Claims Management in UK General Insurance 2006

Table of Contents

• CHAPTER 1 EXECUTIVE SUMMARY
  • Property claims costs increased significantly in 2005, while in the liability market claims inflation slowed and in the motor market the number of claims declined
    • The number of comprehensive and non-comprehensive private motor claims fell while the cost increased
    • Property claims costs increased significantly in 2005
    • Employers' liability claims costs dropped for a second consecutive year in 2005
    • Disease claims have fallen significantly since 2004, as the number of people submitting mining-related respiratory disease claims has declined
  • Total claims handling efficiency fell by 0.1 per cent in 2005, driven by increases in motor and liability claims management costs
    • The motor ratio of claims management costs to net claims incurred rose by 0.5 percentage points
    • The liability ratio of claims management costs to net claims incurred rose by 0.3 per cent
    • The property market' s ratio of claims management costs to net claim incurred improved by 0.6 per cent
  • Motor , property and liability claims are forecast to increase between 2006-11
    • Motor claims costs will rise at approximately 5 per cent per year between 2006 and 2011 with personal injury claims being a major driver
      • Legal expenses are the main main driver of motor claim costs
    • Property insurance claims costs are expected to increase by approximately 3 per cent per year due to a number of factors
      • Rebuilding costs, unemployment rates, climate change and growth in housing stock will exert upward force on property claims costs
    • Liability claims are set to increase by 10 per cent per year
      • Legal expenses costs and the extension to the ICR scheme will drive up liability claims costs
• CHAPTER 2 INTRODUCTION
  • What is this report about?
  • Who is the target reader?
• CHAPTER 3 MARKET CONTEXT
  • Introduction
  • The commercial and private motor markets contracted in 2005 as soft market conditions persisted
    • The motor insurance market' s losses increased, as commercial motor' s meager profits failed to offset private motor' s rising losses
    • Sustained high levels of competition and sliding premium rates led to declines in GWP for both private and commercial motor
  • The number of claims and accident rates fell in 2005 while overall claims costs increased
    • The number of comprehensive and non-comprehensive private motor claims fell while the cost increased
    • Theft of vehicles continue to decline bringing some relief to the claims bill
    • The number of traffic accidents has fallen in recent years, even though the number of vehicles has increased
      • The number of road traffic accidents has fallen steadily since 1997 as a result of greater road safety
      • Despite the fact that the total number of licensed vehicles continues to rise, the number of road traffic accidents is falling
    • Road accident casualties fell in 2005
  • The UK property insurance market made £691 million in 2005, despite falling profits in the commercial sector
    • The UK property insurance market made an underwriting profit of £691 million in 2005
      • Continuing benign weather conditions may create a false sense of security
    • The commercial property market was hit hard by a rise in claims costs, and the underwriting result fell by 38.6 per cent in 2005
    • Property claims costs increased significantly in 2005
  • Commercial property claims costs rose sharply in 2005
    • Claims resulting from fire, business interruption and weather damage all increased sharply
      • Fire is responsible for the majority of commercial property claims costs
      • As the number of fires in the UK soared in 2005, more businesses were forced to file interruption claims
      • Commercial property weather claims costs rose sharply in 2005
      • The total cost of theft claims declined in 2005
  • Household claims incurred rose in 2005, as weather costs normalized and fire costs increased
    • Household insurance claims costs rose by 17.4 per cent in 2005
    • Weather claims costs rose by 54.5 per cent in 2005, reflecting poor weather conditions
    • The household insurance market saw fire claims costs rise by almost ten per cent, however losses were far worse in the commercial property sector
    • Household insurance theft claims declined by 5.9 per cent in 2005
      • The number of burglaries fell by 3 per cent in 2005/6
