Claims Management in UK General Insurance 2009

Published by: Datamonitor

Published: Jul. 29, 2009 - 16 Pages

Table of Contents

Overview

Catalyst

Summary

Executive Summary

Changing customer attitudes towards insurance fraud are driving an increase in fraudulent claims

Fraudulent claims are estimated to have been valued at £730m in 2008

Insurers have strengthened their existing counter fraud measures to combat fraudulent claims

2008 was a far better year for household insurance claims costs due to fewer flood claims

Claims costs fell by a quarter in 2008

Escape of water claims increased by 13.7% to £662m in 2008

Total claims handling efficiency declined in the UK general insurance market in 2008

The ratio of total claims management costs to total net claims incurred increased to 5.4% in 2008

The ratio of motor claims management costs to net claims incurred improved by 0.3 percentage points in 2008

The ratio of property claims management costs to net claims incurred deteriorated by 0.5 percentage points in 2008

Claims handling efficiency declined in the liability market in 2008

Motor claims costs are forecast to have a CAGR of 3.6% between 2009 and 2014, driven by rising fraud, personal injury and vehicle repair costs

Fraud, personal injury and rising vehicle repair costs will place an upward pressure on motor claims costs

Total motor claims costs will reach £10.5 billion, an increase of 3.6% per year between 2009 and 2014

Market Issues

Introduction

Changing customer attitudes towards insurance fraud are driving an increase in fraudulent claims

Fraudulent claims are estimated to been valued at £730m in 2008

Insurers have strengthened their existing counter fraud measures to combat fraudulent claims

Credit hire costs and uninsured driving are increasing the level of claims costs in the motor insurance market

Insurers will benefit from increasing the speed of the claims settlement process in order to minimize third party claims costs

An increase in uninsured driving and fraud is placing pressure on UK motor insurers

The government plans to implement continuous insurance enforcement

Escape-of-water claims and the cost of commercial fires are driving up claims costs in the property insurance market

The recession has increased the incidence of arson and fraudulent property claims

Escape-of-water claims have increased significantly in the UK household insurance market

The recession has had an adverse impact on the UK liability insurance market

The employers' liability market has seen an increase in fraudulent personal injury claims

Claims are expected to increase in the professional indemnity and directors' and officers' insurance markets

Market Context

Introduction

Increases in average motor claims costs have been driving up the total claims bill

Net claim costs increased by an estimated 3.8% in the private motor market and 4.6% in the commercial motor market

Motor insurers are benefiting from falling claims frequencies

In recent years, claims frequency has fallen

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

Falling road traffic accident rates mean there are 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

Of all the major perils, fire claims cost the commercial property insurance market the most

Commercial property claims costs resulting from fire and theft increased in 2008

More than half of the total claims cost in commercial property insurance arose from fires in 2008

Weather related commercial property claims decreased significantly in 2008

Business interruption claims costs following fire grew by 21.7% in 2008

The cost of commercial property insurance theft claims increased marginally in 2008

The average value of a theft claim increased to £4,515 in 2008

2008 was a far better year for household insurance claims costs due to fewer flood claims

Claims costs fell by a quarter in 2008

Escape of water claims increased by 13.7% to £662m in 2008

Claims relating to flood and storm damage fell significantly in 2008

Domestic fire claims costs increased in 2008

Accidental damage claims costs declined to £397m in 2008

The average value of a theft claim rose by 7.4% to £1,086 in 2008

The number of burglaries increased slightly in 2007/8

Older and settled homeowners continue to represent the best theft risks for insurers

2008 was a good year for subsidence claims as costs fell

The number of employers' liability claims decreased in 2008

The number of personal injury accident claims rose by nearly 12% in 2008-09

The number of personal injury disease claims fell by a significant 20.6%

Employers' liability claims volumes have declined significantly in recent years

Workplace accidents and work-related ill-health continued to fall in 2007-8

The number of workplace injuries dropped in 2007-08

Workplace fatalities decreased by 4.7% in 2007-08

Competitive Dynamics

Introduction

Total claims handling efficiency declined in the UK general insurance market in 2008

The ratio of total claims management costs to total net claims incurred increased to 5.4% in 2008

The ratio of motor claims management costs to net claims incurred improved by 0.3 percentage points in 2008

The ratio of property claims management costs to net claims incurred deteriorated by 0.5 percentage points in 2008

Claims handling efficiency declined in the liability market in 2008

The average ratio of the 20 most efficient motor claims insurers stood at 4.5% in 2008

