UK Commercial Insurance Distribution 2007

Table of Contents

• Overview
  • Catalyst
  • Summary
• Executive Summary
  • Total general insurance GWP declined in 2006
  • Brokers continued to dominate the distribution of commercial insurance
    • National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers
  • Larger companies are more likely to have switched brokers between 2006 and 2007
    • Companies with a large turnover are more likely to switch broker
  • The market saw a number of mergers and acquisitions, many involving brokers
  • The broker channel is dominant in UK commercial insurance distribution, however its share of the market is declining
    • Brokers are forecast to see a 1% decline in market share between 2007 and 2011
• Table of Contents
• Table of figures
• Table of tables
• Introduction
  • What is this report about?
  • Who is the target reader?
  • How to use this report?
• Market Context
  • Introduction
  • Total general insurance GWP declined in 2006
    • The motor insurance market recorded its fourth consecutive year of decline
    • Property insurance GWP rose very slightly in 2006
    • General liability recorded a significant fall in GWP
    • Accident and health was the only business line to record strong growth
    • Pecuniary loss GWP fell by 3.2%
    • The general liability, commercial property, commercial motor and pecuniary loss markets recorded a fall in GWP in 2006
    • The UK business parc is continuing to grow steadily with most of the impetus coming from the smallest firms
    • The majority of UK businesses have no employees
• Distribution Dynamics
  • Introduction
  • Brokers continued to dominate the distribution of commercial insurance
    • National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers
    • The direct channel increased its share of commercial insurance GWP by 1% in 2006
    • Affinity groups remain a small channel for the distribution of commercial insurance
    • Banks and building societies continue to play a small role in the distribution of commercial insurance
  • Organic growth remains a key strategy for brokers, although broker acquisitions remain popular
    • Brokers are keen to pursue organic growth
      • More than one fifth of the brokers surveyed have acquired a fellow broker
    • More than a third of brokers surveyed are considering planning an acquisition in the next 12 to 18 months
      • Increasing premium turnover and regional growth are the key motivations for planning a broker acquisition
  • The broker network model remains popular as many brokers wish to gain access to a larger panel of insurers
    • Over a third of brokers are part of a broker network
    • Many brokers joined a broker network to gain access to a larger panel of insurers
    • The proportion of brokers considering joining a broker network has decreased since the H1 2007 survey
• Customer Focus
  • Introduction
  • Larger companies are more likely to have switched brokers between 2006 and 2007 while Jardine Lloyd Thompson performed well in terms of acquisition and retention
    • Companies with a large turnover are more likely to switch broker
    • Commercial clients are more likely to switch from a multinational than any other intermediary but overall those who switch are more likely to move to a smaller broker
    • Jardine Lloyd Thompson leads the pack in successfully acquiring and retaining customers, with Willis a close second, whilst Marsh and Aon in particular suffered negative net retention
    • Aon was the largest net loser of clients between 2006-7, shedding clients to brokers from both within and outside the top four
  • SMEs buy mainly through brokers and long-term relationships are the norm
    • In general SMEs are content with their insurance providers and satisfaction levels remain high
    • Retention levels among SMEs remain high with most staying with their provider for longer than two years
    • Almost 90% of SMEs are not considering a change of provider in the next year
  • A small group of SMEs are willing to switch provider in search of lower prices
    • Only 16 per cent of SMEs have changed insurance provider in the last two years
      • Premium costs are particularly a concern for those that have switched recently
    • One in 10 SMEs are considering switching their insurance provider in the next 12 months
      • Recent switchers show lower loyalty levels than other SMEs
    • Price is the dominant concern for potential switchers
  • Most SMEs would approach a broker if switching but some are open to alternatives
    • Brokers remain the top choice for SMEs to approach if they had to switch provider
    • Many SMEs are willing to consider alternative channels when prompted
