UK Employers' Liability Insurance 2008

Table of Contents

• Overview
  • Catalyst
  • Summary
• Executive Summary
  • The employers' liability market remained dominated by competitive pricing in 2006 and 2007, leading to unprofitable market conditions and a fall in GWP
    • The employers' liability market declined by 7.4% in 2006 as strong competitive conditions led to price decreases
  • SMEs buy insurance mainly through brokers and long-term relationships are the norm
    • Most SMEs buy insurance via brokers, but direct insurers also distribute a significant part of the market
  • The market share of the top 10 employers' liability insurers decreased marginally in 2006
    • The top 10 employers' liability insurers accounted for 61.6% of the market in 2006
  • Future GWP growth is influenced chiefly by premium rate movements which are estimated to have decreased in 2007
    • Insurers gave a range of estimates for premium rate changes in 2009 and 2010
    • The employers' liability market is forecast to achieve a CAGR of 5.4% between 2007 and 2012 under neutral conditions
• Table of Contents
• Table of figures
• Table of tables
• Market Context
  • Introduction
  • The employers' liability market remained dominated by competitive pricing in 2006 and 2007, leading to unprofitable market conditions and a fall in GWP
    • The employers' liability market declined by 7.4% in 2006 as strong competitive conditions led to price decreases
  • The market recorded a dramatic loss in 2006 after costs rose significantly
    • Decreased NWP and increased outgoings both contributed to a plummeting underwriting result in 2006
    • Commissions and expenses rose to £585m in 2006
    • Change in provisions failed to secure an underwriting profit in 2006
  • The cost of employers' liability claims increased in 2006 as a result of the erratic nature of the employers' liability claims environment
    • The cost of employers' liability claims increased by 61.5% in 2006
    • The number of employers' liability claims fell to a five-year low in 2006/7
    • The British Coal scheme has cost £3.4 billion so far, although the majority of payments are for minor amounts
      • The British Coal scheme is expected to cost £7 billion when all claims have been settled
      • The majority of compensation offers to claimants for respiratory disease are below £5,000
    • Incidents of workplace accidents and work related ill-health were reduced in 2006/7
      • The total number of non-fatal workplace injuries fell in 2006/7
      • The number of workplace injuries, as reportable under RIDDOR, excluding acts of violence decreased by 4.6 % in 2006/7
      • Workplace fatalities increased in 2006/7
    • The total number of workplace injuries was estimated to be 313,685 in 2006/7
    • Total work-related ill-health decreased in 2006
  • NHS claw-back, changes to legislation on asbestos claims and indexation will increase future claims bills
    • The NHS claw-back scheme has only had a limited affect on the market so far
    • The House of Lords ruled against pleural plaques compensation in 2007
    • Changes in claims indexation for periodical payments are likely to have an impact on larger personal injury claims
• 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
  • SMEs buy insurance mainly through brokers and long-term relationships are the norm
    • Most SMEs buy insurance via brokers, but direct insurers also distribute a significant part of the market
    • 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
    • National brokers represent the greatest threat to commercial brokers in the second half of 2007
    • Commercial liability products are the least at risk to the direct channel and likely to remain brokered
    • Over half of SMEs would buy their employers' liability insurance policies via the telephone or internet
• Competitive Dynamics
  • Introduction
  • The number of new entrants was limited in 2007 with only a few new insurers entering the market
    • A new underwriting agency, Arista entered the employers' liability market in 2007
    • Howden expanded into the employers' liability market in 2007
    • QBE and Primary General launched products to target the SME market in 2007
  • The market share of the top 10 employers' liability insurers decreased marginally in 2006
    • The top 10 employers' liability insurers accounted for 61.6% of the market in 2006
    • Three of the top 10 players saw their market shares remain flat in 2006
    • Norwich Union, AXA, ACE and QBE increased their market share in 2006
      • Norwich Union saw its market share increase by two percentage points in 2006
      • QBE, AXA and ACE saw their market shares increase marginally in 2006
    • Zurich, Allianz and Aspen saw their market shares decrease in 2006
      • Zurich saw its market share decrease by two percentage points in 2006
      • Allianz and Aspen saw their market shares decrease marginally in 2006
  • The average gross claims ratio fell in 2006 after five of the top 10 employers' liability insurers saw their ratios improve
    • The average gross claims ratio for the top 10 fell to 72.7% in 2006
    • Five of the top 10 employers' liability insurers saw their ratios improve in 2006
    • Four of the top 10 employers' liability insurers saw their gross claims ratios deteriorate in 2006
• Future Decoded
  • Introduction
  • Future GWP growth is influenced chiefly by premium rate movements which are estimated to have decreased in 2007
    • Insurers gave a range of estimates for premium rate changes in 2009 and 2010
    • A number of factors will influence future GWP growth in the employers' liability market
  • Under the neutral scenario, employers' liability GWP is forecast to reach £2.3 billion by 2012
    • The competitive pricing continues to moderate future GWP growth in the neutral scenario
    • The employers' liability market is forecast to achieve a CAGR of 5.4% between 2007 and 2012
    • The employers' liability market is forecast to remain unprofitable between 2007 and 2012
  • Under more optimistic conditions, the employers' liability market is forecast to reach £2.7 billion
    • In the optimistic scenario, the market will harden in 2009 as competitive conditions relax
    • GWP is forecast to grow by 8.4 % on a compound average growth rate between 2007 and 2012
    • Profitability will improve in the market with combined ratios decreasing between 2009 and 2012
• Appendix
  • Supplementary data