      • The risk of burglary is heavily influenced by factors such as tenancy status and security measures
    • Although subsidence remained the smallest of the main four perils, claims costs rose by 13.1 per cent in 2005
  • The liability market achieved small growth overall, and came very close to achieving underwriting profitability in 2005
    • The liability market almost moved into a profit in 2005 due to strong NWP growth
    • Disease claims have fallen significantly since 2004, as the number of people submitting mining-related respiratory disease claims has declined
    • Workplace accidents and work-related ill-health dropped in 2004/5
      • The number of workplace injuries dropped in 2004/5
      • Workplace fatalities dropped in 2004/5
    • Employers' liability claims costs dropped for a second consecutive year in 2005
  • Employers' liability claims are both costly and lengthy to settle
    • Employers' liability claims have a long latency period
      • Claims costs can accumulate to become almost as large as the premium income received
      • The average cost of an employers' liability claim increases with time
• CHAPTER 4 COMPETITIVE DYNAMICS
  • Introduction
  • Total claims handling efficiency fell by 0.1 per cent in 2005, driven by increases in motor and liability claims management costs
    • The motor ratio of claims management costs to net claims incurred rose by 0.5 percentage points
    • The liability ratio of claims management costs to net claims incurred rose by 0.3 per cent
    • The property market' s ratio of claims management costs to net claim incurred improved by 0.6 per cent
  • Motor insurance claims management efficiency declined marginally in 2005
    • UK Insurance and Norwich Union achieved the lowest ratio of claims management costs to net motor claims incurred in 2005 of the top 5 motor insurers
    • Fortis was the most efficient motor insurance claims handler in 2005
      • Provident had the highest ratio in 2005
      • Allianz, Esure, MMA and Fortis achieved positive changes in claims efficiency ratios in 2005
      • Royal & SunAlliance and Provident both recorded large increases in the ratio of motor claims management costs to net motor claims incurred in 2005
  • Claims management efficiency improved in the property insurance market in 2005
    • Norwich Union, Zurich and AXA process property insurance claims more efficiently than average
    • Hamilton was the most efficient of the top 20 insurers at handling property claims in 2005
    • Direct Line and UK Insurance achieved the largest reductions in their property claims efficiency ratios in 2005
      • Lloyds TSB, AXA and Churchill all saw ratios deteriorate quite badly
  • Liability insurers tightened up claims management cost efficiencies in 2005
    • Market leaders Norwich Union and AXA are among the most efficient
    • Aspen and Brit were the two most efficient liability insurance providers
      • Allianz, Fortis, Zurich and NIG achieved significant ratio reductions
      • Royal & SunAlliance and XL were the only insurers to let efficiency slip badly
• CHAPTER 5 THE FUTURE DECODED
  • Introduction
  • Motor claims costs will rise at approximately 5 per cent per year between 2006 and 2011 with personal injury claims being a major driver
    • Legal expenses are the main main driver of motor claim costs
    • Net motor claims costs will continue to rise at 5 per cent per annum between 2006 and 2011
  • Property insurance claims costs are expected to increase by approximately 3 per cent per year due to a number of factors
    • Rebuilding costs, unemployment rates, climate change and growth in housing stock will exert upward force on property claims costs
    • Property claims costs are forecast to rise by 3.2 per cent per annum between 2006 and 2011
  • Liability claims are set to increase by 10 per cent per year
    • Legal expenses costs and the extension to the ICR scheme will drive up liability claims costs
    • Liability claims costs are expected to rise by around 10 per cent between 2006 and 2011
• CHAPTER 6 APPENDIX
  • Definitions
    • Definitions of terms
  • Research methodology
    • Motor
      • Total private motor
      • Total commercial motor
      • Private motor comprehensive
      • Private motor non-comprehensive
      • Motorcycle
      • Fleets
      • Commercial vehicles (non-fleet)
    • Property
      • Total commercial property
      • Household and domestic all risks.
