Motor Insurance - UK - May 2008

Table of Contents

• Issues in the Market
• Key issues in the market
• Definitions
• Abbreviations
• Market in Brief
• Underwriting deficit continues to plague industry
  • Figure 1: Illustration of NWP, outgoing payments and underwriting result for the domestic private motor insurance market, 1994-2007
• Claims costs up by a third since 2000
  • Figure 2: Value of claims in the domestic motor insurance sector, 1999-2006
• Underlying market factors drive demand...
• ... however, economic uncertainty creates difficult conditions
• RBS Insurance tops market share
  • Figure 3: Market share for personal motor insurance, based on NWP, 2006
• Distribution changes continue to shape market landscape
• More than 23 million adults have comprehensive policy
  • Figure 4: Estimate of the number of live motor insurance policies, 2008
• Switching activity continues to increase
  • Figure 5: Length of time with current motor insurance provider, February 2008
• Internal Market Environment
• Key points
• Over 31 million cars in use
  • Figure 6: UK car parc, 2000-13
• Private car registrations have fallen
  • Figure 7: Trends in private, business and fleet new car registrations, 2001-07
• Around 7.5 million used cars sold each year
  • Figure 8: Sales of used cars, 2002-06
• More than 33 million driving licence holders
  • Figure 9: Full GB driving licence holders, by gender 1975-2006
• Steady growth in multi-car ownership
  • Figure 10: Household ownership of cars, 1998-2007
• Electronic motor certificates introduced
• ABI demand action on third party costs
• Greater emphasis placed on tackling fraud
  • Figure 11: Percentage of personal motor claims repudiated due to detected fraud, 2004-06
• Insurers clamp down on fronting
• Broader Market Environment
• Key points
• Consumer expenditure expected to slow
  • Figure 12: Trends in PDI, consumer expenditure and savings, 2000-13
• Saving rather than spending to become a priority
  • Figure 13: Intentions to spend and save in the next 12 months, January 2001-December 2007
• Bank rate cuts may increase appeal of car finance
• Changing population profile will impact demand for insurance
  • Figure 14: UK adult population trends, 1993-2013
• Internet penetration has reached 64%
  • Figure 15: British Internet penetration, at home/work/place of study or elsewhere, 2002-08
• Rising costs of motoring
• Many policies are not car friendly
• Competitive Context
• Key points
• Legal obligation -- so no competition
• Battle waged against uninsured drivers
  • Figure 16: MIB claims, 2005-07
• Strengths and Weaknesses in the Market
  • Figure 17: Strengths and weaknesses in the motor insurance market, 2008
• Strengths of the motor insurance market
• Weaknesses of the motor insurance market
• Trade Perspective
• Participating companies
• Premium hikes fail to materialise
• Underwriting losses to continue in the short-term
• The shift online
• Aggregators are here to stay but fewer new entrants expected
• Industry views vary on extent of innovation
• Future challenges and developments
• Market Size and Forecast
• Key points
• Private motor insurance continues to suffer underwriting deficit
  • Figure 18: Illustration of NWP and outgoing payments and underwriting result for the domestic private motor insurance market, 1994-2007
• Premiums are rising, but so are outgoings
  • Figure 19: UK motor insurance revenue account for domestic market, 1994-2007
• Premiums rose by almost 6% in 2007...
  • Figure 20: AA British Insurance Premium Index, Motor risks, July 1994-April 2008
• ...but rates are falling in real terms
  • Figure 21: Domestic motor insurance exposure, GWP and average premium rates, at current amd constant prices, 2000-07
• Number of policies in force approaches around 27 million
  • Figure 22: Estimate of the number of live private motor insurance policies, 2008
• Almost nine in ten policyholders has comprehensive cover
  • Figure 23: Proportion of cars with comprehensive and non-comprehensive cover, 1998-2007
• Forecast
  • Figure 24: Forecast of private motor insurance market, 2003-13
  • Figure 25: Forecast of UK motor insurance revenue account for domestic market, 2003-13
• Factors used in the forecast
• Claims Experience
• Key points
• Claims frequency on downward trend...
  • Figure 26: Total number of private motor insurance claims and claims frequency, 1996-2007
• ...but claims costs have risen by 36% since 1999
  • Figure 27: Value of claims in the domestic motor insurance sector, 1999-2006
• Theft claims fall, but average claim rises
  • Figure 28: Private car theft claims, by volume, cost and average claim, 1996-2007
• Personal injury claims have rocketed
  • Figure 29: Number and average cost of bodily injury claims, 2000-06
• Claims service is a key retention issue
• Bilateral agreements aim to lower costs
• Market Share
• Key points
• Top five insurers account for almost 70% of market
  • Figure 30: Market share for personal motor insurance, based on NWP, 2006
• RBS Insurance dominates motor insurance market
  • Figure 31: NWP for top 15 insurers for personal motor insurance, 2006
• Companies and Products
• Market overview
• Fluctuations in number of motor insurers
  • Figure 32: Number of ABI members writing motor business, 1996-2006
• Developments in aggregator market
• Insurer profiles
• RBS Insurance
• Aviva
• Royal & SunAlliance (RSA)
• Zurich
• Fortis
• Brand Communication and Promotion
• Key points
• Motor insurance tops financial adspend
  • Figure 46: Annual advertising expenditure on general insurance products, 2003-08
• Adspend on motor insurance products tops £250 million per year
  • Figure 47: Annual expenditure on motor insurance products, 2003-08
• TV dominates motor insurance adspend
  • Figure 48: Motor insurance advertising expenditure, by media type, 2008
• Direct line and Confused.com top adspend in 2007/08
  • Figure 49: Top motor insurance advertisers, 2003-08
• Channels to Market
• Key points
• The direct revolution continues...