      • Up to 44% of SMEs would consider using a bank as an insurance provider
      • Almost three quarters of SMEs would be willing to consider direct insurers, in the hope of cost savings
      • Many SMEs are open to purchasing insurance by telephone
      • Even more SMEs are willing to buy their insurance via the Internet, showing the potential of this platform
    • Commercial motor and property insurance are most likely to be purchased through alternative platforms
  • Alternative distribution channels face a number of challenges in attracting switchers
    • A core group of SMEs will not buy direct, as they believe that direct insurers are more expensive
      • Brand awareness in the commercial sector remains low, hampering progress for direct insurers
      • Over 50% of SME will not consider buying from bancassurers
    • Direct insurers and bancassurers also have to overcome the unwillingness of some SMEs to buy by telephone or Internet
      • Two thirds of SMEs consider purchasing commercial general insurance too complex for the telephone
      • A majority of SMEs view commercial general insurance as too complex for the Internet
• Competitive Dynamics
  • Introduction
  • The market saw a number of mergers and acquisitions, many involving brokers
    • AXA acquired numerous commercial brokers in 2007, reinforcing its position in the SME sector
    • Groupama acquired a majority stake in Lark Group in August 2007
    • Direct Line began to offer business insurance in 2007
    • Equity Insurance Group recorded a large number of small-scale acquisitions
    • Towergate continued to acquire numerous brokers in 2007
    • Other brokers acquiring included Jelf, Giles, Broker Network and Oval
    • The top ten brokers have a market share of 96% of client turnover
    • The greater the turnover, the greater the market share of the multinational brokers
    • Of the companies in Datamonitor' s Insurance Broker Database, 22 arranged their insurance in-house
  • Aon acquired Footman James in 2007 and is looking to improve its claims process
    • Aon to use InterResolve to revolutionize claims process
    • Aon acquired specialist motor insurance broker Footman James in 2007
  • Willis is planning to grow its SME business and introduced a new commission structure in 2007
    • Willis aims to grow its UK SME business
    • Willis alters remuneration package by introducing 2.5% commission on top of all fees
  • Jardine Lloyd Thompson is to establish a new underwriting division and has said that a transformational deal may happen in future
    • Jardine Lloyd Thompson asserts independence from big 3
    • JLT bought niche personal lines broker Pavilion in 2007
    • JLT to establish an underwriting division
• The Future Decoded
  • Introduction
  • The broker channel is dominant in UK commercial insurance distribution, however its share of the market is declining
    • Brokers are forecast to see a 1% decline in market share between 2007 and 2011
    • The direct channel will see its commercial insurance distribution share rise to 11% by 2011
    • It is anticipated that insurers will make more affinity deals with retailers and associations to sell commercial insurance
    • Banks are expected to retain a distribution share of around 1% between 2007 and 2011
    • Company staff and agents will see slight reductions in market share
• APPENDIX
  • Definitions
    • SME
    • Definitions of ABI terms
      • Brokers
      • National brokers
      • Other intermediaries & brokers
      • Chain brokers & telebrokers
      • Direct
      • Other company agents
      • Utilities/retailers/affinity groups
      • Company staff
      • Banks/building societies
      • Written premiums
  • Methodology
    • Datamonitor' s UK Commercial Insurance Broker Competitor Database
      • Source of data
  • Industry sectors
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
  • List of Tables
    • Table 1: Total general insurance GWP by line of business, 2002-6
    • Table 2: Commercial general insurance market GWP and year-on-year growth, split by sector 2002-6
    • Table 3: Profile of UK enterprise by volume, employee numbers and turnover
    • Table 4: Market share of distribution channels in the commercial general insurance market, 2003-6
    • Table 5: Percentage of companies that changed broker between 2006 and 2007, by turnover band
    • Table 6: Commercial clients switching broker, by broker segment, 2006-07
    • Table 7: Acquisition and attrition performance of top four brokers between 2006 and 2007
    • Table 8: Customer retention within Aon, 2006-7
    • Table 9: Customer retention within Marsh, 2006-7
    • Table 10: Customer retention within Willis, 2006-7
