UK Commercial Insurance Distribution 2009

Table of Contents

OVERVIEW

• Catalyst
• Summary

EXECUTIVE SUMMARY

• Large national brokers continue to dominate commercial insurance distribution
  • Independent insurance intermediaries of all types retain their leading market share in 2008

• A significant proportion of respondents were contacted by a consolidator but do not intend to sell their business
  • Almost 5% of respondents stated that they planned to close or sell their business
  • 41.5% of respondents have been approached by a broker consolidator over the last 18 months

• Acquisitions between brokers continued in 2008, albeit at a slower pace
  • AXA has continued to increase its presence in the UK commercial insurance market through its broking arm Bluefin
  • Cullum Capital Ventures continued with its acquisition strategy in 2008

• The broker network space is becoming increasingly overcrowded
  • A number of players have launched their own broker networks and clubs in a bid to generate extra revenue

MARKET CONTEXT

• Introduction
• Total UK general insurance GWP grew by an estimated 2.0% in 2008
  • Premium income in the motor insurance market increased to an estimated £13.5 billion in 2008
  • The property insurance market recorded an increase in premium income in 2008
  • The accident and health market increased by an estimated 3.5% to £6.0 billion in GWP in 2008
  • The pecuniary loss market grew by an estimated 2.0% in 2008
  • The general liability market contracted by an estimated 3.8% in 2008
  • The group accident and health sector achieved the strongest growth in the commercial insurance market in 2008

• There are a total of 4.8m businesses operating in the UK, the majority of which are SMEs
  • The number of UK enterprises grew by 4.7% to 4.8m
  • More than 99% of UK companies are small businesses

DISTRIBUTION DYNAMICS

• Introduction
• Large national brokers continue to dominate commercial insurance distribution
  • Independent insurance intermediaries of all types retain their leading market share in 2008
  • Direct players account for a small but growing portion of the commercial general insurance market
  • Corporate partnerships have maintained only a small presence in the commercial insurance market
  • Banks and building societies distribute negligible amounts of commercial general insurance

• A significant proportion of brokers will pursue organic growth and target new customer groups
  • More than half of brokers intend to pursue organic growth
  • Consolidation within the intermediary channel is likely to slow in the next 18 months
  • Increasing premium income is the primary driver behind broker acquisitions
  • Almost a fifth of brokers had made an acquisition in the past 18 months

• A significant proportion of respondents were contacted by a consolidator but do not intend to sell their business
  • Almost 5% of respondents stated that they planned to close or sell their business
  • 41.5% of respondents have been approached by a broker consolidator over the last 18 months
  • Swinton had approached nearly half of the respondents with an offer for their business

• One third of brokers belong to a broker network, however a significant proportion of brokers do not intend to join one
  • One third of brokers have already joined a broker network
  • Most brokers joined a network in order to increase the size of their panel
  • The majority of brokers who were not already in a broker network did not intend to join one

CUSTOMER FOCUS

• Introduction
• The broker channel continues to dominate the market with retention levels remaining high
  • Brokers remained the dominant distribution channel to target SMEs in H1 2008
  • The internet is the least common platform for SMEs purchasing commercial insurance
  • The majority of SMEs remain satisfied with their insurance provider
  • Long standing relationships are important to SMEs purchasing commercial insurance
  • SMEs purchasing their insurance through a bank or a broker value advice from their insurance providers the most
  • SMEs purchasing their insurance through a bank or a broker value advice from their insurance providers the most
  • Price is important to many SMEs choosing an insurance provider

• A large proportion of SMEs are unlikely to switch to a new provider
  • Only 22% of SMEs have switched to a new provider over the last two years
  • SMEs belonging to the wholesale, retail trade and repairs sector are more likely to switch providers
  • Just over 10% of SMEs are planning to change providers over the next 12 months
  • SMEs switching to a new provider do so on the basis of price

• A significant proportion of SMEs are willing to purchase insurance from a bank or direct in a bid to save money
  • Over 40% of SMEs stated that they would consider purchasing insurance from a bank or building society
  • The majority of SMEs remain open to purchasing their insurance direct from insurers
  • SMEs value previous experience and referrals when choosing an insurance provider

• A significant proportion of SMEs are open to purchasing their insurance via the internet or phone
  • The convenience factor of the phone is appealing to many SMEs considering a telephone purchase
  • Over a third of SMEs would consider a purchase online
  • Employers' liability and public liability were the most likely products to buy via alternative platforms

COMPETITIVE DYNAMICS

• Introduction
• Acquisitions between brokers continued in 2008, albeit at a slower pace
  • AXA has continued to increase its presence in the UK commercial insurance market through its broking arm Bluefin
  • Giles acquired numerous commercial brokers in 2008
  • Oval achieved a strong performance across its businesses in 2008
  • Cullum Capital Ventures continued with its acquisition strategy in 2008
  • Towergate announced a 13% increase in its income in 2008

• The direct channel, the internet and aggregators are changing the distribution landscape of commercial insurance
  • The internet can be an effective means to distribute commercial insurance to SMEs
  • A number of insurers offer commercial insurance direct

• Many insurers have strengthened their non-direct propositions in a bid to win SME business
  • LV= launched three new policies for pubs and hotels through its broker distribution arm, ABC Insurance
  • Fortis joined the Budget van insurance panel
  • MMA has continued to expand its presence in the SME market
  • The broker network space is becoming increasingly overcrowded
  • A number of players have launched their own broker networks and clubs in a bid to generate extra revenue
  • Broker owned MGAs have become a common feature in the commercial insurance market
  • Insurers are scrutinizing the costs imposed by broker networks and MGAs as economic pressures mount
  • Norwich Union' s Club 110 is well positioned to compete in the broker network space

