Market Developments in UK Household Insurance 2009

Table of Contents

DATAMONITOR VIEW

• CATALYST
• SUMMARY

ANALYSIS

• The credit crunch is having a major impact on the home insurance market
  • Lloyds Banking Group and Santander have gained significant market share from the credit crunch
  • Insurance providers may need to consider launching low cost policies
  • Insurers are likely to be faced with an increasing number of fraudulent claims
  • Some banks have seen their home insurance sales fall due to lower mortgage volumes

• Aggregators are presenting opportunities and challenges for market participants
  • Aggregators are becoming a more important route to market
  • Use of aggregators will increase during the recession
  • Some home insurance providers have launched products to be used specifically on aggregators
  • Aggregators went on a huge marketing drive in 2008
  • A number of interviewees feel that aggregators are holding down price movements

• The Pitt review could see government and insurers work more closely together to combat flood risk
  • The summer floods in 2007 are estimated to have cost the market approximately £3 billion in total
  • The Pitt report recommended a greater level of collaboration between the government and insurers

• Growth in the household insurance market was muted by strong competition in 2008
  • The market is estimated to have grown by 2% to £7.8 billion in 2008
  • Combined insurance policies account for the majority of home insurance GWP

• There was marginal price growth in 2008 with prices for combined and contents policies coming under particular pressure in H2
  • The price of combined insurance policies came under pressure in the last two quarters of 2008
  • The market for contents insurance policies became much more competitive in the third and fourth quarters of 2008
  • Insurers have been pushing up the price of buildings insurance policies

• There is a vast potential market for household insurance
  • There is a potential market of 21.4m households in England
  • The number of households in England grew by 1.1% in 2008 providing home insurers with new business opportunities

• 2008 was a far better year for claims costs
  • 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
  • 2008 was a good year for subsidence claims

• The market returned to a profit in 2008
  • The market returned an underwriting profit in 2008

• The market continues to grow and returns profits until 2012 under the neutral scenario
  • Premium rate increases are expected to drive growth in household GWP
  • The market will reach a peak of £9 billion in 2013
  • Household insurers make an underwriting profit until 2012 under the neutral scenario

• Competition restricts premium rate increases in the pessimistic scenario
  • Competitive pressures are forecast to keep rate increases low throughout the forecast period
  • GWP is forecast to rise marginally under the pessimistic scenario due to competitive pressures
  • The market moves into an underwriting loss as early as 2010 under the pessimistic scenario

• The market sees better margins under the optimistic scenario
  • A stronger focus on restoring margin to the market will lead to strong growth in premium income
  • The market experiences stronger growth in 2009 and 2010, attaining a value of £9.3 billion by 2013
  • Underwriting profits improve substantially in the optimistic scenario, peaking in 2011 at £212m

APPENDIX

• Datamonitor Consumer Survey
• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer

TABLES

• Table: UK home lending volume and value, 2004 - 08
• Table: Estimated aggregator-instigated home insurance sales, 2007e-2008e
• Table: UK household insurance GWP, 2004 - 08e (£m)
• Table: Estimated split of household insurance GWP by type of cover, 2008 (£m)
• Table: Average household insurance premium rates, January 2007-09 (£)
• Table: The size and tenure of households in England, 2008 (000s)
• Table: The number of households in England, 2005-08 (000)
• Table: Trends in household tenure for England, 1998 - 2008, (000s)
• Table: UK domestic property insurance claims by peril, 2004 - 08 (£m)
• Table: Escape of water claims cost and number of claims for escape of water in the UK, 2004 - 08
• Table: Gross claims incurred for domestic property weather claims, 2004 - 08 (£m)
• Table: UK claims incurred by fire, domestic and total, 2004 - 08, (£m)
• Table: Accidental damage claims costs and the number of claims for accidental damage in the UK, 2004 - 08
• Table: Number of household theft and average theft claims cost in the UK, 2004 - 08
• Table: Number of burglaries in England and Wales, 2001/02 to 2007/08
• Table: UK unemployment, Q4 2004 - Q4 2008
• Table: Household types by risk of burglary in the UK, 2005/6 to 2007/8
• Table: Average subsidence claims cost compared to claims costs and number of claims for subsidence in the UK, 2004 - 08
• Table: Key variables affecting household insurance GWP, neutral scenario, 2009 - 13
• Table: Forecast of household insurance GWP, neutral scenario, 2009 - 13 (£m)
• Table: Forecast of UK household insurance underwriting result, neutral scenario, 2009 - 13 (£m)
• Table: Key variables affecting household insurance GWP, pessimistic scenario, 2009 - 13
• Table: Forecast of UK household insurance GWP, pessimistic scenario, 2009 - 13 (£m)
• Table: Forecast of UK household insurance underwriting result, pessimistic scenario, 2009 - 13 (£m)
• Table: Key variables affecting household insurance GWP, optimistic scenario, 2009 - 13
• Table: Forecast of UK household insurance GWP, optimistic scenario, 2009 - 13
• Table: Forecast of UK household insurance underwriting result, optimistic scenario, 2009 - 2013 (£m)
• Table: Breakdown of consumer survey respondents by household income and age
• Table: Breakdown of consumer survey respondents by socio-economic group

FIGURES

• Figure: Lloyds Banking Group has become the number one distributor of home insurance while Santander has become the ninth biggest distributor
• Figure: Tesco Personal Finance launched a “no frills” home insurance package in June 2008
• Figure: Banks saw their opportunity for mortgage related home insurance sales plummet in 2008
• Figure: Aggregator-instigated home insurance sales doubled in 2008
• Figure: Aggregators were focused on building their brand in 2008
• Figure: Strong competition meant the home insurance market saw marginal growth in 2008
• Figure: Combined insurance policies account for the majority of home insurance GWP
• Figure: There was a strong element of price competition in the last two quarters of 2008
• Figure: Contents insurance prices came under real pressure in the last two quarters of 2008
• Figure: The market average price of buildings insurance grew strongly in the fourth quarter of 2008
• Figure: Home insurance providers can target a potential market of 6.7m rented households and 14.6m owner occupied households in England
• Figure: The number of households in England continues to grow
• Figure: The private rented sector is a growing market for household insurance providers
• Figure: Weather related claims decreased significantly in 2008 as claims volumes returned closer to normal levels
• Figure: Flood and storm related claims fell significantly in 2008
• Figure: Domestic fires accounted for almost a third of total fire claims costs in 2008
• Figure: The number of theft related household insurance claims fell to 328,000 in 2008
• Figure: The number of burglaries in England and Wales increased marginally in 2007/08
• Figure: Older homeowners are the least likely to be burgled
• Figure: Insurers benefited from low subsidence claims costs in 2008
• Figure: Datamonitor estimates that the household insurance market will have recorded a profit of over £100m in 2008
• Figure: Household GWP will rise at an average annual rate of 3%, reaching £9 billion in 2013 under the neutral scenario
• Figure: The market is forecast to be profitable for most of the forecast period, under the neutral scenario
• Figure: GWP growth will be lower due to smaller premium rate increases under the pessimistic scenario
• Figure: Under the optimistic scenario GWP is predicted to rise to £9.3 billion in 2013
• Figure: The market is predicted to be profitable throughout the forecast period under the optimistic scenario