Abstract
Overview
Introduction
This report offers a comprehensive analysis of the UK household insurance market in 2007,incorporating market, customer and competitor analysis and forecasts of market growth and profitability.
Scope
- Market profitability and size in GWP
- Customer purchasing trends and distribution trends
- Forecasts of market size and profitability until 2012
Highlights
Competition remained high in the property insurance market in 2006. This has had a negative impact on premium income growth, which has slowed in recent years.
AXA recorded a particularly strong growth performance in 2006 which meant the insurer moved a place higher in terms of market position.
While the face-to-face platform has decreased in size over the last five years, the number of consumers purchasing their household policies by telephone or online has increased.
Reasons to Purchase
- Understand key factors influencing customer purchasing trends
- Understand the future of this market in terms of market growth and underwriting profitability
- Benchmark yourself against your competitors in terms of market share and performance ratios
Table of Contents
- Overview
- Catalyst
- Summary
- Executive summary
- The household insurance market experienced a reduction in the cost of
weather claims in 2006, but an increase in the cost of claims from other
perils
- The cost of domestic property claims fell slightly in 2006, as a result of a fall in weather related costs
- Face-to-face arrangements of household insurance policies continue to
decline in favor of phone and internet
- Face-to-face distribution of household insurance has been declining for several years
- The average combined ratio of the top 10 property insurers rose in 2006,
with Norwich Union, AXA and NIG seeing the largest increases
- Among the top 10 UK property insurers, the average combined ratio rose by 1.5 percentage points in 2006
- A significant increase in claims incurred in 2007 will lead to a significant underwriting loss
- The household insurance market experienced a reduction in the cost of
weather claims in 2006, but an increase in the cost of claims from other
perils
- Table of Contents
- Table of figures
- Table of tables
- Market context
- The number of UK households reached 24.2 million and is forecast to
increase over the next 20 years
- The number of UK households has been growing steadily since 1971
- An increase in the UK population has led to an increase in the number of UK households
- The average household size has been decreasing steadily
- The number of UK households is expected to grow significantly by 2029
- The number of privately rented households grew in 2006
- Household GWP growth slowed in 2006
- GWP growth for contents insurance has slowed in 2006, while growth in buildings GWP improved
- The number of UK households has been growing steadily since 1971
- Prices for buildings cover and contents cover increased in 2007
- Adverse weather conditions in 2007 have largely contributed to the
rise in household insurance premiums
- The prices for raw materials and labor costs have also increased
- Property underwriting profits continued to decline during 2006 but the market remains profitable
- Household underwriting profits decreased significantly in 2006 as total outgoings rose
- Adverse weather conditions in 2007 have largely contributed to the
rise in household insurance premiums
- Commissions and expenses and reinsurance ceded increased in 2007
- GWP growth outstripped increases in commissions and expenses
- Reinsurance ceded increased significantly in 2006
- The household insurance market experienced a reduction in the cost of
weather claims in 2006, but an increase in the cost of claims from other
perils
- The cost of domestic property claims fell slightly in 2006, as a result of a fall in weather related costs
- Storm damage accounted for the largest part of the weather claims bill for household in 2006
- The cost of domestic fire claims increased in 2006
- The cost of household theft claims rose by 9.9% in 2006 as both the
number of claims and the average cost of claims increased
- The number of burglaries fell by 3% in 2005/6
- The risk of burglary is heavily influenced by factors such as tenancy status and security measures
- Subsidence claims costs grew in 2006 as did the average cost of claims
- The number of UK households reached 24.2 million and is forecast to
increase over the next 20 years
- Customer focus
- Introduction
- Face-to-face arrangements of household insurance policies continue to
decline in favor of phone and internet
- Face-to-face distribution of household insurance has been declining for several years
- The number of consumers arranging household insurance online or over the telephone grew in 2007
- Price remains important to consumers, while those buying online are most
likely to switch
