UK Private Motor Insurance 2009

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

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
  • Brokers can compete more effectively with direct insurers and affinity brands through partnering with aggregators
  • Aggregators have reinforced the commoditization of motor insurance by focusing the consumer on price
  • 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
  • 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
• 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
  • Smaller brands targeting only women can still achieve substantial market share
• 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
  • Motor insurance advertisers ranked 11 - 20 spent more of their marketing budget on direct mail
  • The largest direct mail and TV advertisers pursued differing strategies with their marketing spend

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 with higher incomes have higher penetration rates
  • 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
  • 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
• 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
• 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
  • The comprehensive motor insurance market will be worth £11.1 billion in 2013
  • Losses are expected to reduce as premium rates rise

APPENDIX

• Definitions
  • (Untitled sub-section)
• Methodology
  • Datamonitor' s Home and Motor Insurance Survey
• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer

TABLES

• Table: Market share of Liverpool Victoria Group, 2008
• Table: 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: What made you decide to buy from this comparison site?
• Table: When your car insurance policy last came up for renewal, did you visit any price comparison sites to obtain quotations?
• Table: Would you use a price comparison site in the future to obtain quotations for car insurance?
• Table: Change in average premium rates and total private motor market size, 1996 - 2008
• Table: UK motor insurance NWP split between ABI members and Lloyd' s, 2007 (£m)
• Table: Private motor GWP by line of business, 2005 - 08e (£m)
• Table: Motor policies in force, 1998 - 2008
• Table: Average private motor insurance premium rates, Apr 2007 - Apr 2009 (£)
• Table: Example of average premiums quoted by sex and age
• Table: Cars licensed in Great Britain by body type, 1998 - 2008 (000s)
• Table: New private cars registrations in Great Britain by body type as a percentage of the total private car parc, 2004 - 08 (000s)
• Table: Age composition of car parc, 2008 (000s)
• Table: Number of motorcycles and new registrations in Great Britain, 2004 - 08 (000s)
• Table: UK households with a private car, 2001 - 06
• Table: Average motor claim costs, 2003 - 07 (£)
• Table: Total number of road accidents in the UK, 1998 - 2008* (000s)
• Table: Road traffic accidents relative to registered vehicles in Great Britain, 1998 - 2008 (000s)
• Table: Deaths, seriously and slightly injured casualties resulting from UK road traffic accidents, 2004 - 08*
• Table: Accident and reported year COR, private motor market, 2005 - 08 (%)
• Table: Private motor insurance GWP distribution by channel (all business), 2004 - 08e
• Table: With which of these insurance providers are you insured for your motor insurance?
• Table: Advertising expenditure spent, by channel of top insurance providers, 2007 - 08 (£)
• Table: Advertising expenditure spent by channel of top motor insurance advertisers, 2008 (£)
• Table: Top 10 motor insurance advertisers, 2007 - 08 (£)
• Table: Top 10 motor insurance advertisers' advertising expenditure by medium, 2008
• Table: Top 11 - 20 motor insurance advertisers' expenditure by medium, 2008 (£)
• Table: Top 10 motor insurance TV advertisers, 2007 - 08 (£)
• Table: Top 10 motor insurance direct mail advertisers, 2007 - 08 (£)
• Table: How did you arrange the motor insurance policy you currently have?
• Table: Distribution of private motor insurance, by age and platform, 2008
• Table: Distribution of private motor insurance, by socio-economic group, 2008
• Table: Propensity to switch motor insurance provider and likelihood of getting other quotes by age, 2008
• Table: Propensity to switch motor insurance provider and likelihood of getting other quotes by distribution platform, 2008
• Table: Why did you take out your motor insurance with your current provider? (%)
• Table: Why did you take out your motor insurance with current provider? (%)
• Table: GWP and market share of the top 10 UK private motor insurance groups, 2007 - 08
• Table: GWP and market share of the top 11 - 20 UK private motor insurers, 2007 - 08
• Table: Top 10 private motor insures' comprehensive and non-comprehensive book, 2007 - 08 (%)
• Table: Private comprehensive vehicle years for the top 10 private motor insurance groups, 2008 (000s)
• Table: UK motor insurance NWP split between ABI members and Lloyd' s, 2007 (£m)
• Table: Motor insurance GWP of selected Lloyd' s insurers with large UK motor exposure, 2007 - 08
• Table: Accident year combined ratio and underwriting profit/loss for private motor business, top 10 motor insurance groups, 2008
• Table: Reported year combined ratio and underwriting profit/loss for private motor business, top 10 motor insurance groups, 2008
• Table: Key variables affecting private motor insurance GWP, 2009e - 13f
• Table: Forecast of UK private motor insurance GWP,2009 - 2013 (£m)
• Table: Private motor GWP by line of business, 2005 - 13f (£m)
• Table: Forecast of accident year COR, private motor market, 2009 - 2013f (%)
• Table: Consumer survey sample sizes by age and income

