UK Employers' Liability Insurance 2008

Overview

Catalyst

Summary

Executive Summary

The employers' liability market remained dominated by competitive pricing in 2006 and 2007, leading to unprofitable market conditions and a fall in GWP

The employers' liability market declined by 7.4% in 2006 as strong competitive conditions led to price decreases

SMEs buy insurance mainly through brokers and long-term relationships are the norm

Most SMEs buy insurance via brokers, but direct insurers also distribute a significant part of the market

The market share of the top 10 employers' liability insurers decreased marginally in 2006

The top 10 employers' liability insurers accounted for 61.6% of the market in 2006

Future GWP growth is influenced chiefly by premium rate movements which are estimated to have decreased in 2007

Insurers gave a range of estimates for premium rate changes in 2009 and 2010

The employers' liability market is forecast to achieve a CAGR of 5.4% between 2007 and 2012 under neutral conditions

Table of Contents

Table of figures

Table of tables

Market Context

Introduction

The employers' liability market remained dominated by competitive pricing in 2006 and 2007, leading to unprofitable market conditions and a fall in GWP

The employers' liability market declined by 7.4% in 2006 as strong competitive conditions led to price decreases

The market recorded a dramatic loss in 2006 after costs rose significantly

Decreased NWP and increased outgoings both contributed to a plummeting underwriting result in 2006

Commissions and expenses rose to £585m in 2006

Change in provisions failed to secure an underwriting profit in 2006

The cost of employers' liability claims increased in 2006 as a result of the erratic nature of the employers' liability claims environment

The cost of employers' liability claims increased by 61.5% in 2006

The number of employers' liability claims fell to a five-year low in 2006/7

The British Coal scheme has cost £3.4 billion so far, although the majority of payments are for minor amounts

The British Coal scheme is expected to cost £7 billion when all claims have been settled

The majority of compensation offers to claimants for respiratory disease are below £5,000

Incidents of workplace accidents and work related ill-health were reduced in 2006/7

The total number of non-fatal workplace injuries fell in 2006/7

The number of workplace injuries, as reportable under RIDDOR, excluding acts of violence decreased by 4.6 % in 2006/7

Workplace fatalities increased in 2006/7

The total number of workplace injuries was estimated to be 313,685 in 2006/7

Total work-related ill-health decreased in 2006

NHS claw-back, changes to legislation on asbestos claims and indexation will increase future claims bills

The NHS claw-back scheme has only had a limited affect on the market so far

The House of Lords ruled against pleural plaques compensation in 2007

Changes in claims indexation for periodical payments are likely to have an impact on larger personal injury claims

Distribution Dynamics

Introduction

Brokers continued to dominate the distribution of commercial insurance

National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers

The direct channel increased its share of commercial insurance GWP by 1% in 2006

Affinity groups remain a small channel for the distribution of commercial insurance

Banks and building societies continue to play a small role in the distribution of commercial insurance

SMEs buy insurance mainly through brokers and long-term relationships are the norm

Most SMEs buy insurance via brokers, but direct insurers also distribute a significant part of the market

Brokers remain the top choice for SMEs to approach if they had to switch provider

Many SMEs are willing to consider alternative channels when prompted

Up to 44% of SMEs would consider using a bank as an insurance provider

Almost three quarters of SMEs would be willing to consider direct insurers, in the hope of cost savings

National brokers represent the greatest threat to commercial brokers in the second half of 2007

Commercial liability products are the least at risk to the direct channel and likely to remain brokered

Over half of SMEs would buy their employers' liability insurance policies via the telephone or internet

Competitive Dynamics

Introduction

The number of new entrants was limited in 2007 with only a few new insurers entering the market

A new underwriting agency, Arista entered the employers' liability market in 2007

Howden expanded into the employers' liability market in 2007

QBE and Primary General launched products to target the SME market in 2007

The market share of the top 10 employers' liability insurers decreased marginally in 2006

The top 10 employers' liability insurers accounted for 61.6% of the market in 2006

Three of the top 10 players saw their market shares remain flat in 2006

Norwich Union, AXA, ACE and QBE increased their market share in 2006

Norwich Union saw its market share increase by two percentage points in 2006

QBE, AXA and ACE saw their market shares increase marginally in 2006

Zurich, Allianz and Aspen saw their market shares decrease in 2006

Zurich saw its market share decrease by two percentage points in 2006

Allianz and Aspen saw their market shares decrease marginally in 2006

The average gross claims ratio fell in 2006 after five of the top 10 employers' liability insurers saw their ratios improve

The average gross claims ratio for the top 10 fell to 72.7% in 2006

Five of the top 10 employers' liability insurers saw their ratios improve in 2006

Four of the top 10 employers' liability insurers saw their gross claims ratios deteriorate in 2006

Future Decoded

Introduction

Future GWP growth is influenced chiefly by premium rate movements which are estimated to have decreased in 2007

Insurers gave a range of estimates for premium rate changes in 2009 and 2010

A number of factors will influence future GWP growth in the employers' liability market

Under the neutral scenario, employers' liability GWP is forecast to reach £2.3 billion by 2012

The competitive pricing continues to moderate future GWP growth in the neutral scenario

The employers' liability market is forecast to achieve a CAGR of 5.4% between 2007 and 2012

The employers' liability market is forecast to remain unprofitable between 2007 and 2012

Under more optimistic conditions, the employers' liability market is forecast to reach £2.7 billion