  • Figure 50: Motor insurance distribution trends, 1999-2006
• ...although intermediaries are taking battle online
• More than half of all policyholders go direct
  • Figure 51: Distribution channel used to purchase motor insurance, February 2008
• Telephone remains preferred arrangement method...
  • Figure 52: Method used to arrange most recent motor insurance policy, 2007
• ...but aggregator sites are drawing people online
• FSA turns attention to aggregators
• The Consumer -- Product Ownership
• Key points
• More than three-fifths have motor insurance cover
  • Figure 53: Ownership of motor insurance, February 2008
• Comprehensive cover has increased in popularity
  • Figure 54: Trends in motor insurance ownership, 2004-08
• Over-35s more likely to have comprehensive cover
  • Figure 55: Motor insurance ownserhip by gender, age, lifestage and marital status, February 2008
• Three-fifths of Abs have comprehensive cover
  • Figure 56: Motor insurance ownership by socio-economic group, gross annual household income, household tenure and working status, February 2008
• Internet users more likely opt for full cover
  • Figure 57: Motor insurance ownership, by TV region, technology users, Internet usage, newspaper readership and supermarket used, February 2008
• The Consumer -- Purchasing Car Insurance
• Key points
• More than half of policyholders go direct to insurer
  • Figure 58: Distribution channel used to purchase last motor insurance policy, February 2008
• Influence of direct insurers grows, at the expense of brokers
  • Figure 59: Distribution channel used to purchase motor insurance, 2001-08
• Women more likely to use a price comparison site
  • Figure 60: Distribution channel used to purchase most recent motor insurance policy, by gender, age, lifestage and marital status, February 2008
• C1s are more likely to use brokers
  • Figure 61: Distribution channel used to purchase most recent motor insurance policy, by socio-economic group, gross annual household income, household tenure and working status, February 2008
• Price comparison sites attract heavy Internet users
  • Figure 62: Distribution channel used to purchase most recent motor insurance policy, by TV region, technology users, Internet usage, newspaper readership and supermarket used, February 2008
• More than half use the telephone to arrange cover
  • Figure 63: Method used to arrange most recent motor insurance policy, February 2008
• The rise of the Internet is detrimental to other channels
  • Figure 64: Method used to arrange most recent motor insurance policy, 2001-08
• Age is a major influence in the channel used
  • Figure 65: Method used to arrange most recent motor insurance policy, by gender, age, lifestage and marital status, February 2008
• Price comparison sites have wide appeal
  • Figure 66: Method used to arrange most recent motor insurance policy, by socio-economic group, gross annual household income, household tenure and working status, February 2008
• Broadsheet readers more likely to turn to the Internet
  • Figure 67: Method used to arrange most recent motor insurance policy, by TV region, technology users, Internet usage, newspaper readership and supermarket used, February 2008
• Most direct policies are arranged over the phone
  • Figure 68: Method used to arrange most recent motor insurance policy, by distribution channel used, February 2008
• The Consumer -- Quotation Activity
• Key points
• 28% obtained four or more quotes
  • Figure 69: Number of motor insurance quotes obtained on last renewal, February 2008
• Renewal activity is changing
  • Figure 70: Number of motor insurance quotes obtained on last renewal, 2001-08
• A third of over-65s just renew their policy
  • Figure 71: Number of motor insurance quotes obtained at last renewal, by gender, age, lifestage and marital status, February 2008
• Mortgage holders more likely to shop around
  • Figure 72: Number of motor insurance quotes obtained at last renewal, by socio-economic group, gross annual household income, household tenure and working status, February 2008
• Heavy Internet users are more likely to obtain multiple quotes
  • Figure 73: Number of motor insurance quotes obtained at last renewal, by TV region, technology users, Internet usage, newspaper readership and supermarket used, February 2008
• Third party policyholders are more likely to shop around
  • Figure 74: Number of quotes obtained, by type of cover in place, February 2008
• Price comparison sites are behind multiple quotes
  • Figure 75: Number of motor insurance quotes obtained at last renewal, by distribution channel used for most recent policy, February 2008
• Internet enables multiple quotes
  • Figure 76: Number of motor insurance quotes obtained at last renewal, by method used to purchase most recent policy, February 2008
• The Consumer -- Switching Behaviour and Loyalty
• Key points
• Two-fifths have been with their current insurer less than two years
  • Figure 77: Length of time with current motor insurance provider, February 2008
• Loyalty is in decline
  • Figure 78: Length of time with current motor insurance provider, 2001-08
• Loyalty increases with age
  • Figure 79: Length of time with current motor insurance provider, by gender, age, lifestage and marital status, February 2008
• Des more likely to be recent switchers
  • Figure 80: Length of time with current motor insurance provider, by socio-economic group, gross annual household income, household tenure and working status, February 2008
• Scottish drivers are the most loyal
  • Figure 81: Length of time with current motor insurance provider, by TV region, technology users, Internet usage, newspaper readership and supermarket used, February 2008
• Third party policyholders are frequent switchers
  • Figure 82: Length of time with current motor insurance provider, by type of cover, February 2008
• 50% of price comparison users have moved insurers in last year
  • Figure 83: Length of time with current motor insurance provider, by distribution channel, February 2008
• Telephone customer more likely to be loyal
  • Figure 84: Length of time with current motor insurance provider, by method used to arrange cover, February 2008
• Switchers obtain more quotes
  • Figure 85: Length of time with current motor insurance provider, by number of quotes obtained, February 2008