Overview

Introduction

An overview of the household insurance market in the UK

• CHAPTER 1 EXECUTIVE SUMMARY
  • Both household GWP and the household underwriting result improved in 2005
    • Household GWP growth improved in 2005
    • The household insurance underwriting result rose in 2005, as growth in NWP outstripped total outgoings
  • Corporate partnerships increased their market share of household insurance distribution in 2005, while price remains the biggest motivator for consumers
    • The share of bancassurers and direct writers stagnated in the household insurance market in 2005, while corportate partnerships continued to rise
      • Bancassurers and brokers have lost ground in the household market in recent years, but this decline has slowed
    • A cheaper quote was by far the most popular reason for choosing a home insurance policy in 2006
  • Norwich Union saw a strong increase in household insurance premium income in 2005, while combined ratios improved
    • Norwich Union recorded strong premium income growth in 2005, as Churchill' s rapid expansion faltered
    • The combined ratio of the top 20 property insurers fell marginally by 0.4 per cent in 2005, driven by the performance of just under half of this peer group
      • 11 of the top 20 property insurers recorded an increase in combined ratio
  • While competition placed downward pressure on premiums in 2006, rates are generally expected to harden in 2007 and 2008
    • Many household insurers stated that premium rates declined in 2006
    • A number of household insurers are expecting operating conditions to improve in 2007 and 2008
• CHAPTER 2 INTRODUCTION
  • What is this report about?
  • Who is the target reader?
  • How to use this report
• CHAPTER 3 MARKET CONTEXT
  • Introduction
  • The number of UK households rose in 2005 and is forecast to continue growing in the next 20 years
    • The number of UK households rose in 2005
      • Population growth has led to an increase in the number of UK households
      • A decline in average household sizes is also driving growth
    • Government projections suggest strong growth in the number of households between 2006 and 2026
      • There has been significant growth in the private rental market
  • The household insurance market saw growth improve in 2005, however increased competition has placed pressure on rates in 2006
    • Household insurance GWP rose by 4.8 per cent in 2005
    • Household GWP growth improved in 2005
    • GWP growth was stronger for contents insurance than for buildings insurance in 2005
    • Competition continued to put downward pressure on contents cover in 2006, but buildings rates increased
      • Prices are being driven down by premium discounting and price matching
      • New entrants have also put pressure on rates
      • Providers have been much better at forcing through increases on building rates
  • Household underwriting profitability increased in 2005 while profits in the overall property market dipped
    • Property underwriting profits fell slightly in 2005, as the effect of increased competition began to have an impact
      • Profitability declined as growth in total outgoings outstripped growth in NWP
    • The household insurance underwriting result rose in 2005, as growth in NWP outstripped total outgoings
  • Commissions and expenses and reinsurance ceded both increased marginally in 2005
    • Commissions and expenses increased by only 1.1 per cent in 2005
    • Reinsurance ceded increased slightly in 2005
  • Household claims incurred rose in 2005, as weather costs normalized and fire costs increased
    • Household insurance claims costs rose by 17.4 per cent in 2005
    • Weather claims costs rose by 54.5 per cent in 2005, reflecting poor weather conditions
    • The household insurance market saw fire claims costs rise by almost ten per cent, however losses were far worse in the commercial property sector
    • Household insurance theft claims declined by 5.9 per cent in 2005
      • The number of burglaries fell by 3 per cent in 2005/6
      • The risk of burglary is heavily influenced by factors such as tenancy status and security measures
    • Although subsidence remained the smallest of the main four perils, claims costs rose by 13.1 per cent in 2005
• CHAPTER 4 CUSTOMER FOCUS
  • Introduction
  • The corporate partnership channel increased its share of the household market in 2005 while face-to-face sales slowed
    • The share of bancassurers and direct writers stagnated in the household insurance market in 2005, while corportate partnerships continued to rise
      • Bancassurers and brokers have lost ground in the household market in recent years, but this decline has slowed