• Multinational brokers continue to hold a large share of the UK commercial insurance market
  • Marsh had the largest market share in terms of client turnover in Q1 2009
  • The market share of the top five brokers increases among companies with a larger turnover

• Multinational brokers continued to acquire smaller brokers in 2008
  • Aon launched a credit insurance service to SMEs and acquired the specialist broker Supercover
  • Willis announced eight new members to its broker network
  • JLT acquired HWS in 2008 and announced a 12% increase in turnover from its UK and European operations

THE FUTURE DECODED

• Introduction
  • The direct channel' s share is expected to grow, while the broker channel is forecast to contract
  • The market share of the broker channel is forecasted to decline to 78% by 2013
  • Direct players account for a small but growing portion of the commercial general insurance market
  • Corporate partnerships have a small presence in the commercial insurance market and are forecasted to grow to 3% in 2013
  • Banks and building societies are expected to retain their market share at the same level until 2013
  • Company staff and other agents are forecasted to remain static

APPENDIX

• Definitions
  • Premium income measures
  • Distribution definitions

• Methodology
  • Datamonitor' s SME Insurance Survey

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

TABLES

• Table: Total general insurance GWP by line of business, 2004 - 08e (£m)
• Table: Commercial general insurance market GWP by sector and year-on-year growth, 2004 - 08e (£m)
• Table: Profile of UK enterprise by volume, employee numbers and turnover, 2007
• Table: Market share of distribution channels in the commercial general insurance market, 2004 - 08e
• Table: Q: “How important is it to receive advice on an ongoing basis from your insurance provider?”
• Table: Key data on broker networks operating in the UK commercial insurance market
• Table: Top five brokers by turnover of clients, Q1 2009 (£m)
• Table: Market share of the top five brokers in terms of clients' turnover by client employee band, Q1 2009 (%)
• Table: Market share of top five brokers by client turnover, Q1 2009 (%)
• Table: Forecast market share of distribution channels in the commercial general insurance market, 2006 - 13f (%)
• Table: Q: "What business sector are you involved in?"
• Table: Q: “How large is your company in terms of number of employees?”
• Table: Q: “How large is your company in terms of turnover?”

FIGURES

• Figure: Brokers are the dominant route to market for commercial insurers in the UK
• Figure: The general liability market witnessed a significant contraction in 2008
• Figure: The group accident and health insurance market achieved strong growth in 2008
• Figure: The number of UK enterprises reached 4.8m in 2007
• Figure: Almost three quarters of UK companies have no employees
• Figure: Brokers are the dominant route to market for commercial insurers in the UK
• Figure: Organic growth and targeting new customer groups are the key ways that brokers are seeking to grow their business
• Figure: The majority of respondents do not intend to make an acquisition in the next 18 months
• Figure: Many brokers plan to pursue acquisitions to grow their premium income
• Figure: Almost a fifth of brokers had made an acquisition over the last 18 months
• Figure: Almost 5% of respondents indicated that they plan to close or sell their business
• Figure: 41.5% of respondents have been approached by a broker consolidator over the last 18 months
• Figure: A significant proportion of brokers were approached by Swinton and Towergate
• Figure: One third of brokers cited that they belonged to a broker network
• Figure: Access to a larger panel of insurers is the main motivation for joining a broker network
• Figure: The majority of brokers are not willing to join a network in the next 18 months
• Figure: Most SMEs purchase their commercial insurance through the broker channel
• Figure: Most SMEs purchase their insurance through face to face contact with their insurance provider
• Figure: Most SMEs are satisfied with the service they have received from their insurance providers
• Figure: A large proportion of SMEs have been with their insurance provider for more than 10 years
• Figure: Receiving ongoing advice from their insurance provider is important to most SMEs
• Figure: Many SMEs consider the price of an insurance premium to be an important factor when choosing a commercial insurance provider
• Figure: Most SMEs surveyed in 2008 have been with their insurance provider for more than 10 years
• Figure: Respondents belonging to the wholesale and retail trade and repairs sector are more likely to switch providers
• Figure: The majority of SMEs plan to remain with their current insurance provider over the next 12 months
• Figure: SMEs that have been with their insurance providers for two years or less are twice as likely to switch to a new provider
• Figure: Price is a key motivator to SMEs switching providers
• Figure: SMEs may consider a purchase from a bancassurer in a bid to save money
• Figure: A significant proportion of SMEs believe that banks lack specialist expertise
• Figure: Price remains central to SMEs considering a purchase from a direct insurer
• Figure: Most SMEs are content with their current providers and therefore would not consider going direct
• Figure: Previous experience is an important source of information to SMEs choosing an insurance provider
• Figure: The convenience factor appeals to many SMEs prepared to purchase insurance over the phone
• Figure: A significant proportion of SMEs would not consider a telephone purchase because they simply prefer face to face
• Figure: A significant proportion of SMEs would consider a purchase online in a bid to save money
• Figure: SMEs show a greater inclination to purchase employers' liability and public liability via the telephone and internet
• Figure: A timeline of major events in the broker network arena, 1994 - 2009
• Figure: Norwich Union' s Club 110 is in a good position to compete with more established networks
• Figure: Marsh and Aon held the largest share of client turnover in Q1 2009
• Figure: Willis has the largest market share in the SME market in terms of total client turnover
• Figure: The top five brokers held the largest share of turnover among those firms within the largest turnover band
• Figure: The direct channel is expected to grow its share in the UK commercial insurance market