Claims Management in UK General Insurance 2007

Table of Contents

• Overview
  • Catalyst
  • Summary
• Executive Summary
  • The UK motor insurance market made a loss in 2006 however property and liability made profits
    • Underwriting losses grew in the motor market in 2006 as private motor losses exceeded profits in the commercial motor market
    • Property underwriting profits continued to decline during 2006 but the market remains profitable
    • The liability underwriting result improved for a fifth consecutive year in 2006, and the market finally achieved profitability
  • Total claims handling efficiency has declined in 2006 driven by increases in motor claims management costs
    • The motor ratio of claims management costs to net claims incurred rose by 0.1 percentage points
    • The property ratio of claims management costs to net claims incurred fell by 0.1 percentage points
    • The liability ratio of claims management costs to net claims incurred fell by 0.1 percentage points
  • Motor, property and liability net claims costs are expect to rise between 2006 and 2012
    • Personal injury claims will be the main driver of motor claims costs
    • Increases in the cost of rebuilding properties will have an impact on property claims costs
    • Personal injury claims, changes in periodical payments will have an impact on liability claims costs
• Table of Contents
• Table of figures
• Table of tables
• Introduction
  • What is this report about?
  • Who is the target reader?
• Market context
  • The UK motor insurance market continued to contract in 2006 with underwriting losses in the private motor market deteriorating
    • Both private and commercial motor markets contributed to the decline in motor premium income in 2006
    • Comprehensive private motor premium led the deterioration in private motor insurance premium income
    • Underwriting losses grew in the motor market in 2006 as private motor losses exceeded profits in the commercial motor market
    • Total underwriting loss in the private motor market reached £448m in 2006
  • Personal injury remains the main driver behind claims inflation
    • 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 2006
  • Property GWP fell in 2006, led by the soft commercial property sector where underwriting profits dropped
    • Household insurance GWP increased in 2006, while commercial property GWP fell
    • Property underwriting profits continued to decline during 2006 but the market remains profitable
    • The commercial property underwriting result decreased in 2006 for a second consecutive year
  • Commercial property claims were benign in 2006, as a lack of any serious weather incidents kept claims numbers low
    • Commercial property claims costs resulting from fire, business interruption and weather damage all fell in 2006
    • Fire accounted for the majority of costs for commercial property claims in 2006
    • Business interruption claims costs, following fire and weather damage, fell in 2006
    • Weather claims costs for commercial property insurance declined in 2006
    • Theft claims costs increased in 2006
    • The increase in theft claims costs was due to a rise in average claims value 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 households 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 0.8% in 2006-07
      • 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
  • The total general liability market contracted in 2006, but it moved into an underwriting profit
    • Competitive conditions in the liability market resulted in lower premium income
    • The liability underwriting result improved for a fifth consecutive year in 2006, and the market finally achieved profitability
  • The total number of personal injury claims rose by 5.4% in 2006-7
    • The number of accident claims increased by 8.3% in 2006-07
    • The number of disease claims fell in 2006-07, declining by 36.4%
    • Workplace accidents and work-related ill-health dropped again in 2005-06
      • The number of workplace injuries dropped in 2005-06
      • Workplace fatalities increased in 2005-06 mainly due to more fatalities among the public
• Competitive dynamics
  • Introduction
  • Total claims handling efficiency has declined in 2006 driven by increases in motor claims management costs
    • The motor ratio of claims management costs to net claims incurred rose by 0.1 percentage points
    • The property ratio of claims management costs to net claims incurred fell by 0.1 percentage points
    • The liability ratio of claims management costs to net claims incurred fell by 0.1 percentage points
  • Norwich Union and UKI performed well in terms of motor claims management efficiency
    • Norwich Union and UKI were the most efficient insurers in terms of claims management out of the top five motor insurers in 2006
    • Fortis remained the most efficient motor insurance claims handler in 2006
    • Highway saw the largest improvement in its claims management efficiency while Direct Line recorded the largest decline