      • The rise of direct writers stagnated in 2005, though corporate partnerships continued to rise
    • The proportion of household insurance arranged by phone and on the Internet continues to increase at the expense of face-to-face sales
  • The majority of consumers are attracted by low quotes, while those buying online are more promiscuous
    • A cheaper quote was by far the most popular reason for choosing a home insurance policy in 2006
    • Online household insurance consumers are more than twice as likely to switch provider than those who purchase face-to-face or by telephone
    • Household insurance consumers that buy over the telephone are more likely to be influenced by reputation and recommendation than consumers who purchase face-to-face or online
  • Advertising for buildings and contents insurance is dominated by direct insurers advertising via direct mail and television, with Direct Line being the most recognized insurer
    • Direct Line was the most widely recognized household insurance provider in 2005
    • Total spend on advertising for buildings and contents insurance increased in 2005
    • The top 10 advertisers account for over 80 per cent of the total spend
    • The top 10 advertise mainly by direct mail, but for some television advertising also plays an important role
  • Advertising for contents only insurance is dominated by insurers and bancassurers that advertise via direct mail
    • Spending on contents insurance significantly increased in 2005, but is still much smaller than spending on buildings and contents insurance
    • The top 10 contents insurance advertisers include several banks
    • The top 10 contents advertisers focus on direct mail, though television advertising is important for some players
• CHAPTER 5 COMPETITIVE DYNAMICS
  • Introduction
  • The top 10 household insurers saw their fortunes diverge in 2005 in terms of premium income growth
    • Market leader Norwich Union recorded high premium income growth
    • Royal & SunAlliance avoided price-based competition and it saw GWP decline as a result
    • Churchill lost momentum in 2005, and it saw a marginal GWP decline
    • St. Andrew' s continued to record prolific growth as HBOS gave it more business to underwrite
    • Lloyds TSB saw a very slight decline in household premiums in 2005
    • Zurich was just able to sustain premium income growth, partly through deals with brokers and partners
    • Direct Line has benefited from growth in phone and Internet distribution, and by the product commoditization that this has encouraged
    • Corporate partnerships helped AXA to achieve an impressive increase in GWP
    • Legal & General divested itself of Gresham, but suffered high claims costs in 2005
    • UK Insurance' s premium income remained virtually flat
    • Norwich Union recorded strong premium income growth in 2005, as Churchill' s rapid expansion faltered
  • Property insurance operating conditions improved slightly in 2005, although many players saw their combined ratios increase
    • The loss ratio of the top 20 property insurers improved in 2005
      • Nine of the top 20 actually recorded an increase in loss ratio, with significant increases from several players
      • Ecclesiastical, Direct Line and Allianz all recorded large loss ratio increases
      • St. Andrew' s and Norwich Union all achieved big reductions in loss ratio, going against the market trend of rising claims costs
      • Liverpool Victoria' s loss ratio was the worst of the property sector' s top 20 players
    • The expense ratio of the top 20 property insurers increased by 1.8 percentage points in 2005
      • Direct writers and mutual insurance companies had the best expense ratios
      • CIS, Royal & SunAlliance and Zurich all saw significant increases in expense ratios
      • Lloyds TSB and NIG achieved large reductions in their expense ratios
    • The combined ratio of the top 20 property insurers fell marginally by 0.4 per cent in 2005, driven by the performance of just under half of this peer group
      • 11 of the top 20 property insurers recorded an increase in combined ratio
      • Reflecting softer market conditions, Legal & General moved into an underwriting loss
      • Direct Line, Allianz and Ecclesiastical saw the biggest increase in combined ratio
      • Lloyds TSB, St. Andrew' s and Norwich Union all achieved double digit figure combined ratio reductions
• CHAPTER 6 THE FUTURE DECODED
  • Introduction
  • While competition placed downward pressure on premiums in 2006, rates are generally expected to harden in 2007 and 2008
    • Many household insurers stated that premium rates declined in 2006
