UK Personal Insurance Distribution 2009

Table of Contents

OVERVIEW

• Catalyst
• Summary

EXECUTIVE SUMMARY

• Brokers have gained market share while partnerships have stabilized
  • The direct channel is the primary route to market for private motor insurers
  • Banks and building societies are the largest distribution channel for home insurance
  • Three aggregators appeared in the top 10 advertisers in 2008, highlighting their importance to the market
• The internet has fast become a major distribution platform for home and motor insurance
  • The internet dominated new sales for home and motor insurance in 2008
• Brokers have reversed previous losses in market share in both home and motor markets
  • Brokers gained market share in the private motor insurance market
  • LV= bought insurer Highway and disposed of its in-house broker Hero
• Banks have retained their gains in motor but have suffered in the home insurance market
  • Lloyds Banking Group has become the largest distributor of home insurance to UK consumers
  • Lower mortgage volumes have disrupted the flow of new business into many banks' household insurance books
• Leading retail brands have secured significant market share in the home and motor markets
  • (Untitled sub-section)
  • Motor manufacturer-branded products are likely to suffer due to the recession
• Aggregator-instigated insurance sales have grown dramatically in 2008 highlighting their importance to the industry
  • Aggregators are estimated to have generated over 40% of new private motor business GWP in 2008
  • Datamonitor estimates that aggregator-instigated home insurance sales accounted for 4% of new home insurance business sales in 2008

PERSONAL INSURANCE DISTRIBUTION DYNAMICS

• Introduction
• Brokers have gained market share while partnerships have stabilized
  • The direct channel is the primary route to market for private motor insurers
  • 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%
  • Banks and building societies are the largest distribution channel for home insurance
• The home and motor insurance markets are largely distributed through the same top 10 groups and brands
  • The largest 10 groups have brands that give them control of the majority of both the private motor and home insurance markets
  • Direct Line was the top provider of private motor insurance policies and has a particularly strong presence among younger consumers
  • Lloyds TSB is the market leader in the distribution of home insurance policies
  • Halifax was the top provider of combined contents and buildings policies, while other top distributors included Direct Line, Lloyds TSB, Norwich Union and More Th>n
  • Lloyds TSB was the top provider of contents only insurance policies and has a particularly strong hold of consumers aged over 60
• A number of aggregators as well as LV= entered the top 10 advertisers in 2008
  • RBS' s biggest brands, Direct Line and Churchill, were the biggest insurance advertisers in 2008
  • Three aggregators appeared in the top 10 advertisers in 2008, highlighting their importance to the market
  • LV= entered the top 10 after almost doubling its advertising spending in 2008
  • Norwich Union Direct' s advertising spend declined the most in 2008
• The top insurance advertisers devoted the bulk of their budgets to TV advertising in 2008
  • The top 10 insurance advertisers collectively spent more than £128.6m on TV advertising in 2008
  • Saga spent the most on direct mail, highlighting its importance in cross-selling
  • Other media such as radio and press played a smaller role

PERSONAL INSURANCE CONSUMERS

• Introduction
• The home and motor insurance markets are the largest potential pool of customers for personal lines insurers
  • The market for private motor insurance is large, with penetration highest among older and more affluent consumers
  • Motor insurance consumers with higher incomes have higher penetration rates
  • Consumers in the DE social grade are the least likely to have motor insurance
  • There is a healthy market for home insurance products, with consumers over 60 being the largest target market
• The internet has fast become a major distribution platform for home and motor insurance
  • The internet dominated new sales for home and motor insurance in 2008
  • The vast majority of consumers use the internet and telephone to arrange their motor insurance
  • It is essential for home insurance providers to have a phone and internet sales strategy
  • An internet sales strategy is key to maximizing sales of personal insurance policies among younger buyers
  • Consumers aged 60-plus were least likely to use the internet to arrange their motor cover
  • An internet sales strategy is key to maximizing sales of contents insurance among younger buyers
  • A phone-based sales strategy is important when targeting the over 60s consumer with combined buildings and contents cover
• The internet is most effective at targeting mid to high income households
  • Higher income consumers are more comfortable purchasing their motor cover over the internet
  • Mid to higher income households are most likely to buy a combined policy over the internet
  • An internet strategy is the core way of reaching mid and higher income consumers when selling contents insurance policies
• AB and C1 consumers prefer to purchase their cover over the internet
  • The internet was the most popular platform for arranging motor insurance across all social grades
  • AB and C1 consumers are most likely to purchase a combined policy over the internet
  • Internet sales of contents insurance policies dominate among AB and C1 consumers
• It is easier to grow market share among younger consumers
  • Younger consumers are more likely to change their provider, presenting an opportunity to gain new customers
  • More affluent consumers were more likely to search for a new quote at next renewal
• It is essential that providers stress a price-based marketing message when selling insurance
  • Price was cited most often by consumers as a factor in their choice of motor insurance provider
  • Providers need to stress the low price of their policies in order to acquire buyers of combined policies
  • The promise of a cheaper quote will attract buyers of all ages, however, providers must place more emphasis on the secondary and tertiary buyer needs for middle aged consumers and those over 60

