Market Developments in UK Private Motor Insurance 2007

Table of Contents

Overview

• Catalyst
• Summary

Market Context

• Introduction
• The UK private motor insurance market started to harden at the end of 2006 and grew in 2007
  • The market hardened late in 2006, which led to strong gains in premium income for 2007
    • UK private motor insurance GWP increased to an estimated £10.1 billion in 2007 as the market hardened
    • Private motor insurance GWP contracted by 0.9% in 2006 as the market only hardened late in the year
  • The comprehensive and non-comprehensive segments both declined in 2006, but rebounded in 2007
    • Comprehensive motor GWP suffered the worst contraction of the three private lines in 2006
    • Non-comprehensive premium income suffered as fewer motorists chose this cover
    • The motorcycle market was the only part of private motor to increase in 2006, although it contracted in 2007
• Late rises in premium rates and low growth in private car numbers depressed GWP in 2006
  • Private motor insurance premium rates recovered late in 2006 and have climbed in 2007
    • Comprehensive premium rates grew towards the end of 2006 and continued to increase in 2007
    • Non-comprehensive premium rates increased significantly in 2006, but trailed the comprehensive market in 2007
  • The UK private vehicle parc continued to grow slowly in 2006
    • Private car numbers increased in 2006, although the rate of growth has slowed
    • New registrations for private cars declined in 2006
    • Although the private car parc is aging it remains mostly modern in composition
    • Motorcycle numbers continue to climb, although growth has slowed
• Underwriting losses expanded in 2006, driven by high costs and lower net revenue
  • The private motor underwriting result deteriorated in 2006
  • Increases in total outgoings were driven by higher commissions and reserving, despite lower claims costs
    • Commissions and expenses rose 3.1% in 2006, while insurers reserved more than they released
    • Net claims costs fell in 2006, moderating the increase in total outgoings
• Claims inflation continue to plague the market, but accident and theft rates have fallen
  • Overall claims inflation increased significantly in 2006
    • Bodily injury claims are more expensive than other claims
  • Falling road traffic accident rates will have given insurers some respite on their claims bills
    • Road traffic accident numbers have declined over the last nine years
    • Road traffic accidents have declined even as car numbers have increased, representing a fall in frequency
    • Casualty rates have fallen steadily, mirroring the decline in road traffic accidents in 2006
  • Theft rates continue to fall, representing a positive trend for private motor insurers
• A number of initiatives aimed at cost savings were undertaken in 2006 and 2007
  • The IFB has been very active in the investigation of professional fraud over the year it has been in operation
  • The tightening up of MID requirements should drive down uninsured driving leading to savings for insurers
  • Insurers remain divided over whether rehabilitation offers real savings on claims costs
  • With the arrival of Copart, recycled parts can assist insurers in curbing repair costs
  • Insurers have pushed online distribution of motor insurance certificates and could save up to £11m a year
• Commercial motor GWP declined in 2006, but the market increased its underwriting profit
  • The commercial motor market contracted slightly more than the private market in 2006
  • The total motor market' s underwriting loss increased marginally to £204m in 2006
  • Despite being in a soft market, commercial motor improved its profitability in 2006

Future Decoded

• Introduction
• Private motor GWP is forecast to reach £12.5 billion by 2012 under neutral market conditions
  • A hardening market in 2008 and 2009 should result in significant premium rate growth
  • The UK private motor insurance market is predicted to be worth £12.5 billion in 2012
  • The private motor insurance market is forecast to reach profitability in 2009
• Under optimal conditions the private motor market will reach £12.9 billion by 2012
  • Less competition could allow for greater price increases in 2008 and 2009
  • The market will grow by over 10% in 2008 allowing it to reach a value of £12.9 billion in 2012
  • With less competitive pricing the market will produce three years of profits
• In the pessimistic scenario GWP will only reach £12.4 billion in 2012 as competition keeps premium inflation down in 2008
  • More intense competition will keep premium rate increases low according to the pessimistic scenario
  • The private motor insurance market will only reach a value of £12.4 billion in 2012 in the pessimistic scenario
  • Underwriting losses will continue throughout the forecast period in the pessimistic scenario
• The total motor market, under neutral conditions, will reach a value of £16.6 billion in 2012
  • The total motor market is forecast to grow at 4.3% a year in the forecast period
  • The total market is forecast to return an underwriting profit in 2008