- The majority of consumers are attracted by low premiums when choosing their insurance provider
- Consumers are more likely to switch if they purchase their household insurance online
- Online consumers show greater sensitivity to price than consumers using other platforms
- Household insurance providers advertise both buildings and content
insurance combined and contents insurance as a standalone
- Insurance providers spent £91.8 million advertising building and
contents insurance combined in 2006
- Insurance providers spent just £13.9 million advertising contents-only insurance in 2006
- The majority of advertising spending on household insurance was concentrated on direct mail
- The top 10 building and contents advertisers split their efforts
between cross-selling through direct mail and gaining new customers from
television advertising
- The top 10 contained mainly direct insurers and bancassurers eager to expand their market share
- Direct mail was the primary means of marketing building and contents insurance, reflecting the large number of banks and brokers in the top 10
- Television advertising was also important to several of the largest building and contents advertisers
- Press advertising was undertaken by all in the top 10 in 2006, although this medium played a minor role in advertising strategies
- Advertisers ranked 11-20 focused their more limited budgets on direct
mail advertising
- Direct mail dominated the advertising strategies of advertisers ranked 11-20
- Only a few advertisers included television or press campaigns in their building and contents marketing
- The top 10 contents-only insurance advertisers, which consists mainly of banks and direct insurers, reduced their spend in 2006
- Direct mail was the primary means of advertising contents-only
insurance for all of the top 10, except Norwich Union
- Direct mail accounted for the bulk of the spending by the top 10 in 2006
- Norwich Union and Halifax were the only contents-only advertisers in the top 10 to pursue a television campaign in 2006
- Direct mail was the preferred medium for advertising by advertisers in
the 11-20 bracket
- Limited budgets resulted in targeted direct mail campaigns
- Press advertising was the only other expense for advertisers ranked 11-20
- Direct Line and Churchill are the most widely recognized household insurance providers in 2007
- Insurance providers spent £91.8 million advertising building and
contents insurance combined in 2006
- Competitive dynamics
- Introduction
- St Andrew' s, AXA, Norwich Union and UKI all recorded strong household
GWP growth in 2006
- Norwich Union remained the leading home insurer in 2006 and recorded strong growth in premium income
- St Andrew' s household book saw significant growth in 2006
- Royal & SunAlliance saw household insurance GWP decrease in 2006, however on the flipside it recorded a strong combined ratio
- Churchill moved from third to fourth position in the household market in 2006
- Lloyds TSB' s home insurance book grew marginally benefiting from increased sales through the branch network
- Zurich saw a decline in premium income in 2006
- Direct Line household insurance premium income fell marginally in 2006
- AXA experienced significant growth in its GWP in 2006 and moved into seventh place in the household market
- Legal & General saw a slowdown in premium income growth in 2006
- UK Insurance' s premium income experienced strong growth in 2006
- St Andrew' s experienced strong growth in GWP during 2006 while Royal & SunAlliance saw its GWP fall in 2006
- The average loss ratio of the top 10 property insurers increased by 0.1
percentage points in 2006, with Direct Line, Zurich and Norwich Union
recording the biggest reductions
- The average loss ratio of the top 10 property insurers increased by 0.1 percentage points
- Norwich Union, Direct Line and Zurich recorded strong loss ratio reductions
- St Andrew' s, NIG and Royal & SunAlliance recorded high loss ratio increases
- The average expense ratio of the top 10 property insurers increased in
2006, with Norwich Union and AXA recording the largest individual increases
- The average expense ratio of the top 10 property insurers rose by 1.4
percentage points in 2006
- Norwich Union, AXA and Lloyds TSB saw their expense ratios increase, but they achieved GWP growth
- Four of the top 10 property insurers achieved expense ratio reductions
- The average expense ratio of the top 10 property insurers rose by 1.4
percentage points in 2006
- The average combined ratio of the top 10 property insurers rose in 2006,
with Norwich Union, AXA and NIG seeing the largest increases
- Among the top 10 UK property insurers, the average combined ratio rose by 1.5 percentage points in 2006
- Norwich Union, AXA and NIG recorded high combined ratio growth
- Three insurers were able to defy the property market trend and reduce their combined ratios