DIRECT INSURANCE

• Introduction
• Direct insurers have experienced little change in market share
  • Direct insurers have maintained their share in the private motor market
  • Direct insurers distributed an estimated 25% of household insurance in 2008
• Large advertising campaigns are a key element of the direct insurance model
  • The top advertisers among the direct insurers devoted £87.7m to motor insurance advertising
  • Direct insurers need to market their brand and products through mass market media such as TV
  • Direct Line remained the top direct insurance advertiser in 2008 but many other brands are gearing up to increase their market share
• The direct insurance market is highly consolidated, with the top five players accounting for the majority of policies sold direct
  • The top direct insurers accounted for a quarter of all motor insurance policies
  • The top direct insurance brands were strongest in the buildings only insurance market in 2008
• Direct insurers have increasingly turned to panels to help widen their customer base
  • More Th>n adopted a panel to capture more business
  • AIG Direct has made use of panels for its expansion in home and motor
  • Norwich Union has enlisted Junction to provide its RAC brand motor insurance with a panel
  • Norwich Union has rebranded to Aviva

BROKERS AND INTERMEDIARIES

• Introduction
• Brokers have reversed previous losses in market share in both the home and motor insurance markets
  • Brokers gained market share in the private motor insurance market
  • Brokers distributed an estimated 26% of household insurance GWP in 2008
• Brokers have mainly focused on advertising home and motor insurance through direct mail
  • The top brokers primarily draw in consumers with motor and home insurance advertising
  • Brokers have focused on direct mail, supporting a cross-selling strategy
  • The AA supported its substantial market share with a large investment in marketing
• The largest brokers held approximately 10% of the market in the UK home and motor insurance markets
  • Large broker brands have been able to obtain substantial market share in the motor insurance market
  • Brokers faired the best in the contents only insurance market
• Mergers and acquisitions in the broker sector continued despite the credit crunch
  • IAG disposed of its UK distribution assets via a sale to Swinton and a management buyout
  • LV= bought insurer Highway and disposed of its in-house broker Hero
• Aggregators have continued to challenge brokers, though they offer an opportunity to grow
  • Brokers can compete more effectively with direct insurers and affinity brands through partnering with aggregators

BANKS AND BUILDING SOCIETIES

• Introduction
• Banks have retained their gains in motor but have suffered in the home insurance market
  • Bank distributed motor insurance accounted for an estimated 7% of the market in 2008
  • The credit crunch has resulted in a decline in bank-distributed home insurance
• Advertising by the leading bancassurance advertisers declined in 2008
  • Banks have focused on their core product of home insurance while scaling back advertising
  • Bank marketing strategies are heavily reliant upon direct mail campaigns
  • The majority of the top 10 bancassurers spent less money on insurance advertising in 2008
• The leading banks have substantial market share in the home market but struggle in motor
  • Only Lloyds TSB has achieved a significant market share among motor insurance consumers
  • The top bank brands are among some of the largest distributors in the home insurance market
• The credit crunch is causing significant consolidation within the bancassurance channel
  • Major new distributors of home insurance have been created as a result of consolidation
  • Smaller building societies have consolidated as a result of the credit crunch, resulting in fewer but more lucrative accounts
  • Barnsley Building Society merged with the Yorkshire Building Society
  • Lower mortgage volumes have disrupted the flow of new business into many banks' household insurance books
  • The UK government has become a majority shareholder in major home insurance distributors
• A number of bancassurance deals were agreed in 2008 and 2007
  • HSBC and Norwich Union renewed their insurance partnership in 2007
  • Nationwide and LV= are now partners for motor and travel insurance
  • West Bromwich renewed its motor contract with Norwich Union
  • Bradford & Bingley retained Zurich on its home insurance panel