    • Table 11: Customer retention within Jardine Lloyd Thompson, 2006-7
    • Table 12: Top ten brokers by market share of client turnover, 2006-7
    • Table 13: Market share of multinational brokers by client size, 2007
    • Table 14: UK companies arranging insurance in-house, 2007
    • Table 15: Forecast market share of distribution channels in the commercial general insurance market, 2004-11f
    • Table 16: Crawford' s Directory industry sectors
  • List of Figures
    • Figure 1: General insurance GWP declined in 2006
    • Figure 2: The general liability, commercial property and commercial motor markets recorded a fall in GWP in 2006
    • Figure 3: The number of UK enterprises increased by more than 100,000 between 2006 and 2007
    • Figure 4: More than 99% of UK companies are small businesses
    • Figure 5: National brokers dominate the distribution of commercial general insurance in the UK in terms of GWP
    • Figure 6: Organic growth remains a key growth strategy for the majority of brokers
    • Figure 7: Just over a fifth of brokers had acquired a fellow broker in the previous 12-18 months
    • Figure 8: Over 13% of survey respondents are planning an acquisition in the following 12-18 months
    • Figure 9: The majority of brokers planning an acquisition are doing so in order to increase their premium turnover or achieve regional growth
    • Figure 10: More than one third of brokers surveyed belong to a network
    • Figure 11: Access to a larger panel of insurers was the most common reason given for joining a broker network
    • Figure 12: The vast majority of survey respondents have no plans to join a broker network in the next 12-18 months
    • Figure 13: Companies with a greater turnover are showing less broker loyalty
    • Figure 14: The commercial clients of a multinational broker are most likely to switch
    • Figure 15: Willis won the highest percentage of clients, but Jardine Lloyd Thompson lost the smallest percentage of clients between 2006 and 2007
    • Figure 16: Marsh acquired five clients from Aon between 2006 and 2007
    • Figure 17: The majority of SMEs remain satisfied with their insurance providers
    • Figure 18: A majority of SMEs have been with their provider for over two years
    • Figure 19: Most SMEs do not consider dropping their current insurance provider
    • Figure 20: The number of SMEs staying with their provider for more than five years has increased since 2005
    • Figure 21: Price was the determining factor for choosing a new provider among SMEs who have been with their current provider for less than two years
    • Figure 22: Most SMEs are planning on retaining their insurance provider for at least the next 12 months
    • Figure 23: SMEs that have switched recently are more likely to do so again than those who have developed a long-term relationship with their provider
    • Figure 24: The price of insurance premiums is the most important reason given by SMEs planning to change insurance provider in the next year
    • Figure 25: SMEs have become more likely to consider direct insurers if they were to change provider
    • Figure 26: The prospect of cheaper premiums is the primary reason given for being willing to consider using a bank as an insurance provider
    • Figure 27: Price is the top reason given by SMEs that would consider switching to a direct insurer
    • Figure 28: Speed of concluding their insurance purchase is the primary reason given by SMEs willing to consider buying via the telephone
    • Figure 29: SMEs are willing to consider buying via the Internet if it is quicker and cheaper than other platforms
    • Figure 30: Over half of SMEs would consider buying commercial motor, property and employers' liability online or via the telephone
    • Figure 31: Fears that direct insurers will be more expensive is the top reason why 26% of SMEs will not consider such providers
    • Figure 32: Norwich Union is the direct insurer with the highest brand awareness in commercial insurance amongst SMEs
    • Figure 33: Half of SMEs which refused to consider banks view them as more expensive
    • Figure 34: The complexity of commercial insurance puts many SMEs off purchasing it over the telephone
    • Figure 35: The belief that commercial insurance is too complex to purchase online is the primary reason SMEs give for declining to consider the Internet as a distribution platform
    • Figure 36: Despite having fewer clients, Marsh had a larger share of client turnover than Aon
    • Figure 37: Multinational brokers have a larger share of client turnover for the bigger turnover bands
    • Figure 38: Although the broker channel is dominant in UK commercial insurance distribution, its share of the market is declining