  • AXA and Norwich Union performed well in terms of managing property claims
    • AXA and Norwich union achieved relatively low ratios in 2006
    • UKI was the was the most efficient of the top 20 insurers at handling property insurance claims in 2006
    • Allianz achieved the largest reduction it its property claims efficiency ratio in 2006
    • Zurich and Norwich Union both saw their ratios deteriorate in 2006
  • Norwich Union recorded a relatively low ratio of liability claims management costs to net claims incurred in 2006
    • Norwich Union was the most efficient claims handler out of the top five liability insurers
    • Brit replaced Aspen as the most efficient liability insurance claims handler in 2006
    • NIG achieved the largest reduction in its ratio in 2006
• The future decoded
  • Motor claims cost will increase by a CAGR of 5.2% between 2007 and 2012 primarily driven by increases in the cost of personal injury claims
    • Personal injury claims will continue to have a strong effect on total claims costs
    • The UK motor insurance market will see claims costs increase by 5.2% per annum between 2007 and 2012
  • A number of factors will provoke an increase in property insurance claims costs between 2007 and 2012
    • Increases in the cost of rebuilding properties will have an impact on claims costs
    • Property claims are estimated to have reached £7.5 billion in 2007
  • Liability claims costs are forecast to reach £5 billion driven largely by personal injury claims
    • Personal injury claims will be the main driver of claims costs
    • Liability claims cost are expected to increase by a CAGR of 9% between 2007 and 2012
• APPENDIX
  • CIS
  • Definitions
    • Market Context
      • Gross Premium
      • Written premiums
    • Competitive Dynamics
    • 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)
    • 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
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
  • List of Tables
    • Table 1: Total motor market GWP by private and commercial segment, 2002-06
    • Table 2: Private motor insurance premium income by line of business 2002-06
    • Table 3: Total motor underwriting account, 1996-2006
    • Table 4: Total private motor underwriting account, 1996-2006
    • 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, 1995-2006
    • Table 7: Road accident casualties in the UK, split by severity of injury, 2002-06
    • Table 8: Property insurance GWP split between household and commercial business, 2002-06
    • Table 9: Total property underwriting account, 1996-2006
    • Table 10: Commercial property underwriting result, 1996-2006
    • Table 11: Gross incurred commercial property insurance claims by peril, 2002-06
    • Table 12: Proportion of gross incurred commercial property insurance claims by peril, 2002-06
    • Table 13: Cost of business interruption claims by cause, 2002-06
    • Table 14: Commercial property insurance weather claims costs, 2002-06
    • Table 15: Total cost of commercial property insurance theft claims, 2002-06
    • Table 16: Number of commercial property theft claims, 2002-06
    • Table 17: Average value of commercial property theft claims, 2002-06
    • Table 18: Domestic property insurance claims by peril, 2002-06
    • Table 19: Proportion of household claims by peril, 2002-06
    • Table 20: Gross claims incurred for domestic property weather claims, 2002-06
    • Table 21: Claims incurred by fire, domestic and total, 2002-06
    • Table 22: Number of household theft and average theft claims cost
    • Table 23: Number of burglaries in England and Wales, 2001-02 and 2006-07, (000s)
    • Table 24: Unemployment among 18-24 year old males, 1998-2007
    • Table 25: Households most at risk of burglary 2006-07
    • Table 26: Average subsidence claims cost compared to claims costs and number of claims for subsidence, 2002-06
    • Table 27: UK commercial liability market, 2002-06 (£m)
    • Table 28: Total general liability underwriting result, 1996-2006
    • Table 29: Number of personal injury claims made to general insurers, split by accident and disease, 2002-07
    • Table 30: Workplace injuries reportable under RIDDOR, 2001-02 and 2005-06p
    • Table 31: Workplace fatalities reported under RIDDOR, 2000-05
    • Table 32: Claims management costs, net claims incurred and ratio of claims management costs to net claims incurred, 2002-06
    • Table 33: Ratio of motor claims management costs to net motor claims incurred, 2002-06, top five motor insurers by GWP
    • Table 34: Ratio of motor claims management costs to net motor claims incurred, top 20 motor insurers, 2002-06
    • Table 35: Change in ratio of motor claims management costs to net motor claims incurred, top 20 motor insurers, 2005-06
    • Table 36: Ratio of property claims management costs to net property claims incurred, 2002-06, top five property insurers by GWP