Cornish Mutual achieved the lowest ratio of motor claims management costs to net claims incurred in 2008

FIM holdings witnessed the largest improvement in its motor claims management efficiency in 2008

The average ratio of the 20 most claims-efficient property insurers rose by 0.2 percentage points in 2008

Aspen returned the lowest ratio of property claims management costs to net property claims incurred in 2008

FM Insurance witnessed the most significant improvement in its claims management efficiency in 2008

The average ratio of liability claims management costs to net claims incurred remained static in 2008

RBS, ACE and Brit recorded below average ratios

IGI and ACE achieved significant improvements in their ratio of liability claims management costs to net claims incurred

Future Decoded

Introduction

Motor claims costs are forecast to have a CAGR of 3.6% between 2009 and 2014, driven by rising fraud, personal injury and vehicle repair costs

Fraud, personal injury and rising vehicle repair costs will place an upward pressure on motor claims costs

Total motor claims costs will reach £10.5 billion, an increase of 3.6% per year between 2009 and 2014

Increases in fraud and crime are expected to exert an upward pressure on property claims costs, which will grow to £5.8 billion by 2014

Fraud, crime and an increase in rebuilding costs will exert an upward pressure on claims between 2009 and 2014

Net property claims incurred are forecast to grow by a CAGR of 3.7% between 2009 and 2014

Liability claims costs are expected to reach £3.5 billion by 2014 due to high claims inflation

Personal injury claims and fraudulent claims will exert an upward pressure on claims costs

Net liability claims incurred are forecast to grow by a CAGR of 6.5% between 2009 and 2014

APPENDIX

Definitions

Claim frequency

Claims incurred

Earned premium

Employers' liability

Gross premium

Product liability policy

Professional indemnity

Written premiums

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Estimate of the number and value of fraudulent claims detected in the UK, 2008

Table 2: Annual growth rate in UK commercial and private motor net claims incurred, 1998-2008e

Table 3: Exposure and total claims in the UK motor insurance market, 1998-2008

Table 4: Average motor claim costs, 2004-08e (£)

Table 5: Total number of road accidents in the UK, 1998-2008* (000s)

Table 6: Road traffic accidents relative to registered vehicles in Great Britain, 1998-2008 (000s)

Table 7: Deaths, and seriously and slightly injured casualties resulting from UK road traffic accidents, 2004-08*

Table 8: Gross incurred commercial property insurance claims by peril, 2004-08 (£m)

Table 9: Proportion of gross incurred commercial property insurance claims by peril, 2004-08 (%)

Table 10: Commercial property insurance weather claims costs, 2004-2008 (£m)

Table 11: Cost of business interruption claims by cause, 2004-2008 (£m)

Table 12: Total cost of commercial property insurance theft claims, 2004-08 (£m)

Table 13: Number of commercial property theft claims, 2004-08 (000s)

Table 14: Average value of commercial property theft claims, 2004-08 (£)

Table 15: UK domestic property insurance claims by peril, 2004-08 (£m)

Table 16: Escape of water claims cost and number of claims for escape of water in the UK, 2004-08

Table 17: Gross claims incurred for domestic property weather claims, 2004-08 (£m)

Table 18: UK claims incurred by fire, domestic and total, 2004-08, (£m)

Table 19: Accidental damage claims costs and the number of claims for accidental damage in the UK, 2004-08

Table 20: Number of household theft and average theft claims cost in the UK, 2004-08

Table 21: Number of burglaries in England and Wales, 2001/02 to 2007/08

Table 22: UK unemployment, Q4 2004-Q4 2008

Table 23: Household types by risk of burglary in the UK, 2005/6 to 2007/8

Table 24: Average subsidence claims cost compared to claims costs and number of claims for subsidence in the UK, 2004-08

Table 25: Number of personal injury claims made to general insurers, split by accident and disease, 2004-09

Table 26: Number of employers' liability personal injury claims split by accident and disease, 2003/04-2008/09

Table 27: Workplace injuries reportable under RIDDOR, 2003/4-2007/8p

Table 28: Workplace fatalities reported under RIDDOR, 2003/4-07/8p

Table 29: Claims management costs, net claims incurred and ratio of claims management costs to net claims incurred, 2004-08 (£000s)

Table 30: Ratio of motor claims management costs to net motor claims incurred, (top 20 most efficient groups) 2004-08

Table 31: Change in ratio of motor claims management costs to net motor claims incurred, (top 20 most efficient groups) 2007-08

