premium income growth

Insurers should look to drive down the cost of credit hire and fraud

Insurers need to speed up the claims settlement process to eliminate unnecessary bills from credit hire companies on third-party non-fault claimants

An increase in uninsured driving and fraudulent claims is placing increasing pressure on UK insurers

Market Context

Introduction

The market is starting to see stronger growth rates

The market is beginning to see an upward trend in the rate of growth

The market is estimated to have grown by approximately 4% in 2008

Lloyd's market insurers have a presence in the UK motor market

Comprehensive insurance policies accounts for the bulk of the GWP in the private motor insurance market

There was an average of 24.6 million private motor policies in force in 2008

Non-comprehensive policies saw a further decline in volume

Increases in premium rates fuelled market growth

Increasing premium rates were the primary reason for the expansion of the market, though rates have risen faster than GWP

The AA's British Premium Index showed significant premium rate inflation in both sectors of the UK private motor insurance market

Both the market and shoparound average price of comprehensive private motor insurance grew strongly in 2008 and early 2009

The shoparound average price of non-comprehensive private motor insurance has been growing continually since 2007

Gender and age are important risk factors for motor insurance pricing

Total cars are up but new registrations are down

Both commercial and private motor vehicles increased marginally in 2008

The number of private cars registered for the first time decreased significantly in 2008

More than half of the car parc in Great Britain was older than six years in 2008

The total number of motorcycles in Great Britain grew in 2008, though new registrations were lower

Multicar discounts tap into the large proportion of UK homes with more than one car

Claims costs continue to increase

Claims inflation continues to plague the market due to escalated bodily injury claims and credit hire costs

Insurers are benefiting from falling claims frequencies

In recent years, claims frequency has fallen

Falling road traffic accident rates mean fewer opportunities for expensive personal injury claims to arise

Road traffic accident numbers fell in 2008, continuing a trend from previous years

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

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

The combined ratio for the private motor market appears to be peaking

Private motor insurance losses worsened in 2008

The total motor insurance and private motor insurance COR should start reducing in the coming years

The market continued to make significant reserve releases in 2008

The industry made substantial reserve releases in 2008, though they were at a lower level than in 2007

Distribution Dynamics

Introduction

The direct channel is the primary route to market

The direct channel continues to be the dominant route to market for private motor insurance

The broker channel is the second largest distribution channel for private motor insurance

Corporate partnerships also play a strong role in the distribution of private motor insurance

Banks and building societies have a market share of 7%

Direct Line was the top provider of private motor insurance policies and has a particularly strong hold of younger consumers

Large insurers dominate the male private motor insurance market, though some brands appeal to this market more than others

Direct insurers and aggregators have fueled increases in motor insurance advertising

Motor insurance advertising expenditure increased to £205.3m as aggregators raised their marketing spend

The top 10 motor advertisers were dominated by direct insurers and aggregators in 2008

Plans suggest that both aggregators and direct insurers will continue to invest in motor insurance advertising

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

Most of the top 10 motor advertisers spent the majority of their budgets on television advertising in 2008

Direct mail advertising was used by all of the top 10 motor insurance advertisers

Press, outdoor and radio advertising were used sparingly by the top 10 motor insurance advertisers in 2008

Motor insurance advertisers ranked 11-20 spent more of their marketing budget on direct mail

Direct mail was the largest element of the motor insurance campaigns for advertisers ranked 11-20

Television advertising was also very important to advertisers ranked 11-20 in 2008

The largest direct mail and TV advertisers pursued differing strategies with their marketing spend

Direct insurers and aggregators constituted all of the top 10 largest television advertisers in 2008

Brokers featured much more prominently among the direct mail top 10 motor insurance advertisers

Customer Focus

Introduction

The market for private motor insurance is large, with penetration highest among older and more affluent consumers

Older consumers are more likely to have motor cover, validating the strategy of those catering to over 50s

Consumers in the DE social grade are the least likely to have motor insurance

Internet and telephone distribution are prerequisites for significant market share

Nearly half of consumers purchased their motor insurance over the internet

Many consumers continued to arrange their motor cover over the telephone

Few consumers arranged their motor insurance through the post or face-to-face

Consumers aged over 60 were the least likely to use the internet to arrange their motor cover

The internet was the most popular platform for arranging motor insurance across all social grades

It is easier to grow market share among consumers that are young or use the internet

Younger consumers are more likely to change their provider, presenting an opportunity to gain new customers