AFFINITY GROUPS AND RETAILERS

• Introduction
• Affinities have gained ground in the home insurance market
  • Affinity groups and retailers distributed 17% of private motor insurance GWP in 2008
  • Weakness in traditionally dominant distributors has allowed affinities to gain business in home insurance
• The top affinity insurance advertisers have pursued a cross-selling strategy
  • Insurance products such as warranties and home emergency dominated affinity marketing
  • The top 10 affinity partnership advertisers leveraged their customer databases with direct mail campaigns
  • Most of the top 10 brandassurer advertisers had a smaller advertising spend in 2008
• Leading retail brands have secured significant market share in the home and motor markets
  • Retailers have become major distributors of motor insurance products
  • Leading retail brands figure less prominently in the home insurance market, though Tesco still leads
• A number of important accounts changed hands in 2008
  • Ford and RSA agreed to a five-year affinity contract for motor insurance
  • General Motors changed the underwriter for its branded motor insurance products
  • Tesco bought out RBS' s stake in their joint venture, Tesco Personal Finance
• Panel underwriting and a downturn in car sales are having significant impacts on the affinity channel
  • Panel underwriting of affinity relationships has become more prominent, allowing for wider risk selection at competitive rates
  • Motor manufacturer-branded products are likely to suffer due to the recession

AGGREGATORS AND PRICE COMPARISON SITES

• Introduction
• Aggregator-instigated insurance sales have grown dramatically in 2008 highlighting their importance to the industry
  • Aggregators are estimated to have generated over 40% of new private motor business GWP in 2008
  • Datamonitor estimates that aggregator-instigated home insurance sales accounted for 4% of new home insurance business sales in 2008
• Aggregators have become major insurance advertisers, though mainly only for motor insurance
  • Advertising spend has dramatically increased as new competitors step up their marketing campaigns
  • The leading aggregators are still using TV to establish themselves in the personal insurance market
  • Very little aggregator advertising is conducted by those outside of the top five
• New players have established strong brand awareness among consumers
  • TescoCompare.com is well positioned to compete with established players in the market
  • More than 60% of consumers that visit price comparison sites paid a visit to Confused.com
  • Comparethemarket.com is likely to see a large increase in brand awareness as a result of its ' meerkat' campaign
• Aggregators have matured in the market, resulting in regulatory scrutiny and consolidation
  • BIBA' s study revealed consumer confusion over price comparison sites
  • An FSA study found that certain price comparison sites had shortcomings
  • A subsequent FSA review found that price comparison sites have made significant improvements
  • The consumer group Which? scrutinized the accuracy of price comparison sites in August 2008
  • Competition between aggregators has been costly and already resulted in some brands dropping out

FUTURE DECODED

• Introduction
• Affinity partnerships and direct players are expected to gain in the private motor market
  • The direct channel is predicted to remain the largest distribution channel for the private motor insurance market
  • Brokers are predicted to retain their market share over the forecast period
  • The affinity channel is predicted to revive and attain a market share of 19% in 2013
  • Banks will struggle to maintain market share in private motor
• Direct insurers and banks are predicted to increase household insurance market share
  • Banks and buildings societies are predicted to recover market share lost due to the credit crunch
  • Broker market share is forecast to be approximately 26% throughout the forecast period
  • Direct insurers are predicted to gain market share
  • Affinity partnerships are predicted to remain significant distributors of home insurance

APPENDIX

• Definitions
  • Premium income measures
  • Distribution definitions
• Methodology
  • Datamonitor Consumer Survey
  • Primary and secondary research
  • Distribution estimates and forecast methodology
  • Advertising and marketing spend data
• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer

TABLES

• Table: Private motor insurance GWP distribution by channel, 2004 - 08e
• Table: Household insurance GWP distribution by channel, 2004 - 08e
• Table: With which of these insurance providers are you insured for your motor insurance? (September 2008)
• Table: With which of these insurance providers are you insured for your home insurance policy/s? Top 10 responses split by age (September 2008)
• Table: With which of these insurance providers are you insured for your combined contents and buildings insurance? Top 10 responses split by age (September 2008)
• Table: With which of these insurance providers are you insured for your home contents insurance? Top 10 responses split by age (September 2008)
• Table: Top 10 personal general insurance advertisers, 2006 - 08 (£)
• Table: Top 10 personal general insurance advertisers' spend by media, 2006 - 08 (£)
• Table: Which of the following types of insurance are you covered by? (September 2008)
• Table: Which of the following types of insurance are you covered by? Responses split by age (September 2008)
• Table: Which of the following types of insurance are you covered by? Responses split by household income (September 2008)
• Table: Which of the following types of insurance are you covered by? Responses split by social-economic group (September 2008)
• Table: Datamonitor estimates of the proportion of new sales transacted online and over the telephone for private motor and household (September 2008)
• Table: How did you arrange the home insurance policy you currently have? (September 2008)
• Table: How did you arrange the motor insurance policy you currently have? Responses split by age (September 2008)
• Table: How did you arrange the home contents insurance policy you currently have? Responses split by age (September 2008)
• Table: How did you arrange the combined contents and buildings insurance policy you currently have? Responses split by age (September 2008)
• Table: How did you arrange the motor insurance policy you currently have?, Responses split by household income (September 2008)
• Table: How did you arrange the combined contents and buildings insurance policy you currently have? Responses split by household income (September 2008)
• Table: How did you arrange the home contents insurance policy you currently have? Responses split by household income (September 2008)
• Table: How did you arrange the motor insurance policy you currently have? Responses split by socio - economic group (September 2008)
• Table: How did you arrange the combined contents and buildings insurance policy you currently have? Responses split by socio-economic group (September 2008)
• Table: How did you arrange the home contents insurance policy you currently have? Responses split by socio-economic group (September 2008)
• Table: When you last renewed your motor insurance did you change company or stay with the same one? When your motor insurance next comes up for renewal, how likely or unlikely do you think you would be to shop for alternative quotations? Responses split by age (September 2008)
• Table: When you last renewed your home contents insurance did you change company or stay with the same one? When your home contents insurance next comes up for renewal, how likely or unlikely do you think you would be to shop for alternative quotations? Responses split by age (September 2008)
• Table: When you last renewed your combined contents and buildings insurance did you change company or stay with the same one? When your combined contents/buildings insurance is due for renewal, how likely do you think you would be to shop for alternative quotations? Responses split by age (September 2008)
• Table: When you last renewed your motor insurance did you change company or stay with the same one? When your motor insurance next comes up for renewal, how likely or unlikely do you think you would be to shop for alternative quotations? Responses split by household income (September 2008)