APPENDIX

• Supplementary data
  • New registrations of cars and light goods vehicles by taxation class
• Definitions
  • Premium income measures
    • Earned premiums
    • Gross Premium
    • Net Premium
    • Written premiums
  • Other definitions
    • Channel
    • Direct insurer/writer
    • Brokers
    • Bancassurers
    • Brandassurers
    • Platform
  • 2005-06 definitions for line of business
    • Motor
    • Total private motor
    • Total commercial motor
    • Private motor comprehensive
    • Private motor non-comprehensive
    • Motorcycle
    • Fleets
    • Commercial vehicles (non-fleet)
  • Pre-2005 definitions for lines of business
    • Motor
• Methodology
  • Primary and secondary research
  • Market size
    • Changes in market size information
    • Market size methodology
    • Lloyd' s players and underwriting result figures
    • GWP versus GEP reporting
    • Home-Foreign, overseas and facultative reinsurance business
• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer
• List of Tables
  • Table 1: UK private motor insurance premium income, 2002-06, (£m)
  • Table 2: Comprehensive/non-comprehensive split of the UK private car parc, 1996-2006e
  • Table 3: UK private motor insurance premium income by line of business 2002-07e, (£m)
  • Table 4: Average quarterly premiums for UK comprehensive and non-comprehensive insurance, 2002-07
  • Table 5: Cars licensed in Great Britain by body type, 1996-2006
  • Table 6: New private car registrations in Great Britain by body type as a percentage of the total private car parc, 2002-06
  • Table 7: Age composition of 2006 car parc, 2006
  • Table 8: Number of motorcycles and new registrations in Great Britain, 2002-06, (000s)
  • Table 9: UK private motor underwriting result, 1996-2006, (£m)
  • Table 10: Detailed private motor underwriting account in the UK, 2002-06, (£m)
  • Table 11: UK net claims as a proportion of total outgoings, 2002-06, (£m)
  • Table 12: Average motor claims costs, 2002-06, (£)
  • Table 13: UK Average claims cost of bodily injury claims notified two years previous, 2002-06, (£)
  • Table 14: Total number of road accidents in the UK, 1996-2006, (000s)
  • Table 15: Road traffic accidents relative to registered vehicles in Great Britain 1996-2006, (000s)
  • Table 16: Deaths, seriously and slightly injured casualties resulting from UK road traffic accidents, 2002-06
  • Table 17: Theft of and from motor vehicles in the UK, 1996-2006/7
  • Table 18: UK motor insurance premium income, 2002-06, (£m)
  • Table 19: UK motor insurance underwriting account 1996-2006, (£m)
  • Table 20: UK private and commercial motor underwriting results, 1996-2006, (£m)
  • Table 21: Key variables affecting private motor insurance GWP, neutral scenario, 2002-12f
  • Table 22: UK private motor insurance GWP forecast, neutral scenario, 2002-12f
  • Table 23: UK private motor insurance underwriting account forecast, neutral scenario, 2002-12f, (£m)
  • Table 24: Key variables affecting private motor insurance GWP, optimistic scenario, 2002-12f
  • Table 25: UK private motor insurance GWP forecast, optimistic scenario, 2002-12f
  • Table 26: UK private motor insurance underwriting account forecast, optimistic scenario, 2002 -12f, (£m)
  • Table 27: Key variables affecting private motor insurance GWP, pessimistic scenario, 2002-12f
  • Table 28: UK private motor insurance GWP, pessimistic scenario, 2002-12f
  • Table 29: UK private motor insurance underwriting account forecast, pessimistic scenario, 2002-12f, (£m)
  • Table 30: Total UK motor insurance GWP 2002-12f, neutral scenario, 2002-12f
  • Table 31: UK total motor insurance underwriting account, 2002-12f (£m)
  • Table 32: Cars and light goods vehicles registered by taxation class, 1996-2006, (000s)
• List of Figures
  • Figure 1: The UK private motor insurance market grew in 2007 as premium rates hardened
  • Figure 2: Fewer vehicles had non-comprehensive cover in the UK in 2006
  • Figure 3: The main UK private motor lines once again declined in 2006 before recovering in 2007
  • Figure 4: Both sectors of the UK private motor market experienced significant premium rate inflation in 2007
  • Figure 5: UK comprehensive premium rates increased significantly in 2007
  • Figure 6: New private cars in Great Britain have declined in number since 2002
  • Figure 7: Less than a third of the UK car parc was older than 12 years old in 2006
  • Figure 8: In Great Britain, growth in motorcycle numbers has been slowing since 2005
  • Figure 9: The UK underwriting result deteriorated sharply in 2006
  • Figure 10: Average motor claims costs have risen every year since 2002 in the UK
  • Figure 11: The average UK claims cost for bodily injury claims was higher than for other claim types in 2006
  • Figure 12: UK road accidents peaked in 1997 and have fallen ever since
  • Figure 13: Accidents in the UK have fallen despite a steady increase in the number of vehicles
  • Figure 14: Casualties continued to decline across all categories in 2006
  • Figure 15: Theft of and from motor vehicles continued to decline in 2006/7
  • Figure 16: Commercial motor was the weaker market in 2006 declining more than private motor
  • Figure 17: The UK motor insurance market reported a loss of £204m in 2006
  • Figure 18: The UK private and commercial motor underwriting results diverged after 2001
  • Figure 19: Private motor GWP is forecast to grow significantly in 2008 and 2009
  • Figure 20: Private motor is forecast to make a small profit in 2009
  • Figure 21: Less competition allows for a stronger rally in comprehensive premium income and higher private motor GWP in the optimistic scenario
  • Figure 22: In the optimistic scenario stronger premium growth results in three years of underwriting profits
  • Figure 23: In the pessimistic scenario, GWP growth is expected to be subdued from 2008 onwards
  • Figure 24: In the pessimistic scenario, the market fails to reach a profit in the forecast period
  • Figure 25: After four years of declines, the total motor market is expected to begin growing again in 2008
  • Figure 26: The UK motor market is forecast to be profitable for a total of four years starting in 2008
  • Figure 27: New cars and light goods have declined again as a proportion of the total parc