    • Performance ratios
  • Definitions
    • Premium income measures
      • Earned premiums
      • Gross premium
      • Net premium
      • Written premiums
    • Distribution
      • Direct
      • Other company agents
      • Utilities/retailers/affinity groups
      • Company staff
      • Banks/building societies
    • Definitions of general terms
      • Channel
      • Platform
      • Employers liability (including the employers liability part of mixed liability packages but excluding mixed commercial packages)
    • Pre-2005 definitions for lines of business
    • General liability
    • 2005 FSA Return changes
  • Methodology
    • Market size methodology
    • Lloyd' s players and underwriting result figures
    • Lloyd' s market data
    • Employers' liability claims data
    • Ratio analysis methodology
      • Accuracy of figures
    • Datamonitor' s Commercial Broker Survey
    • Datamonitor' s SME Insurance Survey Q1 2007
    • Competitor data
      • 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 employers' liability insurance GWP, 2003−07e (£m)
    • Table 2: UK employers' liability detailed underwriting result, 2002−06 (£m)
    • Table 3: UK employers' liability gross claims incurred, 2002−06 (£m)
    • Table 4: Number of employers' liability personal injury claims split by accident and disease, 2002/3−2006/7
    • Table 5: Number of claims made to the DTI and total compensation paid for respiratory disease and vibration white finger under the British Coal scheme as of March 2, 2008
    • Table 6: Profile of offers made by BERR to claimants for respiratory disease under the British Coal Scheme, up to 31st December 2007
    • Table 7: Workplace injuries reportable under RIDDOR, 2002/3−2006/7p
    • Table 8: Workplace injuries reportable under RIDDOR, excluding acts of violence, 2002/3−2006/7p
    • Table 9: Workplace fatalities reported under RIDDOR, 2002/3−2006/7p
    • Table 9: Total estimated workplace injuries reportable to the HSE, 2002/3−2006/7p
    • Table 11: Number of cases of occupational disease and work related mental ill-health, 2002−06p
    • Table 11: ASHE 6115 and RPI inflation, 1998−2007 (%)
    • Table 12: Market share of distribution channels in the commercial general insurance market, 2003-06
    • Table 13: Q: "What level of threat do the following distribution channels pose to you?"
    • Table 14: Market share split by market leader, top 10 and rest of the market, 2005−6
    • Table 15: Employers' liability market share by competitor, 2002−06 (%)
    • Table 16: Employers' liability premium income by competitor, 2002−06 (£000s)
    • Table 17: Gross claims ratio of top 10 employers' liability insurers, 2002−06
    • Table 18: Key variables affecting employers' liability insurance GWP, 2007e-12f
    • Table 19: Employers' liability GWP forecast, neutral scenario , 2002−12f (£m)
    • Table 20: Employers' liability forecast for GWP, gross claims, gross loss ratio, net expense ratio and combined ratio, neutral scenario, 2002−12f (£m)
    • Table 21: Employers' liability GWP forecast, optimistic scenario, 2002−12f (£m)
    • Table 22: Employers' liability forecast for GWP, gross claims, gross loss ratio, net expense ratio and combined ratio, optimistic scenario, 2002−12f
    • Table 23: Employers' liability premium income by competitor, 2002−06
    • Table 24: Employers' liability market share by competitor, 2002−06
    • Table 25: Commercial liability competitors by loss ratio, 2002−06
    • Table 26: Commercial liability expense ratio by competitor, 2002−06
    • Table 27: Commercial liability combined ratio by competitor, 2002−06
    • Table 28: Commercial liability commission ratio by competitor, 2002−06
    • Table 29: Commercial liability management expense ratio by competitor, 2002−06
    • Table 30: Commercial liability net gross premium ratio by competitor, 2002−06
    • Table 31: Q: "What business sector are you involved in?"
    • Table 32: Q: "How large is your company in terms of number of employees?"
    • Table 33: Q: "How large is your company in terms of turnover?"
  • List of Figures
    • Figure 1: The market share of the market leader fell in 2006
    • Figure 2: Premium income is estimated to have fallen by an annual average of 5% between 2003 and 2007
    • Figure 3: The employers' liability market incurred a loss in 2006
    • Figure 4: Total gross claims soared to £2 billion in 2006
    • Figure 5: Disease claims in the employers' liability market have fallen dramatically since 2002/3
    • Figure 6: Claims above the value of £100,000 represented the smallest proportion of claims paid in 2007
    • Figure 7: The number of workplace fatalities increased in 2006/7
    • Figure 8: The number of work related illnesses decreased in 2006
    • Figure 9: Annual inflation using the ASHE6115 index is on average 2.6 percentage points higher than RPI
    • Figure 10: National brokers dominate the distribution of commercial general insurance in the UK in terms of GWP
    • Figure 11: The distribution of insurance to SMEs remained largely under the control of brokers in 2007
    • Figure 12: SMEs have become more likely to consider direct insurers if they were to change provider
    • Figure 13: The prospect of cheaper premiums is the primary reason given for being willing to consider using a bank as an insurance provider
    • Figure 14: Price is the top reason given by SMEs that would consider switching to a direct insurer
    • Figure 15: National brokers remain the largest threat to the majority of survey respondents
    • Figure 16: Commercial motor is the line of business most at risk to the direct channel
    • Figure 17: Over half of SMEs would consider buying commercial motor, property and employers' liability online or via the telephone
    • Figure 18: The market share of the market leader fell in 2006
    • Figure 19: Zurich remained the market leader in 2006 despite a decrease in its market share
    • Figure 20: Three insurers achieved gross claims ratios below 60% in 2006
    • Figure 21: The market is forecast to grow at a CAGR of 3.9% between 2002 and 2012
    • Figure 22: Under the neutral scenario the gross claims ratio in the employers liability market is expected to reach 135.8% by 2012
    • Figure 23: The UK employers' liability is forecast to reach £2.7 billion in 2012 under less competitive conditions
    • Figure 24: The combined ratio is expected to decrease to 121.4% by 2012 under the optimistic scenario