Half of consumers who arranged their motor insurance via the internet switched their insurance provider

Internet shoppers were least loyal to their motor insurance providers

Insurers need low prices to appeal to the greatest number of motor insurance consumers

Price was cited most often by consumers as a factor in their choice of motor insurance provider

Price is the primary factor for consumers regardless of the platform they used to arrange their cover

Insurance providers from all distribution channels need to have low price strategies

Competitive Dynamics

Introduction

AXA, Liverpool Victoria Group, Lloyds Banking Group and Zurich gained market share in 2008

Lloyds Banking Group recorded the largest growth in both GWP and market share in 2008

Zurich's private motor GWP increased in 2008, leading to a rise in market share

Liverpool Victoria's market share increased substantially in 2008 due to organic growth and acquisition

Swiftcover boosted AXA's private motor book

RBS, Aviva, RSA and Fortis all remained in the top five private motor insurance groups

RBS remained the largest private motor insurance group by a significant margin

Direct Line and Churchill saw their GWP contract

UK Insurance's and NIG's contractions were the result of decreases in both their comprehensive and non-comprehensive books in 2008

Aviva comfortably retained its position as the second largest group

RSA was the fourth largest private motor insurance group

Fortis was the fifth biggest private motor insurance group

NFU Mutual increased its GWP in 2008 to £203.3m

Munich Re's private motor market share declined to 3.6% in 2008

FIM Holdings, Admiral and Brit all took on a sizable amount of premiums in 2008

FIM Holdings boosted its market share to 1.9%

Admiral Insurance Company Ltd's GWP increased substantially

Brit Insurance more than doubled its private motor insurance premium income in 2008

The Binomial Group experienced marginal growth in market share in 2008 despite robust growth in premium income

Groupama's private motor insurance GWP increased by 3.6% in 2008, though its market share remained unchanged

The Co-operative's market share contracted in 2008 to 2.1% due to lower premium income

Allianz's GWP declined by 8.0% resulting in a lower private motor market share

HSBC's private motor book declined by 2.6%

MMA's market share declined as GWP fell by 0.7% in 2008

QBE's 2008 market share declined by 0.1 percentage points due to lower premium income

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

Comprehensive premium income dominated the largest private motor insurers' books

RBS Group had over 6.7 million private comprehensive policies in force in 2008

A number of Gibraltar-based insurers write a large amount of UK private motor insurance business

The Acromas Group writes significant volumes of private motor insurance through Acromas Insurance Company

Zenith writes both commercial and private motor insurance from Gibraltar

Gibraltar-based Advantage writes insurance for the Hastings group

Quinn Direct is one of the largest foreign insurers in the UK motor insurance market with large private and commercial books

Lloyd's syndicates also have a strong presence in the UK motor sector

Lloyd's market insurers have significant exposure to the UK motor market

Equity Red Star has the largest UK motor insurance book at Lloyd's

Chaucer has expanded its UK motor presence

Amlin acquired the book of HCC, increasing its exposure to the UK motor insurance market

KGM Motor Insurance increased its UK motor insurance exposure the most of any Lloyd's insurer

RBS, Zurich, Fortis and RSA beat the market average COR

The RBS group had a superior COR compared to the overall market

Zurich, Fortis and RSA recorded CORs which were below the market average

The top 10 groups all made reserve releases to lower their reported year CORs

The top 10 private motor insurers relied on reserve releases to lower their reported CORs

Future Decoded

Introduction

Losses in the market are expected to reduce as premiums increase

Conditions in the private market are forecast to allow for further increases in premium rates

The UK private motor insurance market is predicted to be worth £12.5 billion in 2013

Losses are expected to reduce as premium rates rise

Appendix

Definitions

ABI members

Accident year combined ratio

Bancassurers

Brokers

Brandassurers

Channel

Direct insurer/writer

Earned premiums

Gross premium

Net premium

Platform

Reported year combined ratio

Reserve development

Written premiums

Methodology

Datamonitor's Home and Motor Insurance Survey

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Market share of Liverpool Victoria Group, 2008

Table 2: Once you had obtained quotes from the price comparison site, did you buy one of the policies or were you just using the site for research purposes?

Table 3: What made you decide to buy from this comparison site?

Table 4: When your car insurance policy last came up for renewal, did you visit any price comparison sites to obtain quotations?

Table 5: Would you use a price comparison site in the future to obtain quotations for car insurance?