• Table: When you last renewed your combined contents and building insurance did you change company or stay with the same one? Responses split by household income (September 2008)
• Table: When you last renewed your home contents insurance did you change company or stay with the same one? When your home contents insurance next comes up for renewal, how likely or unlikely do you think you would be to shop for alternative quotations? Responses split by household income (September 2008)
• Table: Why did you take out your home insurance with your current provider? Top five responses (September 2008)
• Table: Why did you take out your motor insurance with your current provider? Top five responses split by age (September 2008)
• Table: Why did you take out your home insurance with your current provider? Top five responses split by age (September 2008)
• Table: The direct channel' s share of motor and household insurance GWP, 2004 - 08e
• Table: Top 10 direct insurers' advertising spend by product, 2006 - 08 (£)
• Table: Top 10 direct insurers' advertising spend by medium, 2006 - 08 (£)
• Table: Top 10 direct insurance advertisers, 2006 - 08 (£)
• Table: Market share of the top five direct motor insurance brands, 2008
• Table: Market share of the top five direct household insurance brands, 2008
• Table: The broker channel' s share of motor and household insurance, 2004 - 08e
• Table: Top 10 brokers' advertising spend by product, 2006 - 08 (£)
• Table: Top 10 brokers' advertising spend by medium, 2006 - 08 (£)
• Table: Top 10 brokers' advertising spend, 2006 - 08 (£)
• Table: Market share of the top five motor broker insurance brands, 2008
• Table: Market share of the top five household broker insurance brands, 2008
• Table: Banks and building societies' share of motor and household insurance, 2004 - 08e
• Table: Top 10 bancassurers' advertising spend by product, 2006 - 08 (£)
• Table: Top 10 bancassurers' advertising spend by medium, 2006 - 08 (£)
• Table: Top 10 bancassurance advertisers, 2006 - 08 (£)
• Table: Market share of the top five bank and building society motor insurance brands, 2008
• Table: Market share of the top five bank and building society household insurance brands, 2008
• Table: UK home lending volume and value, 2004 - 08
• Table: The partnership channel' s share of motor and household insurance, 2004 - 08e
• Table: Top 10 affinities and retailers' advertising spend by product, 2006 - 08 (£)
• Table: Top 10 affinities and retailers' advertising spend by medium, 2006 - 08 (£)
• Table: Top 10 affinity groups and retailers' advertising spend, 2006 - 08 (£)
• Table: Market share of the top five affinity partnership motor insurance brands, 2008
• Table: Market share of the top five affinity partnership household insurance brands, 2008
• Table: New car registrations in the UK, 2000 - 09f
• Table: Aggregator share of motor and household insurance 2007e - 08e
• Table: Top aggregators' advertising spend by product, 2007 - 08 (£)
• Table: Top aggregators' advertising spend by medium, 2007 - 08 (£)
• Table: Top 10 aggregators' advertising spend, 2007 - 08 (£)
• Table: The top five aggregators by prompted brand awareness, advertising spend and year of market entry
• Table: Which of the following sites did you visit?
• Table: UK private motor insurance GWP distribution by channel, 2008e - 13f
• Table: UK household insurance GWP distribution by channel, 2008e - 13f
• Table: Breakdown of motor insurance consumer survey respondents by household income and age
• Table: Breakdown of household insurance consumer survey respondents by household income and age
• Table: Breakdown of motor insurance consumer survey respondents by socio-economic group
• Table: Breakdown of household insurance consumer survey respondents by socio-economic group

