Market Developments in UK Household Insurance 2007

Table of Contents

DATAMONITOR VIEW

• CATALYST
• SUMMARY

ANALYSIS

• The number of UK households reached 24.2 million and is forecast to increase over the next 20 years
  • The number of UK households has been growing steadily since 1971
    • An increase in the UK population has led to an increase in the number of UK households
    • The average household size has been decreasing steadily
  • The number of UK households is expected to grow significantly by 2029
    • The number of privately rented households grew in 2006
  • Household GWP growth slowed in 2006
  • GWP growth for contents insurance has slowed in 2006, while growth in buildings GWP improved
• Prices for buildings cover and contents cover increased in 2007
  • Adverse weather conditions in 2007 have largely contributed to the rise in household insurance premiums
  • The prices for raw materials and labor costs have also increased
  • Property underwriting profits continued to decline during 2006 but the market remains profitable
  • Household underwriting profits decreased significantly in 2006 as total outgoings rose
• Commissions and expenses and reinsurance ceded increased in 2007
  • GWP growth outstripped increases in commissions and expenses
  • Reinsurance ceded increased significantly in 2006
• The household insurance market experienced a reduction in the cost of weather claims in 2006, but an increase in the cost of claims from other perils
  • The cost of domestic property claims fell slightly in 2006, as a result of a fall in weather related costs
  • Storm damage accounted for the largest part of the weather claims bill for household in 2006
  • The cost of domestic fire claims increased in 2006
  • The cost of household theft claims rose by 9.9% in 2006 as both the number of claims and the average cost of claims increased
    • The number of burglaries fell by 3% in 2005/6
    • The risk of burglary is heavily influenced by factors such as tenancy status and security measures
  • Subsidence claims costs grew in 2006 as did the average cost of claims
• Premiums are estimated to have risen marginally in 2007
  • Household insurance premiums are estimated to have seen marginal increases in 2007
  • Insurers gave a range of estimates for premium rate changes in 2008
• Under the neutral scenario the household insurance market experiences steady GWP growth between 2007 and 2010 before declines in 2011 and 2012
  • In the medium term competitive pressures will remain in the market exerting a downward pressure on prices
  • The household insurance market is forecast to grow by 2.1% per annum between 2007 and 2012
  • A significant increase in claims incurred in 2007 will lead to a significant underwriting loss
• The pessimistic scenario sees competition remaining strong thereby holding back growth in the market
  • Competition remains strong in the household market under the pessimistic scenario
  • The household market reaches a value of £9.3 billion in GWP by 2012
  • Limited growth in NWP in 2008 means the household insurance market moves into a loss in 2010 under the pessimistic scenario
• Under the optimistic scenario the market sees a strong underwriting profit in 2008
  • In the short term the floods enable insurers to put through a strong rate rise in 2008, however competitive forces temper any further strong rate rises between 2009 and 2012
  • Under the optimistic scenario, strong increases in the price of premiums in 2008 stimulate GWP growth in the household insurance market
  • The market achieves better underwriting results between 2008 and 2012 under the optimistic scenario