- The future decoded
- Introduction
- Premiums are estimated to have risen marginally in 2007
- Household insurance premiums are estimated to have seen marginal increases in 2007
- Insurers gave a range of estimates for premium rate changes in 2008
- Under the neutral scenario the household insurance market experiences
steady GWP growth between 2007 and 2010 before declines in 2011 and 2012
- In the medium term competitive pressures will remain in the market exerting a downward pressure on prices
- The household insurance market is forecast to grow by 2.1% per annum between 2007 and 2012
- A significant increase in claims incurred in 2007 will lead to a significant underwriting loss
- The pessimistic scenario sees competition remaining strong thereby
holding back growth in the market
- Competition remains strong in the household market under the pessimistic scenario
- The household market reaches a value of £9.3 billion in GWP by 2012
- Limited growth in NWP in 2008 means the household insurance market moves into a loss in 2010 under the pessimistic scenario
- Under the optimistic scenario the market sees a strong underwriting
profit in 2008
- In the short term the floods enable insurers to put through a strong rate rise in 2008, however competitive forces temper any further strong rate rises between 2009 and 2012
- Under the optimistic scenario, strong increases in the price of premiums in 2008 stimulate GWP growth in the household insurance market
- The market achieves better underwriting results between 2008 and 2012 under the optimistic scenario
- Appendix
- Definitions
- Competitor data
- Household and domestic all risks
- Premium income measures
- Earned premiums
- Gross Premium
- Net Premium
- Written premiums
- Competitor data
- Research methodology
- Ipsos MORI data
- Sample design
- Ipsos MORI data
- Further reading
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Tables
- Table 1: The size of UK households by the number of people, 1971-2006, (millions)
- Table 2: Household projections in England by household type, 2004-29
- Table 3: Trends in household tenure for England, 1996-2006
- Table 4: Annual growth in the UK household insurance market in GWP, 2002-06
- Table 5: GWP split in household insurance between buildings and contents cover, 2002-06
- Table 6: Change in UK household insurance premiums
- Table 7: Total UK property underwriting account, 1996-2006, (£m)
- Table 8: Total UK household underwriting account, 1996-2006 (£m)
- Table 9: UK household insurance commissions and expenses compared with GWP and total outgoings, 2002-06, (£m)
- Table 10: UK domestic reinsurance ceded compared with NWP and GWP, 2002-06, (£m)
- Table 11: UK Reinsurers' share of claims, 2002-06 (£m)
- Table 12: UK domestic property insurance claims by peril, 2002-06
- Table 13: Gross claims incurred for domestic property weather claims, 2002-06 (£m)
- Table 14: UK claims incurred by fire, domestic and total, 2002-06, (£m)
- Table 15: Number of household theft and average theft claims cost in the UK
- Table 16: Number of burglaries in England and Wales, 1999-2006
- Table 17: Unemployment among 18-24 year old males in the UK, 1998-2006 (000s)
- Table 18: Household types most at risk from burglary in the UK, 2005-06-2006-07
- Table 19: Average subsidence claims cost compared to claims costs and number of claims for subsidence in the UK, 2002-06
- Table 20: Distribution of household insurance, by platform, 2003-07
- Table 21: Reasons for choosing household insurance provider, 2007
- Table 22: Propensity to switch household provider and likelihood of getting other quotes, by distribution platform, 2007
- Table 23: Motivations for taking out a new household insurance policy, by distribution platform, 2007
- Table 24: Total UK household advertising spend by media, 2005-06
- Table 25: Top 10 building and contents insurance advertisers' spend by media, 2006
- Table 26: The spending of building and contents advertisers ranked 11-20 by media, 2006
- Table 27: Top 10 UK contents-only insurance advertisers, 2004-06
- Table 28: Top 10 contents-only insurance advertisers' spend by media, 2006
- Table 29: UK top 11-20 contents-only insurance advertisers' spend by media, 2006
- Table 30: Spontaneous consumer awareness of UK household insurers against advertising expenditure, 2007
- Table 31: Top 10 UK insurance providers by spontaneous recognition, 2007
- Table 32: UK household insurance GWP and market share, top 10 competitors, 2005-06 (£000s)
- Table 33: Growth of the top 10 household insurers, 2000-6
- Table 34: Premium income compared to change in loss ratio for the top 10 UK property insurers, 2005-06
- Table 35: Change in premium income compared to change in expense ratio among the top 10 property insurers, 2005-06
