Abstract
The private motor insurance market continues to suffer an underwriting loss, due to rising claims costs and intense competition placing a downward pressure on premiums. Speculation that the sector would witness significant premium hikes in 2007 failed to materialise, although premiums have risen steadily over the last year. However, these increases have been insufficient to help the industry achieve an underwriting profit, in the face of growing claims inflation.
Over recent years, the sector has seen a dramatic shift in distribution away from intermediated channels towards direct insurer sales. At the same time, online channels have grown in importance and popularity, with around three in ten policies now arranged online. The move online has enabled insurers to reduce costs and thereby provide more competitive policies, however it has also led to higher levels of customer churn and reduced loyalty. Against this intensely competitive backdrop, it continues to be challenging for insurers to pass on significant premium increases and thereby to improve the underwriting performance.
This report examines the key issues facing the motor insurance industry. It considers the current economic climate, and trends in the wider motoring industry. Data provided by the ABI are used to establish the market size and also an evaluation of the claims experience. Analysis of market share and changes in distribution are included, while the report also identifies key trends relating to distribution, brand perception and innovation. Mintel' s consumer research provides an insight into product ownership and purchasing, quotation and switching behaviour, as well as the wider attitudes of car owners.
Main themes of the report:
- The sector continues to suffer an underwriting loss, due to rising claims and intense competition.
- Over the last 12 months, premiums have risen gradually; the AA estimates that average quoted premiums have increased by around 6% over this period.
- There has been a downward trend in claims frequency in recent years, although the overall cost of claims continues to increase, due to substantial increases in personal injury costs.
- Distribution changes continue to impact the market for motor insurance, with intermediated sales suffering to the benefit of direct providers.
- An increase in online sales and the growing importance of price comparison sites maintain the pressure on providers to keep premiums low.
- The shift towards direct sales has seen a substantial increase in adspend as providers seek to compete in a price-led market.
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