APPENDIX

• Definitions
  • Premium income measures
    • Earned premiums
    • Gross Premium
    • Net Premium
    • Written premiums
• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer
• List of Tables
  • Table 1: The size of UK households by the number of people, 1971-2006, (millions)
  • Table 2: Household projections in England by household type, 2004-29
  • Table 3: Trends in household tenure for England, 1996-2006
  • Table 4: Annual growth in the UK household insurance market in GWP, 2002-06
  • Table 5: GWP split in household insurance between buildings and contents cover, 2002-06
  • Table 6: Change in UK household insurance premiums
  • Table 7: Total UK property underwriting account, 1996-2006, (£m)
  • Table 8: Total UK household underwriting account, 1996-2006 (£m)
  • Table 9: UK household insurance commissions and expenses compared with GWP and total outgoings, 2002-06, (£m)
  • Table 10: UK domestic reinsurance ceded compared with NWP and GWP, 2002-06, (£m)
  • Table 11: UK Reinsurers' share of claims, 2002-06 (£m)
  • Table 12: UK domestic property insurance claims by peril, 2002-06
  • Table 13: Gross claims incurred for domestic property weather claims, 2002-06 (£m)
  • Table 14: UK claims incurred by fire, domestic and total, 2002-06, (£m)
  • Table 15: Number of household theft and average theft claims cost in the UK
  • Table 16: Number of burglaries in England and Wales, 1999-2006
  • Table 17: Unemployment among 18-24 year old males in the UK, 1998-2006 (000s)
  • Table 18: Household types most at risk from burglary in the UK, 2005-06-2006-07
  • Table 19: Average subsidence claims cost compared to claims costs and number of claims for subsidence in the UK, 2002-06
  • Table 20: Key variables affecting household insurance GWP, 2007e-12f (Neutral scenario)
  • Table 21: UK household insurance GWP, 1998-2012f (Neutral scenario)
  • Table 22: UK household insurance underwriting result, 1998-2012f (Neutral scenario)
  • Table 23: Key variables affecting household insurance GWP, 2007e-12f (Pessimistic scenario)
  • Table 24: UK household insurance GWP, 1998-2012f (Pessimistic scenario)
  • Table 25: UK household insurance underwriting result, 1998-2012f (Pessimistic scenario)
  • Table 26: Key variables affecting household insurance GWP, 2007e-12f (Optimistic scenario)
  • Table 27: Household insurance GWP, 1998-2012f (Optimistic scenario)
  • Table 28: Household insurance underwriting result, 1998-2012f (Optimistic scenario)
• List of Figures
  • Figure 1: The average household size has decreased since 1971 in the UK
  • Figure 2: The number of UK households is expected to grow over the next 22 years
  • Figure 3: The number of UK privately rented properties increased in 2006
  • Figure 4: Annual growth in GWP in the UK slowed in 2006 to 3.4%
  • Figure 5: Growth in the contents sector GWP slowed considerably in 2006
  • Figure 6: Premiums for building cover and contents cover increased in the UK in 2007
  • Figure 7: UK property insurance underwriting profits fell in 2006 to £517m
  • Figure 8: UK household underwriting profits fell dramatically during 2006
  • Figure 9: GWP grew by 4.5% in 2006, outstripping increases seen in commissions and expenses in the UK
  • Figure 10: Reinsurance ceded grew significantly in the UK during 2006
  • Figure 11: The total cost of UK domestic property claims fell slightly in 2006, as a result of a reduction in weather related claims
  • Figure 12: The cost of UK weather insurance claims fell in 2006 for domestic property
  • Figure 13: The cost of claims caused by fire grew in 2006 for domestic property in the UK
  • Figure 14: Both the number of theft claims and the average theft claims cost grew in the UK in 2006
  • Figure 15: Number of burglaries in England and Wales, 1999-2006
  • Figure 16: Homes with no security measures are at a very high risk of burglary; more than one in five was burgled in 2006-07
  • Figure 17: The cost of UK subsidence claims rose in 2006, while the average cost of subsidence claims increased only slightly
  • Figure 18: UK household insurance GWP increases between 2008 and 2010 before declining in 2011 and 2012
  • Figure 19: The UK household insurance market made a significant loss in 2007 due to the summer floods
  • Figure 20: Under the pessimistic scenario household insurance GWP increases more slowly between 2007 and 2012 before declining in 2011 and 2012
  • Figure 21: Under the pessimistic scenario the household insurance market moves into an underwriting loss in 2011
  • Figure 22: Under the optimistic scenario GWP spikes in 2008 as insurers raise rates by 10%
  • Figure 23: Under the optimistic scenario the household insurance market achieves a strong profit in 2008 due to a significant rate rise