    • A number of household insurers are expecting operating conditions to improve in 2007 and 2008
  • In scenario 1 GWP growth occurs slowly between 2007 and 2008 as competition is high, however stronger growth is recorded after 2009
    • Competition remains high during 2007 and 2008, due to favorable market conditions and changing product distribution
    • High levels of competition initially ensure that GWP growth is slow
    • Slow NWP growth causes the household underwriting result to fall between 2006 and 2008, however profitability subsequently increases
  • In scenario 2 competition is less intense, leading the market to achieve stronger GWP growth and better underwriting profits
    • Stronger GWP growth is achieved as competitors refrain from price-based competition
    • The household market reaches £9 billion in GWP by 2011
    • The market achieves strong underwriting profitability between 2006 and 2011
  • In scenario 3 competition is intense and as a result the market moves into a loss in 2007
    • Competition is high in 2007 and 2008, and leads to further declines in premium rates
    • Household GWP declines in 2006 and 2007, although conditions improve during 2008
    • The household insurance market moves into an underwriting loss in 2007
• CHAPTER 7 APPENDIX
  • Supplementary data
    • GEP and performance ratio data by competitor
  • Definitions
    • Competitor data
      • GWP versus GEP reporting
    • 2005 definitions for lines of business
      • Household and domestic all risks
    • Pre-2005 definitions for lines of business
      • Property
    • Premium income measures
      • Earned premiums
      • Gross Premium
      • Net Premium
      • Written premiums
  • Research methodology
    • Ipsos MORI data
      • Sample design
  • Current readings
  • Future readings
  • Datamonitor' s custom research capabilities
  • SPP writing team
  • List of Tables
    • Table 1: The size of UK households by the number of people, 1971-2005
    • Table 2: Household projections in England by household type, 2003-2026
    • Table 3: Trends in household tenure for England, 1995-2005
    • Table 4: Personal insurance market GWP by sector, 2001-2005
    • Table 5: Annual growth in household insurance market GWP, 2000-5
    • Table 6: GWP split in household insurance between buildings and contents cover, 2001-5
    • Table 7: Change in UK household insurance premiums, 2000-6
    • Table 8: Property underwriting account, 1995-2005
    • Table 9: Household underwriting account, 1995-2005
    • Table 10: Household insurance commissions and expenses compared with GWP and total outgoings, 2001-5
    • Table 11: Domestic reinsurance ceded compared with NWP and GWP, 2001-5
    • Table 12: Reinsurers' share of claims, 2001-5
    • Table 13: Gross claims incurred in the household market, by peril, 2000-5
    • Table 14: Proportion of household claims by peril, 2000-5
    • Table 15: Weather damage claims incurred by cause in domestic property, 2000-5
    • Table 16: Gross incurred household fire claims, 2000-5
    • Table 17: The cost of household theft claims and average claim cost, 2000-5
    • Table 18: Number of burglaries in England and Wales, 1999-2006
    • Table 19: Unemployment among 18-24 year old males, 1998-2006
    • Table 20: Household types most at risk from burglary, 2004/5 - 2005/6
    • Table 21: Average subsidence claim payout compared to total claims and number of subsistence claims, 2000-5
    • Table 22: Distribution of household insurance, 2001-5
    • Table 23: Distribution of household insurance, by platform, 2001-6
    • Table 24: Reasons for choosing household insurance provider, 2006
    • Table 25: Propensity to switch household provider and likelihood of getting other quotes, by distribution platform, 2006
    • Table 26: Motivations for taking out a new household insurance policy, by distribution platform, 2006
    • Table 27: Spontaneous consumer awareness of household insurers against advertising expenditure, 2006
    • Table 28: Top 10 advertisers, buildings and contents, 2004-5
    • Table 29: Top 10 advertisers' spend by media, buildings and contents, 2005
    • Table 30: Top 10 advertisers, contents, 2004-5
    • Table 31: Top 10 advertisers' spend by media, contents, 2005
    • Table 32: Market share of the top household insurers, 2004-5
    • Table 33: Growth of the top 10 household insurers, 2004-5
    • Table 34: Premium income compared to loss ratio, top 20 property insurers, 2004-5
    • Table 35: Expense ratio of the top 20 property insurers, 2004-5
    • Table 36: Premium income compared to combined ratio, top 20 property insurers, 2004-5