Table 6: Change in average premium rates and total private motor market size, 1996-2008

Table 7: UK motor insurance NWP split between ABI members and Lloyd's, 2007 (£m)

Table 8: Private motor GWP by line of business, 2005-08e (£m)

Table 9: Motor policies in force, 1998-2008

Table 10: Average private motor insurance premium rates, Apr 2007-Apr 2009 (£)

Table 11: Example of average premiums quoted by sex and age

Table 12: Cars licensed in Great Britain by body type, 1998-2008 (000s)

Table 13: New private cars registrations in Great Britain by body type as a percentage of the total private car parc, 2004-08 (000s)

Table 14: Age composition of car parc, 2008 (000s)

Table 15: Number of motorcycles and new registrations in Great Britain, 2004-08 (000s)

Table 16: UK households with a private car, 2001-06

Table 17: Average motor claim costs, 2003-07 (£)

Table 18: Total number of road accidents in the UK, 1998-2008* (000s)

Table 19: Road traffic accidents relative to registered vehicles in Great Britain, 1998-2008 (000s)

Table 20: Deaths, seriously and slightly injured casualties resulting from UK road traffic accidents, 2004-08*

Table 21: Accident and reported year COR, private motor market, 2005-08 (%)

Table 22: Private motor insurance GWP distribution by channel (all business), 2004-08e

Table 23: With which of these insurance providers are you insured for your motor insurance?

Table 24: Advertising expenditure spent, by channel of top insurance providers, 2007-08 (£)

Table 25: Advertising expenditure spent by channel of top motor insurance advertisers, 2008 (£)

Table 26: Top 10 motor insurance advertisers, 2007-08 (£)

Table 27: Top 10 motor insurance advertisers' advertising expenditure by medium, 2008

Table 28: Top 11-20 motor insurance advertisers' expenditure by medium, 2008 (£)

Table 29: Top 10 motor insurance TV advertisers, 2007-08 (£)

Table 30: Top 10 motor insurance direct mail advertisers, 2007-08 (£)

Table 31: How did you arrange the motor insurance policy you currently have?

Table 32: Distribution of private motor insurance, by age and platform, 2008

Table 33: Distribution of private motor insurance, by socio-economic group, 2008

Table 34: Propensity to switch motor insurance provider and likelihood of getting other quotes by age, 2008

Table 35: Propensity to switch motor insurance provider and likelihood of getting other quotes by distribution platform, 2008

Table 36: Why did you take out your motor insurance with your current provider? (%)

Table 37: Why did you take out your motor insurance with current provider? (%)

Table 38: GWP and market share of the top 10 UK private motor insurance groups, 2007-08

Table 39: GWP and market share of the top 11-20 UK private motor insurers, 2007-08

Table 40: Top 10 private motor insures' comprehensive and non-comprehensive book, 2007-08 (%)

Table 41: Private comprehensive vehicle years for the top 10 private motor insurance groups, 2008 (000s)

Table 42: UK motor insurance NWP split between ABI members and Lloyd's, 2007 (£m)

Table 43: Motor insurance GWP of selected Lloyd's insurers with large UK motor exposure, 2007-08

Table 44: Accident year combined ratio and underwriting profit/loss for private motor business, top 10 motor insurance groups, 2008

Table 45: Reported year combined ratio and underwriting profit/loss for private motor business, top 10 motor insurance groups, 2008

Table 46: Key variables affecting private motor insurance GWP, 2009e-13f

Table 47: Forecast of UK private motor insurance GWP,2009-2013 (£m)

Table 48: Private motor GWP by line of business, 2005-13f (£m)

Table 49: Forecast of accident year COR, private motor market, 2009-2013f (%)

Table 50: Consumer survey sample sizes by age and income

List of Figures

Figure 1: Lloyds Banking Group has become the second biggest distributor of private motor insurance

Figure 2: Liverpool Victoria Group's market share has been catapulted to 4.5% following the acquisition of Highway Insurance

Figure 3: Lloyds Banking Group has became the second biggest distributor of private motor insurance

Figure 4: Aggregator-instigated private motor sales grew significantly in 2008

Figure 5: Over half of consumers that obtained car insurance quotes went on to buy one of the policies

Figure 6: It is essential that insurers on aggregators can offer the cheapest price to consumers

Figure 7: Higher risk younger consumers are more likely to use an aggregator to arrange their motor cover

Figure 8: A large proportion of consumers were willing to visit a price comparison site in the future

Figure 9: Aggregators were focused on building their brand in 2008 through large marketing outlays