    • Table 37: Ratio of property claims management costs to net property claims incurred, top 20 property insurers, 2005-06
    • Table 38: Change in ratio of property claims management costs to net property claims incurred, top 20 property insurers, 2005-06
    • Table 39: Ratio of claims management costs to net claims incurred, 2002-06, top five liability insurers by GWP
    • Table 40: Ratio of liability claims management costs to net liability claims incurred, top 20 liability insurers, 2002-06
    • Table 41: Change in ratio of liability claims management costs to net property claims incurred, top 20 liability insurers
    • Table 42: Key variables affecting motor claims costs, 2007e-2012f
    • Table 43: Forecast of net motor claims incurred, 2002-12f, (£m)
    • Table 44: Key variables affecting property claims costs, 2007e-2012f
    • Table 45: Forecast of net property claims incurred, 2002-12f, (£m)
    • Table 46: Key variables affecting liability claims costs, 2007e-2012f
    • Table 47: Forecast of net liability claims incurred, 2002-12f, (£m)
  • List of Figures
    • Figure 1: Both the private and commercial motor markets declined in 2006
    • Figure 2: Both of the main private motor lines declined in 2006
    • Figure 3: The motor insurance market continued to make an underwriting loss in 2006
    • Figure 4: The private motor market made an underwriting loss of £448m in 2006
    • Figure 5: The number of RTAs has fallen every year since 1997-98
    • Figure 6: Although vehicle registrations rose again in 2006, road traffic accidents continued to fall
    • Figure 7: Road accident casualties continued to decline in 2006
    • Figure 8: Household insurance GWP increased in 2006, while commercial property GWP fell
    • Figure 9: Property insurance underwriting profits fell in 2006 to £517m
    • Figure 10: The commercial property underwriting result decreased in 2006
    • Figure 11: Commercial fire, business interruption and weather property insurance claims costs fell in 2006
    • Figure 12: Fire claims continued to account for the largest part of commercial property claims costs in 2006
    • Figure 13: Business interruption claims costs fell in 2006
    • Figure 14: The cost of commercial property weather claims declined in 2006
    • Figure 15: 2006 saw a slight increase in the cost of commercial property insurance theft claims
    • Figure 16: 2006 saw a drop in the number of commercial property theft claims but an increase in the average value of claims
    • Figure 17: The total cost of domestic property claims fell slightly in 2006, as a result of a reduction in weather related claims
    • Figure 18: The cost of weather insurance claims fell in 2006 for domestic property
    • Figure 19: The cost of claims caused by fire grew in 2006 for domestic property
    • Figure 20: Both the number of theft claims and the average theft claims cost grew in 2006
    • Figure 21: Number of burglaries in England and Wales, 2001-02 and 2006-07, (000s)
    • Figure 22: Homes with no security measures were at the highest risk to burglary in 2006-07
    • Figure 23: The cost of subsidence claims rose in 2006, while the average cost of subsidence claims increased only slightly
    • Figure 24: Falling premium rates in most liability lines meant lower GWP across the liability market
    • Figure 25: The total general liability underwriting result increased in 2006
    • Figure 26: The number of disease claims registered with the Compensation Recovery Unit declined in 2006-07, however the number of accident claims rose
    • Figure 27: Workplace fatalities went down in 2005-06p, apart from among members of the public and the self-employed
    • Figure 28: Overall claims handling efficiency decreased slightly in 2006
    • Figure 29: Zurich recorded the highest ratio of claims management costs to net claims incurred of the top five motor insurers in 2006
    • Figure 30: Fortis was the most efficient at handling motor insurance claims in 2006
    • Figure 31: Highway saw the largest decrease in its ratio of motor claims management costs to net motor claims incurred for 2006
    • Figure 32: AXA recorded the lowest ratio of claims management costs to net claims incurred of the top five property insurers in 2006
    • Figure 33: UK Ins was the most efficient at handling property insurance claims in 2006
    • Figure 34: NIG saw the second largest improvement in its ratio which decreased by 3.4% in 2006
    • Figure 35: Norwich Union recorded the lowest ratio of claims management costs to net claims incurred of the top five liability insurers in 2006
    • Figure 36: Brit Insurance was the most efficient liability claims handler in 2006
    • Figure 37: NIG saw the largest improvement in its claims ratio in 2006
    • Figure 38: Total motor claims costs will reach £10.9 billion in 2007
    • Figure 39: Property insurance claims costs peaked to £7.5 billion in 2007 due to the summer floods
    • Figure 40: Liability claims costs will grow to £5 billion in 2012