    • Table 37: Scenario 1: Household insurance GWP, 1994-2011f
    • Table 38: Scenario 1: Forecast underwriting result, 1997-2011f
    • Table 39: Scenario 2: Household insurance GWP, 1994-2011f
    • Table 40: Scenario 2: Forecast underwriting result, 1997-2011f
    • Table 41: Scenario 3: Household insurance GWP, 1994-2011f
    • Table 42: Scenario 3: Forecast underwriting result, 1997-2011f
  • List of Figures
    • Figure 1: The number of UK households continues to grow, while the average household size has fallen
    • Figure 2: Government projections estimate that the number of households will continue to grow in the next 20 years
    • Figure 3: Social renting is on the decline at the expense of private renting and owner occupation
    • Figure 4: Household and individual accident and health recorded GWP growth, while private motor declined again in 2005
    • Figure 5: Household GWP growth picked up slightly in 2005
    • Figure 6: Both buildings and contents GWP recovered from a spell of slower growth in 2004
    • Figure 7: Buildings insurance premiums recovered in 2006, however competition continued to drive contents premiums down
    • Figure 8: Profits fell slightly in 2005, as the effect of increased competition began to have an impact
    • Figure 9: The household insurance market recorded an impressive underwriting result in 2005
    • Figure 10: Commissions and expenses declined marginally relative to GWP in 2005
    • Figure 11: Household reinsurance ceded grew marginally in 2005
    • Figure 12: Gross claims incurred by the household insurance market increased in 2005, as weather claims costs returned to a more normal level
    • Figure 13: Weather damage claims costs rose in 2005, after a benign year in 2004
    • Figure 14: Domestic fire claims increased by 9.8 per cent in 2005, but the commercial sector was more seriously affected and as a proportion of total fires, domestic claims declined
    • Figure 15: The number of household theft claims has fallen since 2001, but the average value of a claim did not decline correspondingly in 2004 and 2005
    • Figure 16: The decline in the number of burglaries slowed significantly in 2005/6, corresponding to worsening unemployment rates
    • Figure 17: Homes with no security measures are at a very high risk of burglary; almost one in five is burgled each year
    • Figure 18: Subsidence claims costs increased in 2005, but the average payout remains much lower than it was 5 years ago
    • Figure 19: Corporate partnerships have increased over the last five years taking business away from many other distribution channels
    • Figure 20: The influence of the phone and the Internet have increased at the expense of face-to-face distribution in the household sector
    • Figure 21: Over half of people surveyed in 2006 said they chose their home insurance provider because it offered a cheaper quote
    • Figure 22: Consumer loyalty is least prevalent among those arranging their household insurance online
    • Figure 23: Consumers who use the telephone and Internet to purchase household insurance are the most price conscious
    • Figure 24: Direct Line was the most recognized home insurance brand in 2006
    • Figure 25: Saga recorded the highest buildings and contents advertising expenditure in 2005
    • Figure 26: HBOS subsidiaries Esure and Halifax spent heavily on promoting contents insurance in 2005
    • Figure 27: Norwich Union recorded strong household market share growth in 2005
    • Figure 28: Norwich Union recorded strong premium income growth in 2005, while Churchill has grown significantly since 2000
    • Figure 29: On average property insurers increased premium income in 2005, but also saw their loss ratios rise
    • Figure 30: With the exception of a few companies like Lloyds TSB, NIG and Ecclesiastical, most property insurance providers saw expense ratios rise in 2005
    • Figure 31: Scenario 1: Key variables affecting GWP growth, 2006e-11f
    • Figure 32: Scenario 1: GWP falls in 2006 but begins to increase in 2007
    • Figure 33: Slow NWP growth causes the household underwriting result to fall between 2006 and 2008
    • Figure 7: Scenario 2: Key variables affecting GWP growth, 2006e-11f
    • Figure 35: Scenario 2: GWP is stronger during 2007
    • Figure 36: Scenario 2: The market achieves strong underwriting profitability between 2006 and 2011
    • Figure 37: Scenario 3: Key variables affecting GWP growth, 2006e-11f
    • Figure 38: Scenario 3: GWP declines in 2006 and 2007
    • Figure 39: Scenario 3: The household insurance market enters an unprofitable period in 2007
    • Figure 40: Datamonitor' s core consulting capabilities