Figure 10: The private motor insurance market is starting to see stronger growth rates

Figure 11: Lloyd's syndicates underwrote £1 billion of motor insurance business in 2007

Figure 12: Comprehensive motor insurance premium income has driven the increase in overall GWP

Figure 13: Comprehensive policies make up the vast majority of the private motor market

Figure 14: Comprehensive policies are taking a greater share of policies in force

Figure 15: Both the market and shoparound average price of comprehensive private motor insurance grew strongly in 2008 and early 2009

Figure 16: The shoparound average price of non-comprehensive private motor insurance has been continually growing since the beginning of 2007

Figure 17: The number of new private cars has been declining in Great Britain over the last five years

Figure 18: Half of the UK car parc was older than six years in 2008

Figure 19: Great Britain witnessed a decline in new motorcycle numbers while total numbers grew in 2008

Figure 20: Multicar households have become more popular

Figure 21: The average motor claim cost continued to rise rapidly in 2007 at 14.1%

Figure 22: Insurers have benefitted from falling claims frequency

Figure 23: The number of UK road accidents has continued to fall since 1998

Figure 24: Accidents in the UK have fallen despite a steady increase in the number of vehicles

Figure 25: Casualties continued to decline across all categories in 2008

Figure 26: The private motor insurance COR appears to be peaking

Figure 27: The rate of increase in the private motor COR is slowing

Figure 28: Private motor insurers continued to make reserve releases in 2008 to improve their reported year COR

Figure 29: The direct channel continues to be the number one route to market for private motor insurance

Figure 30: Direct Line is the number one private motor insurance brand while Saga clearly scores well with the over 60s

Figure 31: Direct Line and Saga are the two most popular brands for male private motor insurance policyholders

Figure 32: Sheilas' Wheels and the Post Office enter the top 10 in the female private motor insurance market

Figure 33: Aggregators' advertising expenditure increased substantially in 2008

Figure 34: More Th>n offered gifts to help motorists through the cold snap

Figure 35: Swiftcover.com launched a £25m advertising campaign-Get a Life -in January 2009

Figure 36: Television remained the most popular medium choice for the top 10 advertisers in 2008

Figure 37: Television and direct mail remained the dominant form of advertising media among motor insurance advertisers ranked 11-20

Figure 38: Consumers aged over 60 possess the highest penetration rate for private motor insurance cover

Figure 39: Consumers with higher incomes have higher penetration rates

Figure 40: Consumers with higher socio-economic group have higher penetration rates

Figure 41: Most consumers purchase their car insurance policy on the internet or by phone

Figure 42: Internet distribution is most popular among 18-29 year olds

Figure 43: Internet was the most popular platform to arrange the motor insurance across different social grades

Figure 44: Private motor insurance retention rates improve significantly as age increases

Figure 45: Private motor insurance retention rates were lowest for internet consumers

Figure 46: Internet shoppers were least loyal to their motor insurance providers

Figure 47: Price was a factor in provider choice for most motor insurance consumers in 2008

Figure 48: Price is the primary factor for consumers across all platforms

Figure 49: 94% of consumers who arranged their motor insurance with aggregators were seeking a cheaper quote

Figure 50: Lloyds Banking Group, AXA, Liverpool Victoria and Zurich gained market share in 2008

Figure 51: FIM Holdings achieved significant growth in market share

Figure 52: All of the top 10 private motor insurers underwrite primarily in the comprehensive market

Figure 53: RBS had over 6.7 million private comprehensive policies in force in 2008

Figure 54: Lloyd's syndicates underwrote £1 billion of motor insurance business in 2007

Figure 55: RBS, RSA, Fortis and Zurich recorded below average CORs

Figure 56: CORs after reserve releases ranged from 100% to 114.1%

Figure 57: Growth in premium income is forecast to be strong as unprofitability spurs rate increases

Figure 58: The market will continue to be based primarily on comprehensive policy income

Figure 59: The COR for the private motor sector will gradually improve

Abstract

• Private motor insurance distribution trends analyzed by channel, platform and provider.
• Analysis of the effects aggregators are having on the distribution and underwriting of private motor insurance.
• Detailed market growth and profitability forecasts based on Datamonitor's in-house model and expertise.

• Understand what motivates consumers to buy motor insurance and which consumers are most likely to switch provider at renewal.
• Benchmark your company against your competitors based on market share data and profitability ratios.
• Develop your future business plans from an informed viewpoint with Datamonitor's market forecast.

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