Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The industry returned a respectable trading result with personal lines performing well at an overall level 2
A respectable profit on the face of it 2
Personal lines was attractive at the top level 2
There have been significant changes to market positions and more changes may be on their way 2
Lloyds Banking Group storms into the top 10 2
Fortis and Liverpool Victoria are set to become a much larger force in personal lines 2
2009 has been a challenging year however the market is set to grow between 2009 and 2013 3
2009 has been a challenging year so far 3
Total personal lines premiums are expected to grow between 2010 and 2013 3
Table of Contents 4
Table of figures 5
Table of tables 6
Market context 7
Introduction 7
Conditions are deteriorating for insurers 7
The market contracted in 2008 as insurers continued to compete hard 7
Insurers pulled capacity from suretyship insurance 9
Motor and property insurance continue to dominate the UK non-life insurance market 11
Lloyd's of London underwrites around £2 billion of UK insurance 13
Motor, liability, property and pecuniary loss have driven the COR up in recent years 14
Pecuniary loss is a strong source of underwriting profit 17
Insurers are being hit by falling investment income 19
A drop in investment income put additional pressure on insurers' margins in 2008 19
Insurers saw an estimated trading result of 9% of NWP in 2008 21
Reserve releases are propping up reported profits 23
Insurers propped up their reported underwriting results with around £1 billion in reserve releases 23
Insurers made significant reserve releases in motor and property insurance while strengthening reserves for liability insurance 24
Personal lines insurance is attractive, at an overall level 25
Personal lines continued to see muted growth but benefitted from a low COR 25
The personal insurance market was worth £24.7 billion in 2008 26
Household, A&H and personal pecuniary loss are compensating for the poor motor COR 28
Pecuniary loss is the largest profit pool in the personal lines sector 29
Insurers made significant reserve releases in personal motor insurance 31
Distribution 33
Introduction 33
Brokers, direct insurers and banks gained market share in the personal insurance market 33
Brokers continued to be the leading personal insurance distribution channel in 2008 33
The direct channel grew in 2008, achieving its highest market share ever 33
Banks increased their market share through significant increases in motor insurance sales 34
Affinity players' market share contracted as motor premium income fell 35
Other company agents and staff lost market share in 2008 35
Direct Line continues as the top general insurance advertiser, though Aviva has stepped up its marketing 37
The market leader, Direct Line, continued to invest in its brand and is likely to equal its 2008 outlays 37
At half year, Aviva had already spent as much as its entire 2008 marketing outlay 37
The aggregators have launched new campaigns in 2009 underscoring the competitive nature of the market 38
Confused.com is the top spending insurance aggregator brand 38
Comparethemeerkat.com has been a great success for aggregator-comparethemarket.com 38
GoCompare.com launched a new campaign with fictitious opera singer Gio Compario 38
Most top insurance advertisers made use of television advertising for their motor products 40
Television accounted for the bulk of the top 10's insurance marketing 40
Television advertising has allowed the largest insurance providers to reach a wide customer base and build brand awareness 40
Direct mail was an important secondary advertising medium for most of the top 10 41
Press advertising is a key secondary marketing tool for many insurers 41
Though spending on motor appears to be down, it remained the focus of most advertising campaigns 43
As the largest personal insurance line, motor attracts the highest spending 43
Household insurance as the second largest personal insurance market attracted a substantial amount of advertising 43
Competitive Dynamics 45
Introduction 45
RBS and Aviva continue to lead the market in personal lines 45
RBS was the largest personal lines insurer in 2008 45
Aviva retained its position as the UK's second largest personal general insurer in 2008 45
Lloyds Banking Group has doubled its presence through the acquisition of HBOS 46
AXA increased its GWP by 4.5% in 2008 46
Lloyds Banking Group doubled its insurance presence after it merged with HBOS 47
BUPA saw its GWP increase by 3.5% in 2008 47
RSA was the 6th largest personal insurance group 47
Zurich achieved significant growth in its personal lines premium income, which was chiefly driven by private motor 47
Fortis has signed a transformational deal with Tesco 49
Fortis has signed a transformational deal with Tesco 49
Munich Re grew its personal book by 4.3% due to household, pecuniary loss and accident & health lines 49
Allianz's personal pecuniary loss business saw significant growth 49
Liverpool Victoria increased its presence in personal lines with the acquisition of Highway 52
Future Decoded 53
Fortis and Liverpool Victoria are on track to become bigger players in personal lines 53
Fortis's new deal with Tesco could transform the size of the insurer 53
Liverpool Victoria is aggressively growing its business 53
The industry trading result will be challenging in 2009 53
Profits are expected to dip in 2009 53
Investment returns will fall 53
Reserve releases are expected to continue in 2009 54
Profits are likely to be impacted by a sharp rise in the pecuniary loss COR in 2009 and 2010 54
The personal market size is forecast to reach £29 billion in 2013 55
The personal market size is expected to fall further in 2009 before growing again between 2010 and 2013 55
Private motor GWP is forecast to reach £12 billion in 2013 58
Rates will continue to harden in order to reduce the market's high underwriting losses 58
The UK private motor insurance market is predicted to be worth £12.0 billion in 2013 58
Household GWP is forecast to reach £7.6 billion in 2013 60
Insurers are expected to continue to raise household rates in line with inflation 60
The market will reach a value of £7.6 billion in 2013 61
