Claims Management in UK General Insurance 2009

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
• 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
• 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
  • 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

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

TABLES

• Table: Estimate of the number and value of fraudulent claims detected in the UK, 2008
• Table: Annual growth rate in UK commercial and private motor net claims incurred, 1998 - 2008e
• Table: Exposure and total claims in the UK motor insurance market, 1998 - 2008
• Table: Average motor claim costs, 2004 - 08e (£)
• 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, and seriously and slightly injured casualties resulting from UK road traffic accidents, 2004 - 08*
• Table: Gross incurred commercial property insurance claims by peril, 2004 - 08 (£m)
• Table: Proportion of gross incurred commercial property insurance claims by peril, 2004 - 08 (%)
• Table: Commercial property insurance weather claims costs, 2004 - 2008 (£m)
• Table: Cost of business interruption claims by cause, 2004 - 2008 (£m)
• Table: Total cost of commercial property insurance theft claims, 2004 - 08 (£m)
• Table: Number of commercial property theft claims, 2004 - 08 (000s)
• Table: Average value of commercial property theft claims, 2004 - 08 (£)
• 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: Number of personal injury claims made to general insurers, split by accident and disease, 2004-09
• Table: Number of employers' liability personal injury claims split by accident and disease, 2003/04 - 2008/09
• Table: Workplace injuries reportable under RIDDOR, 2003/4 - 2007/8p
• Table: Workplace fatalities reported under RIDDOR, 2003/4 - 07/8p
• Table: Claims management costs, net claims incurred and ratio of claims management costs to net claims incurred, 2004 - 08 (£000s)
• Table: Ratio of motor claims management costs to net motor claims incurred, (top 20 most efficient groups) 2004 - 08
• Table: Change in ratio of motor claims management costs to net motor claims incurred, (top 20 most efficient groups) 2007 - 08
• Table: Ratio of property claims management costs to net property claims incurred, (top 20 most efficient groups) 2004 - 08
• Table: Change in ratio of property claims management costs to net property claims incurred, (top 20 most efficient groups) 2007 - 08
• Table: Ratio of liability claims management costs to net liability claims incurred, (top 20 most efficient groups) 2007 - 08
• Table: Change in ratio of liability claims management costs to net liability claims incurred, (top 20 most efficient groups) 2007 - 08
• Table: Key variables affecting motor claims costs, 2009 - 2014
• Table: Forecast of net motor claims incurred, 2004 - 14f (£m)
• Table: Key variables affecting property claims costs, 2009 - 2014
• Table: Forecasts of net property claims incurred, 2004 - 14f (£m)
• Table: Key variables affecting liability claims costs, 2009 - 2014
• Table: Forecast of net liability claims incurred, 2004 - 14f (£m)

FIGURES

• Figure: Fraudulent motor claims accounted for nearly half of the total cost of fraudulent claims in 2008
• Figure: Weather-related claims decreased significantly in 2008 as claims volumes returned closer to normal levels
• Figure: Fraudulent motor claims accounted for nearly half of the total cost of fraudulent claims in 2008
• Figure: Net claims incurred increased by 3.8% to £6.5 billion in the private motor market
• Figure: Insurers have benefitted from falling claims frequency
• Figure: The average motor claim cost is estimated to have reached £2,038 in 2008
• 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: Claims arising from fire increased the most in 2008
• Figure: Fire claims accounted for the largest claims costs in the commercial property insurance market
• Figure: Weather claims costs declined dramatically in 2008
• Figure: Weather-related business interruption claims costs fell in 2008 while fire-related business interruption costs increased
• Figure: Commercial property theft claims reached a value of £175m in 2008
• Figure: The number of theft claims increased significantly in 2008
• Figure: Weather-related claims decreased significantly in 2008 as claims volumes returned closer to normal levels
• Figure: Flood- and storm-related claims costs 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: The number of accident claims registered with the CRU increased by nearly 12% in 2008 - 09, while the number of disease claims dropped
• Figure: The number of employers' liability claims relating to disease has fallen significantly in recent years
• Figure: Workplace fatalities have declined for all sectors
• Figure: Claims handling efficiency decreased in the UK general insurance market in 2008
• Figure: RBS and Lloyds Banking Group returned below average ratios of motor claims management costs to net motor claims incurred in 2008
• Figure: HSBC witnessed a significant increase in its net claims incurred in 2008
• Figure: Aspen returned the lowest ratio of property claims management costs to net property claims incurred in 2008
• Figure: FM Insurance witnessed the largest improvement in its ratio of property claims management costs to net claims incurred
• Figure: Prudential achieved the lowest ratio of liability claims management costs to net claims incurred in 2008
• Figure: IGI achieved the largest improvement in its ratio of liability claims management costs to net claims incurred in 2008
• Figure: Net motor claims incurred will reach £10.5 billion in 2014
• Figure: Total net property claims incurred are forecast to reach £5.8 billion in 2014
• Figure: Net liability claims incurred are forecast to reach £3.5 billion by 2014