Table 32: Ratio of property claims management costs to net property claims incurred, (top 20 most efficient groups) 2004-08

Table 33: Change in ratio of property claims management costs to net property claims incurred, (top 20 most efficient groups) 2007-08

Table 34: Ratio of liability claims management costs to net liability claims incurred, (top 20 most efficient groups) 2007-08

Table 35: Change in ratio of liability claims management costs to net liability claims incurred, (top 20 most efficient groups) 2007-08

Table 36: Key variables affecting motor claims costs, 2009-2014

Table 37: Forecast of net motor claims incurred, 2004-14f (£m)

Table 38: Key variables affecting property claims costs, 2009-2014

Table 39: Forecasts of net property claims incurred, 2004-14f (£m)

Table 40: Key variables affecting liability claims costs, 2009-2014

Table 41: Forecast of net liability claims incurred, 2004-14f (£m)

List of Figures

Figure 1: Fraudulent motor claims accounted for nearly half of the total cost of fraudulent claims in 2008

Figure 2: Weather-related claims decreased significantly in 2008 as claims volumes returned closer to normal levels

Figure 3: Fraudulent motor claims accounted for nearly half of the total cost of fraudulent claims in 2008

Figure 4: Net claims incurred increased by 3.8% to £6.5 billion in the private motor market

Figure 5: Insurers have benefitted from falling claims frequency

Figure 6: The average motor claim cost is estimated to have reached £2,038 in 2008

Figure 7: The number of UK road accidents has continued to fall since 1998

Figure 8: Accidents in the UK have fallen despite a steady increase in the number of vehicles

Figure 9: Casualties continued to decline across all categories in 2008

Figure 10: Claims arising from fire increased the most in 2008

Figure 11: Fire claims accounted for the largest claims costs in the commercial property insurance market

Figure 12: Weather claims costs declined dramatically in 2008

Figure 13: Weather-related business interruption claims costs fell in 2008 while fire-related business interruption costs increased

Figure 14: Commercial property theft claims reached a value of £175m in 2008

Figure 15: The number of theft claims increased significantly in 2008

Figure 16: Weather-related claims decreased significantly in 2008 as claims volumes returned closer to normal levels

Figure 17: Flood- and storm-related claims costs fell significantly in 2008

Figure 18: Domestic fires accounted for almost a third of total fire claims costs in 2008

Figure 19: The number of theft-related household insurance claims fell to 328,000 in 2008

Figure 20: The number of burglaries in England and Wales increased marginally in 2007/08

Figure 21: Older homeowners are the least likely to be burgled

Figure 22: Insurers benefited from low subsidence claims costs in 2008

Figure 23: The number of accident claims registered with the CRU increased by nearly 12% in 2008-09, while the number of disease claims dropped

Figure 24: The number of employers' liability claims relating to disease has fallen significantly in recent years

Figure 25: Workplace fatalities have declined for all sectors

Figure 26: Claims handling efficiency decreased in the UK general insurance market in 2008

Figure 27: RBS and Lloyds Banking Group returned below average ratios of motor claims management costs to net motor claims incurred in 2008

Figure 28: HSBC witnessed a significant increase in its net claims incurred in 2008

Figure 29: Aspen returned the lowest ratio of property claims management costs to net property claims incurred in 2008

Figure 30: FM Insurance witnessed the largest improvement in its ratio of property claims management costs to net claims incurred

Figure 31: Prudential achieved the lowest ratio of liability claims management costs to net claims incurred in 2008

Figure 32: IGI achieved the largest improvement in its ratio of liability claims management costs to net claims incurred in 2008

Figure 33: Net motor claims incurred will reach £10.5 billion in 2014

Figure 34: Total net property claims incurred are forecast to reach £5.8 billion in 2014

Figure 35: Net liability claims incurred are forecast to reach £3.5 billion by 2014

Abstract

• Detailed analysis of the claims cost efficiency for the 20 most efficient groups in the motor, property and liability insurance markets.
• Extensive claims costs data for the UK motor, property and liability insurance markets.
• A comprehensive analysis of the latest issues affecting claims management in the UK.
• Forecasts of net claims incurred for the motor, property and liability insurance markets until 2014.

• Benchmark your claims handling efficiency against your competitors.
• Understand the key drivers behind claims inflation in the UK property, liability and motor insurance markets.
• Gain an insight into the latest issues affecting claims management in the UK general insurance market.

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