The A&H market is forecast to reach £6.2 billion in 2013 63
Persistent claims inflation will mean PMI rates rise throughout the forecast 63
A&H GWP is forecast to reach £6.2 billion in 2013 64
The pecuniary loss market is forecast to reach a value of £3.4 billion in 2013 66
The personal pecuniary loss market is forecast to reach £3.4 billion in 2013 66
APPENDIX 68
Definitions 68
ABI members 68
Accident year combined ratio 68
Bancassurers 68
Brokers 68
Brandassurers 68
Channel 68
Direct insurer/writer 68
Earned premiums 68
Gross premium 68
Net premium 68
Platform 68
Reported year combined ratio 69
Reserve development 69
Suretyship insurance 69
Written premiums 69
Additional data 70
Further reading 74
Ask the analyst 74
Datamonitor consulting 74
Disclaimer 75
List of Tables
Table 1: Annual growth in general insurance market, 2000-08 (%) 8
Table 2: GWP by line of business, 2000-08 (£m) 12
Table 3: UK insurance market split by ABI members and Lloyd's of London, 2008 (£m) 14
Table 4: Total market combined ratio, 2004-08 (%) 16
Table 5: Accident year CORs by line of business, 2004-08 (%) 17
Table 6: Underwriting result by line of business, 1998-2008 (£m) 19
Table 7: Underwriting result, investment income and trading result as a percentage of NWP (worldwide business of UK insurers), 2000-08 21
Table 8: Underwriting result, investment income and trading result as a percentage of NWP (UK business), 2000-08 23
Table 9: Personal insurance market size, 2005-08 (£m) 28
Table 10: Accident year CORs by line of personal business, 2005-08 (%) 29
Table 11: Underwriting result by line of personal business, 1998-2008 31
Table 12: Personal general insurance GWP distribution by channel, 1999-2008 37
Table 13: Top 10 personal general insurance advertisers, 2007-09 H1, (£) 40
Table 14: Top 10 personal general insurance advertisers' spend by media, 2007-09 H1 (£000) 42
Table 15: Top 10 personal general insurance advertisers' spend by product, 2007-09 H1 (£000) 44
Table 16: GWP and market share of the top 10 UK personal general insurance groups, 2007-08 51
Table 17: Forecast of personal general insurance GWP, 2009-13 57
Table 18: Key variables affecting private motor insurance GWP, 2009-13 58
Table 19: Forecast of private motor insurance GWP, 2009-13 (£m) 59
Table 20: Key variables affecting household insurance GWP, 2009-13 60
Table 21: Forecast of household insurance GWP, 2009-13 (£m) 62
Table 22: Key variables affecting A&H GWP, 2009-13 63
Table 23: Forecast of A&H GWP, 2009-13 65
Table 24: Forecast of personal pecuniary loss GWP, 2009-13 (£m) 67
Table 25: Total UK pecuniary loss underwriting account, 1998-2008 70
Table 26: Total UK property underwriting account, 1998-2008 70
Table 27: Total UK household underwriting account, 1998-2008 71
Table 28: Total UK commercial property underwriting account, 1998-2008 71
Table 29: Total UK motor underwriting account, 1998-2008 72
Table 30: Total UK personal motor underwriting account, 1998-2008 72
Table 31: UK commercial motor underwriting account, 1998-2008 73
Table 32: UK liability underwriting account, 1998-2008 73
Table 33: UK accident & health underwriting account, 1998-2008 74
List of Figures
Figure 1: The industry has experienced slow or negative growth in recent years due to strong competition 8
Figure 2: Increases in the liability and property sectors were offset by falls in motor, A&H and pecuniary loss 10
Figure 3: Motor and property continue to be the two largest lines of business 11
Figure 4: Lloyd's of London underwrites around 5% of the UK insurance market 13
Figure 5: The combined ratio for the total market bottomed out in the years 2004-06 but it has increased to 108% in 2008 15
Figure 6: Motor, liability, property and pecuniary loss have seen increasing CORs 16
Figure 7: Pecuniary loss and A&H are a steady source of profits 18
Figure 8: Investment income as a percentage of premiums fell to an all time low in 2008 due to the financial crisis 20
Figure 9: The trading result for UK business fell in 2008 however it was broadly in line with the across-the-cycle trading result 22
Figure 10: Insurers have bolstered reported profits with massive reserve releases in the years 2005-08 24
Figure 11: Insurers made significant reserve releases in motor and property insurance while strengthening reserves for liability 25
Figure 12: Growth has been subdued in personal lines in recent years as the personal lines COR has been relatively low 26
Figure 13: Personal motor is the largest line in the personal market 27
Figure 14: A high COR in personal lines motor is balanced out by attractive CORs in personal pecuniary loss, household and A&H 29
Figure 15: Pecuniary loss and A&H have been a consistent source of underwriting profits 30
Figure 16: Insurers released over £400m of prior years' reserves in order to improve the reported underwriting result in personal motor insurance 32
Figure 17: Brokers have recaptured some of the market share they have lost since 1999 36
Figure 18: Aviva was the second largest advertiser in the market as it rolled out an extensive rebranding campaign 39
Figure 19: Television campaigns were the largest expense for most top insurance advertisers 42
Figure 20: Motor insurance received the lion's share of insurance advertising funds in the first half of 2009 44
Figure 21: Zurich has invested heavily in marketing campaigns promoting its direct insurance products in 2009 48
Figure 22: The merger with HBOS boosted the share held by Lloyds Banking Group 50
Figure 23: Liverpool Victoria's acquisition of Highway has increased its share of the personal market to 2.3% 52
Figure 24: Insurers are likely to see a sharp rise in the pecuniary loss COR judging from the effects of the last recession in 1990 55
Figure 25: The personal market is expected to contract in 2009 as the creditor market shrinks 56
Figure 26: Private motor insurance GWP will grow strongly over the forecast period 59
Figure 27: Household GWP will rise at an average annual rate of 3%, reaching £7.6 billion in 2013 61
Figure 28: The A&H sector is forecast to reach £6.2 billion in GWP by 2013 64
Figure 29: Personal pecuniary loss GWP will dip in 2009 as the creditor market contracts before seeing growth thereafter 66