FIGURES

• Figure: Lloyds Banking Group has become the second biggest distributor of private motor insurance
• Figure: Liverpool Victoria Group' s market share has been catapulted to 4.5% following the acquisition of Highway Insurance
• Figure: Lloyds Banking Group has became the second biggest distributor of private motor insurance
• Figure: Aggregator-instigated private motor sales grew significantly in 2008
• Figure: Over half of consumers that obtained car insurance quotes went on to buy one of the policies
• Figure: It is essential that insurers on aggregators can offer the cheapest price to consumers
• Figure: Higher risk younger consumers are more likely to use an aggregator to arrange their motor cover
• Figure: A large proportion of consumers were willing to visit a price comparison site in the future
• Figure: Aggregators were focused on building their brand in 2008 through large marketing outlays
• Figure: The private motor insurance market is starting to see stronger growth rates
• Figure: Lloyd' s syndicates underwrote £1 billion of motor insurance business in 2007
• Figure: Comprehensive motor insurance premium income has driven the increase in overall GWP
• Figure: Comprehensive policies make up the vast majority of the private motor market
• Figure: Comprehensive policies are taking a greater share of policies in force
• Figure: Both the market and shoparound average price of comprehensive private motor insurance grew strongly in 2008 and early 2009
• Figure: The shoparound average price of non-comprehensive private motor insurance has been continually growing since the beginning of 2007
• Figure: The number of new private cars has been declining in Great Britain over the last five years
• Figure: Half of the UK car parc was older than six years in 2008
• Figure: Great Britain witnessed a decline in new motorcycle numbers while total numbers grew in 2008
• Figure: Multicar households have become more popular
• Figure: The average motor claim cost continued to rise rapidly in 2007 at 14.1%
• Figure: Insurers have benefitted from falling claims frequency
• Figure: The number of UK road accidents has continued to fall since 1998
• Figure: Accidents in the UK have fallen despite a steady increase in the number of vehicles
• Figure: Casualties continued to decline across all categories in 2008
• Figure: The private motor insurance COR appears to be peaking
• Figure: The rate of increase in the private motor COR is slowing
• Figure: Private motor insurers continued to make reserve releases in 2008 to improve their reported year COR
• Figure: The direct channel continues to be the number one route to market for private motor insurance
• Figure: Direct Line is the number one private motor insurance brand while Saga clearly scores well with the over 60s
• Figure: Direct Line and Saga are the two most popular brands for male private motor insurance policyholders
• Figure: Sheilas' Wheels and the Post Office enter the top 10 in the female private motor insurance market
• Figure: Aggregators' advertising expenditure increased substantially in 2008
• Figure: More Th>n offered gifts to help motorists through the cold snap
• Figure: Swiftcover.com launched a £25m advertising campaign - Get a Life - in January 2009
• Figure: Television remained the most popular medium choice for the top 10 advertisers in 2008
• Figure: Television and direct mail remained the dominant form of advertising media among motor insurance advertisers ranked 11 - 20
• Figure: Consumers aged over 60 possess the highest penetration rate for private motor insurance cover
• Figure: Consumers with higher incomes have higher penetration rates
• Figure: Consumers with higher socio-economic group have higher penetration rates
• Figure: Most consumers purchase their car insurance policy on the internet or by phone
• Figure: Internet distribution is most popular among 18 - 29 year olds
• Figure: Internet was the most popular platform to arrange the motor insurance across different social grades
• Figure: Private motor insurance retention rates improve significantly as age increases
• Figure: Private motor insurance retention rates were lowest for internet consumers
• Figure: Internet shoppers were least loyal to their motor insurance providers
• Figure: Price was a factor in provider choice for most motor insurance consumers in 2008
• Figure: Price is the primary factor for consumers across all platforms
• Figure: 94% of consumers who arranged their motor insurance with aggregators were seeking a cheaper quote
• Figure: Lloyds Banking Group, AXA, Liverpool Victoria and Zurich gained market share in 2008
• Figure: FIM Holdings achieved significant growth in market share
• Figure: All of the top 10 private motor insurers underwrite primarily in the comprehensive market
• Figure: RBS had over 6.7 million private comprehensive policies in force in 2008
• Figure: Lloyd' s syndicates underwrote £1 billion of motor insurance business in 2007
• Figure: RBS, RSA, Fortis and Zurich recorded below average CORs
• Figure: CORs after reserve releases ranged from 100% to 114.1%
• Figure: Growth in premium income is forecast to be strong as unprofitability spurs rate increases
• Figure: The market will continue to be based primarily on comprehensive policy income
• Figure: The COR for the private motor sector will gradually improve