- Table 36: Change in premium income compared to change in combined ratio for the top 10 UK property insurers, 2005-06
- Table 37: Key variables affecting household insurance GWP, 2007e-12f (Neutral scenario)
- Table 38: UK household insurance GWP, 1998-2012f (Neutral scenario)
- Table 39: UK household insurance underwriting result, 1998-2012f (Neutral scenario)
- Table 40: Key variables affecting household insurance GWP, 2007e-12f (Pessimistic scenario)
- Table 41: UK household insurance GWP, 1998-2012f (Pessimistic scenario)
- Table 42: UK household insurance underwriting result, 1998-2012f (Pessimistic scenario)
- Table 43: Key variables affecting household insurance GWP, 2007e-12f (Optimistic scenario)
- Table 44: Household insurance GWP, 1998-2012f (Optimistic scenario)
- Table 45: Household insurance underwriting result, 1998-2012f (Optimistic scenario)
- List of Figures
- Figure 1: The total cost of UK domestic property claims fell slightly in 2006, as a result of a reduction in weather related claims
- Figure 2: Phone remains the largest distribution platform for household insurance in 2007
- Figure 3: The average household size has decreased since 1971 in the UK
- Figure 4: The number of UK households is expected to grow over the next 22 years
- Figure 5: The number of UK privately rented properties increased in 2006
- Figure 6: Annual growth in GWP in the UK slowed in 2006 to 3.4%
- Figure 7: Growth in the contents sector GWP slowed considerably in 2006
- Figure 8: Premiums for building cover and contents cover increased in the UK in 2007
- Figure 9: UK property insurance underwriting profits fell in 2006 to £517m
- Figure 10: UK household underwriting profits fell dramatically during 2006
- Figure 11: GWP grew by 4.5% in 2006 outstripping increases seen in commissions and expenses in the UK
- Figure 12: Reinsurance ceded grew significantly in the UK during 2006
- Figure 13: The total cost of UK domestic property claims fell slightly in 2006, as a result of a reduction in weather related claims
- Figure 14: The cost of UK weather insurance claims fell in 2006 for domestic property
- Figure 15: The cost of claims caused by fire grew in 2006 for domestic property in the UK
- Figure 16: Both the number of theft claims and the average theft claims cost grew in the UK in 2006
- Figure 17: Number of burglaries in England and Wales, 1999-2006
- Figure 18: Homes with no security measures are at a very high risk of burglary; more than one in five was burgled in 2006-07
- Figure 19: The cost of UK subsidence claims rose in 2006, while the average cost of subsidence claims increased only slightly
- Figure 20: Phone remains the largest distribution platform for household insurance in 2007
- Figure 21: Price is the strongest motivation when choosing a household provider
- Figure 22: Consumers are most likely to switch from an insurance provider when they purchase their household insurance online in 2007
- Figure 23: There is a greater price awareness among consumers who purchase their household insurance online in 2007
- Figure 24: Direct mail constituted the bulk of the advertising outlay for UK household insurance products in 2006
- Figure 25: Direct mail constituted the bulk of advertising outlay for building and contents insurance among the top 10 in 2006
- Figure 26: Direct mail constitutes the bulk of the marketing outlay for building and contents insurance
- Figure 27: Halifax far outspent any of its rivals in contents-only insurance via its direct mail campaigns in 2006
- Figure 28: Most advertisers ranked 11-20 pursued a single medium approach to contents-only insurance in 2006
- Figure 29: Direct Line was the most recognized home insurance brand in 2007
- Figure 30: Norwich Union was the largest home insurer in 2006
- Figure 31: St Andrew' s achieved the strongest GWP growth in 2006
- Figure 32: Direct Line, Zurich and Norwich Union saw the best decreases in loss ratio in 2006
- Figure 33: St Andrew' s was the only insurer to successfully reduce its expense ratio and at the same time increase its property insurance GWP in 2006
- Figure 34: Direct Line and Churchill saw the biggest reductions in combined ratio in 2006
- Figure 35: UK household insurance GWP increases between 2008 and 2010 before declining in 2011 and 2012
- Figure 36: The UK household insurance market made a significant loss in 2007 due to the summer floods
- Figure 37: Under the pessimistic scenario household insurance GWP increases more slowly between 2007 and 2012 before declining in 2011 and 2012
- Figure 38: Under the pessimistic scenario the household insurance market moves into an underwriting loss in 2011
- Figure 39: Under the optimistic scenario GWP spikes in 2008 as insurers raise rates by 10%
- Figure 40: Under the optimistic scenario the household insurance market achieves a strong profit in 2008 due to a significant rate rise
- Definitions