FIGURES

• Figure: Three aggregators now feature in the top 10 insurance advertisers
• Figure: Few new home or motor policies are arranged without the use of the telephone or internet
• Figure: Banks saw their opportunity for mortgage related home insurance sales plummet in 2008
• Figure: The direct channel continues to be the number one route to market for private motor insurance
• Figure: Banks lost market share in the home insurance market as mortgage-linked sales declined
• Figure: Lloyds Banking Group has became the second biggest distributor of private motor insurance
• Figure: Lloyds Banking Group has become the number one distributor of home insurance while Santander has become the ninth biggest distributor
• Figure: Direct Line is the number one private motor insurance brand while Saga clearly scores well with the over 60s
• Figure: The Lloyds TSB insurance brand is the leading provider of home insurance
• Figure: Halifax' s strength in the mortgage market makes it a key distributor of combined contents and buildings insurance policies
• Figure: Lloyds TSB is the number one provider of home contents insurance while RIAS clearly scores well with the over 60s
• Figure: Three aggregators now feature in the top 10 insurance advertisers
• Figure: The top 10 general insurance advertisers devoted the majority of their spending to TV advertising in 2008
• Figure: Consumers aged over 60 possess the highest penetration rate for private motor insurance cover
• Figure: Consumers with higher incomes have higher penetration rates for motor insurance
• Figure: Motor insurance consumers from higher socio-economic groups have higher penetration rates
• Figure: There is a high penetration of home insurance products
• Figure: The over 60s are the largest target market for combined home insurance policies
• Figure: Providers should target their combined contents and buildings insurance offer at consumers in the mid to higher income bands
• Figure: Combined policies are most popular in the AB and C1 bands, whereas contents only policies are most popular with consumers in the DE band
• Figure: Few new home or motor policies are arranged without the use of the telephone or internet
• Figure: Most consumers purchase their car insurance policy on the internet or by phone
• Figure: Home insurance providers should ensure they have a phone and internet sales strategy
• Figure: Internet distribution is most popular among 18 - 29 year olds
• Figure: Over 50% of consumers aged between 18 and 29 purchased their contents insurance policy over the internet
• Figure: The vast majority of consumers aged over 60 will buy their combined policies over the phone
• Figure: Most consumers purchase their car insurance policy on the internet or by phone
• Figure: Affluent consumers are more likely to buy a combined policy over the internet
• Figure: Internet sales are a key part of acquiring mid to higher income consumers
• Figure: The internet was the most popular platform to arrange motor insurance through, across different social grades
• Figure: Internet sales of combined cover dominate among AB and C1 consumers while phone sales dominate among C2 and DE consumers
• Figure: AB and C1 consumers are most likely to buy their contents policy over the internet
• Figure: Private motor insurance retention rates improve significantly as age increases
• Figure: Consumers aged between 18 and 29 are the softest acquisition targets contents insurance providers
• Figure: The proportion of consumers switching their combined home insurance provider varies little by age group
• Figure: Switching motor insurance providers was relatively common across income bands
• Figure: A similar proportion of consumers switched their combined home insurance provider across most household income bands
• Figure: Consumers in the higher income bands are the least loyal to their contents insurance provider
• Figure: Price was a factor in the choice of insurance provider for most motor insurance consumers in 2008
• Figure: A price-based message is particularly attractive to consumers buying a combined policy
• Figure: Cheaper quotes generally motivate motor insurance consumers less as they age
• Figure: A price-based message will work well with consumers of all ages, however, providers should emphasize other factors as well to attract middle aged consumers and those over 60
• Figure: The direct channel maintained substantial market shares in the home and motor insurance markets
• Figure: Motor insurance advertising is the most important element of top insurers' marketing strategy
• Figure: The mass market medium of TV is the center piece of most top direct insurers' advertising campaigns
• Figure: Direct Line continued to support its market leading brand with the largest advertising campaign in 2008
• Figure: Many of the top direct insurance brands are also among the top distributors
• Figure: Norwich Union Direct is the market leader for buildings and contents policies sold separately
• Figure: Brokers are estimated to have grown their market share in 2008
• Figure: Top brokers are mainly focused on advertising their home and motor propositions
• Figure: Direct mail campaigns made up the bulk of brokers' spending
• Figure: The AA has more than doubled the advertising spend of its closest rival RIAS
• Figure: The AA has a clear lead, distributing twice the policies of its nearest rival
• Figure: The AA is far ahead of other brokers in the contents and buildings insurance markets
• Figure: Bank market share for household insurance is considerably above their motor market share
• Figure: The top banks have devoted their reduced insurance marketing budgets to home insurance products
• Figure: Cross-selling to banking customers with direct mail was a key distribution strategy for the top banks
• Figure: Lloyds Banking Group brands outspent all competitors, accounting for 69.3% of the top 10' s total spend
• Figure: Lloyds TSB was the only bank to distribute a large volume of motor cover under its own brand
• Figure: Banks have achieved the highest penetration in the buildings only insurance market
• Figure: Banks saw their opportunity for mortgage related home insurance sales plummet in 2008
• Figure: Affinity partnerships distribute similar amounts of both home and motor insurance
• Figure: Spending on other products such as home emergency and warranties accounted for the most advertising among the top 10
• Figure: Cross-selling to existing customers resulted in the largest advertisers spending the bulk of their marketing resources on direct mail
• Figure: Saga' s direct mail campaigns result in it outspending most of the top 10 brand advertisers
• Figure: Tesco has a market share considerably above any other brandassurer competitor
• Figure: Tesco and Saga consistently secured leading market shares across the household insurance market
• Figure: Aggregators have achieved a substantial presence in the aggregator market
• Figure: The majority of aggregators' spending is focused on motor insurance policies
• Figure: Television advertising has been the focus of aggregators' marketing efforts
• Figure: The vast majority of marketing spend was conducted by the top five aggregators in 2008
• Figure: GoCompare.com had low brand awareness relative to its marketing spend
• Figure: Confused.com was the most visited site for car insurance quotes
• Figure: Comparethemarket.com has quickly developed a large following on social networking sites such as Facebook and twitter
• Figure: The direct channel is forecast to remain the most popular means for arranging motor insurance
• Figure: Banks are forecast to regain their market share in the distribution of home insurance