      • Consequential loss (i.e. business interruption)
    • Liability business
      • Employers liability (including the employers liability part of mixed liability packages but excluding mixed commercial packages)
      • Professional indemnity (including directors' and officers' liability and errors and omissions liability)
      • Public and products liability
      • Mixed commercial package
  • Current readings
  • Future readings
  • Datamonitor' s custom research capabilities
  • SPP writing team
  • List of Tables
    • Table 1: Total motor underwriting account, 2001-5
    • Table 2: Motor insurance GWP split between private and commercial business, 2001-5
    • Table 3: Number of claims, cost of claims and average claims costs for private motor insurance, 1995-2005e
    • Table 4: Theft of and from motor vehicles, 1995-2005/6
    • Table 5: Total number of road accidents in the UK, 1995-2005
    • Table 6: The number of road accidents relative to the number of registered vehicles in the UK, 1995-2005
    • Table 7: Road accident casualties in the UK, 2001-5
    • Table 8: Total property underwriting account, 1995-2005
    • Table 9: Breakdown of property insurance market underwriting result, 2001-5
    • Table 10: Household and commercial property underwriting results, 2001-5
    • Table 11: Gross incurred property claims by major peril, 2001-5
    • Table 12: Gross incurred commercial property claims by peril, 2001-5
    • Table 13: Gross incurred commercial property claims by proportion, 2001-5
    • Table 14: Cost of business interruption claims by cause, 2001-5
    • Table 15: Commercial property weather claims, 2001-5
    • Table 16: Number of commercial property theft claims, 2001-5
    • Table 17: Average value of commercial property theft claims, 2001-5
    • Table 18: The total cost of theft claims, 2001-5
    • Table 19: Gross claims incurred in the household market, by peril, 2000-5
    • Table 20: Proportion of household claims by peril, 2000-5
    • Table 21: Weather damage claims incurred by cause in domestic property, 2000-5
    • Table 22: Gross incurred household fire claims, 2000-5
    • Table 23: The cost of household theft claims and average claim cost, 2000-5
    • Table 24: Number of burglaries in England and Wales, 1999-2006
    • Table 25: Unemployment among 18-24 year old males, 1998-2006
    • Table 26: Household types most at risk from burglary, 2004/5 - 2005/6
    • Table 27: Average subsidence claim payout compared to total claims and number of subsistence claims, 2000-5
    • Table 28: Liability GWP, NWP and underwriting result, 1995-2005
    • Table 29: Liability underwriting result, 2001-5
    • Table 30: Number of personal injury claims made to general insurers, spilt by accident and disease, 2002-6
    • Table 31: Workplace injuries reportable under RIDDOR, 2000/1-2004/5p
    • Table 32: Workplace fatalities reported under RIDDOR, 2000-5
    • Table 33: Employers' liability gross incurred claims, 2001-5
    • Table 34: Number of employers' liability claims paid by year of origin, 1995-2004
    • Table 35: Employers' liability claims costs as a percentage of GEP in year of origin, 1995-2004
    • Table 36: Average cost of paid employers' liability claims by year of origin, 1995-2002
    • Table 37: Claims management costs, net claims incurred and ratio of claims management costs to net claims incurred, 2001-5
    • Table 38: Ratio of motor claims management costs to net motor claims incurred, top 5 motor insurers, 2001-5
    • Table 39: Ratio of motor claims management costs to net motor claims incurred, top 20 motor insurers, 2001-5
    • Table 40: Change in ratio of motor claims management costs to net motor claims incurred, top 20 motor insurers, 2004-5
    • Table 41: Ratio of property claims management costs to net property claims incurred, 2001-5, top five property insurers
    • Table 42: Ratio of property claims management costs to net property claims incurred, top 20 property insurers, 2001-5
    • Table 43: Change in ratio of property claims management costs to net property claims incurred, 2004-5
    • Table 44: Ratio of claims management costs to net claims incurred, top five liability insurers, 2005
    • Table 45: Ratio of liability claims management costs to net liability claims incurred, top 20 insurers, 2001-5
    • Table 46: Change in ratio of liability claims management costs to net liability claims costs incurred, 2004-5
    • Table 47: Forecast of motor claims incurred, 2002-11f
    • Table 48: Forecast of property claims incurred, 2002-11f
    • Table 49: Forecast of liability claims incurred, 2002-11f
  • List of Figures
    • Figure 1: Employers' liability claims costs dropped by almost 10 per cent for a second year in 2005
    • Figure 2: Motor underwriting losses increased in 2005
    • Figure 3: Both private and commercial motor GWP continued to decline and have stagnated since 2001
    • Figure 4: The average cost of claims in comprehensive and non-comprehensive private motor insurance has increase over the last decade
    • Figure 5: Total UK vehicle thefts continued to decline in 2005
    • Figure 6: The number of road traffic accidents in the UK has been declining steadily since 1997
    • Figure 7: Although vehicle registrations rose again in 2005, road traffic accidents continued to fall
    • Figure 8: Road accident casualties continued to decline in 2005, following a steep fall in 2004
    • Figure 9: The total property underwriting result declined in 2005, as commercial property claims costs rose
    • Figure 10: High claims costs and price-based competition in 2005 pushed commercial underwriting profits down
    • Figure 11: Claims incurred from fire and weather claims increased in 2005
    • Figure 12: Fire claims rose significantly in 2005
    • Figure 13: Business interruption and weather claims increased as a proportion of total commercial property claims incurred in 2005
    • Figure 14: 2005 saw a hike in business interruption claims caused by fire damage
    • Figure 15: Commercial property weather claims increased sharply in 2005
    • Figure 16: 2005 saw a drop in both the number of commercial property theft claims
    • Figure 17: Gross claims incurred by the household insurance market increased in 2005, as weather claims costs returned to a more normal level
    • Figure 18: Weather damage claims costs rose in 2005, after a benign year in 2004
    • Figure 19: Domestic fire claims increased by 9.8 per cent in 2005, but the commercial sector was more seriously affected and as a proportion of total fires, domestic claims declined
    • Figure 20: The number of household theft claims has fallen since 2001, but the average value of a claim did not decline correspondingly in 2004 and 2005
    • Figure 21: The decline in the number of burglaries slowed significantly in 2005/6, corresponding to worsening unemployment rates
    • Figure 22: Homes with no security measures are at a very high risk of burglary; almost one in five is burgled each year
    • Figure 23: Subsidence claims costs increased in 2005, but the average payout remains much lower than it was 5 years ago
    • Figure 24: The liability underwriting result showed strong improvement again in 2005, and the market very nearly broke even
    • Figure 25: Although claims incurred have risen steadily, the liability market' s underwriting profitability is also improving
    • Figure 26: The number of accident claims rose in 2005-6, however overall the total number of personal injury claims fell
    • Figure 27: Most fatalities in places of work occur to members of the public
    • Figure 28: Employers' liability claims costs dropped by almost 10 per cent for a second year in 2005
    • Figure 29: Employers' liability claims have a long latency period
    • Figure 30: Employers' liability claims costs accumulate over time
    • Figure 31: The average cost of settling an employers' liability claim increases with time
    • Figure 32: Overall claims handling efficiency decreased slightly in 2005
    • Figure 33: Royal & SunAlliance recorded the highest ratio of claims management costs to net claims incurred of the top 5 motor insurers in 2005
    • Figure 34: Fortis was the most efficient at handling motor insurance claims in 2005
    • Figure 35: Provident recorded the biggest increase in its ratio of claims management costs to net motor claims incurred in 2005
    • Figure 36: Norwich Union led the property market in terms of claims handling efficiency in 2005
    • Figure 37: Hamilton was the most efficient at handling property insurance claims in 2005
    • Figure 38: Lloyds TSB recorded the largest increase in its ratio of property claims management costs to claims incurred in 2005
    • Figure 39: Zurich FS and Royal & SunAlliance have experienced varying liability claims efficiency ratios between 2001 and 2005
    • Figure 40: Aspen was the most efficient liability claims handler in 2005
    • Figure 41: Fortis recorded the biggest growth in net liability claims incurred, NIG the largest change in management costs ratio
    • Figure 42: Key variables affecting motor insurance claims costs, 2006e-2011f
    • Figure 43: Motor insurance claims costs will rise by 5 per cent per year between 2006 and 2011
    • Figure 44: Key variables affecting property insurance claims costs, 2006e-2011f
    • Figure 45: Key variables affecting property insurance claims costs, 2006e-2011f continued
    • Figure 46: Property claims costs are expected to rise by 3.2 per cent per annum between 2006 and 2011
    • Figure 47: Key variables in commercial liability claims costs, 2006e-11f
    • Figure 48: Liability claims costs are expected to continue to rise strongly between 2006 and 2011
    • Figure 49: Datamonitor' s core consulting capabilities