In the optimistic scenario, the market will harden in 2009 as competitive conditions relax

GWP is forecast to grow by 8.4 % on a compound average growth rate between 2007 and 2012

Profitability will improve in the market with combined ratios decreasing between 2009 and 2012

Appendix

Supplementary data

Performance ratios

Definitions

Premium income measures

Earned premiums

Gross premium

Net premium

Written premiums

Distribution

Direct

Other company agents

Utilities/retailers/affinity groups

Company staff

Banks/building societies

Definitions of general terms

Channel

Platform

Employers liability (including the employers liability part of mixed liability packages but excluding mixed commercial packages)

Pre-2005 definitions for lines of business

General liability

2005 FSA Return changes

Methodology

Market size methodology

Lloyd's players and underwriting result figures

Lloyd's market data

Employers' liability claims data

Ratio analysis methodology

Accuracy of figures

Datamonitor's Commercial Broker Survey

Datamonitor's SME Insurance Survey Q1 2007

Competitor data

GWP versus GEP reporting

Home-Foreign, overseas and facultative reinsurance business

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: UK employers' liability insurance GWP, 2003-07e (£m)

Table 2: UK employers' liability detailed underwriting result, 2002-06 (£m)

Table 3: UK employers' liability gross claims incurred, 2002-06 (£m)

Table 4: Number of employers' liability personal injury claims split by accident and disease, 2002/3-2006/7

Table 5: Number of claims made to the DTI and total compensation paid for respiratory disease and vibration white finger under the British Coal scheme as of March 2, 2008

Table 6: Profile of offers made by BERR to claimants for respiratory disease under the British Coal Scheme, up to 31st December 2007

Table 7: Workplace injuries reportable under RIDDOR, 2002/3-2006/7p

Table 8: Workplace injuries reportable under RIDDOR, excluding acts of violence, 2002/3-2006/7p

Table 9: Workplace fatalities reported under RIDDOR, 2002/3-2006/7p

Table 9: Total estimated workplace injuries reportable to the HSE, 2002/3-2006/7p

Table 11: Number of cases of occupational disease and work related mental ill-health, 2002-06p

Table 11: ASHE 6115 and RPI inflation, 1998-2007 (%)

Table 12: Market share of distribution channels in the commercial general insurance market, 2003-06

Table 13: Q: What level of threat do the following distribution channels pose to you?

Table 14: Market share split by market leader, top 10 and rest of the market, 2005-6

Table 15: Employers' liability market share by competitor, 2002-06 (%)

Table 16: Employers' liability premium income by competitor, 2002-06 (£000s)

Table 17: Gross claims ratio of top 10 employers' liability insurers, 2002-06

Table 18: Key variables affecting employers' liability insurance GWP, 2007e-12f

Table 19: Employers' liability GWP forecast, neutral scenario , 2002-12f (£m)

Table 20: Employers' liability forecast for GWP, gross claims, gross loss ratio, net expense ratio and combined ratio, neutral scenario, 2002-12f (£m)

Table 21: Employers' liability GWP forecast, optimistic scenario, 2002-12f (£m)

Table 22: Employers' liability forecast for GWP, gross claims, gross loss ratio, net expense ratio and combined ratio, optimistic scenario, 2002-12f

Table 23: Employers' liability premium income by competitor, 2002-06

Table 24: Employers' liability market share by competitor, 2002-06

Table 25: Commercial liability competitors by loss ratio, 2002-06

Table 26: Commercial liability expense ratio by competitor, 2002-06

Table 27: Commercial liability combined ratio by competitor, 2002-06

Table 28: Commercial liability commission ratio by competitor, 2002-06

Table 29: Commercial liability management expense ratio by competitor, 2002-06

Table 30: Commercial liability net gross premium ratio by competitor, 2002-06

Table 31: Q: What business sector are you involved in?

Table 32: Q: How large is your company in terms of number of employees?

Table 33: Q: How large is your company in terms of turnover?

List of Figures

Figure 1: The market share of the market leader fell in 2006

Figure 2: Premium income is estimated to have fallen by an annual average of 5% between 2003 and 2007

Figure 3: The employers' liability market incurred a loss in 2006

Figure 4: Total gross claims soared to £2 billion in 2006

Figure 5: Disease claims in the employers' liability market have fallen dramatically since 2002/3

Figure 6: Claims above the value of £100,000 represented the smallest proportion of claims paid in 2007

Figure 7: The number of workplace fatalities increased in 2006/7

Figure 8: The number of work related illnesses decreased in 2006

Figure 9: Annual inflation using the ASHE6115 index is on average 2.6 percentage points higher than RPI

Figure 10: National brokers dominate the distribution of commercial general insurance in the UK in terms of GWP

Figure 11: The distribution of insurance to SMEs remained largely under the control of brokers in 2007

Figure 12: SMEs have become more likely to consider direct insurers if they were to change provider

Figure 13: The prospect of cheaper premiums is the primary reason given for being willing to consider using a bank as an insurance provider

Figure 14: Price is the top reason given by SMEs that would consider switching to a direct insurer

Figure 15: National brokers remain the largest threat to the majority of survey respondents

Figure 16: Commercial motor is the line of business most at risk to the direct channel

Figure 17: Over half of SMEs would consider buying commercial motor, property and employers' liability online or via the telephone

Figure 18: The market share of the market leader fell in 2006

Figure 19: Zurich remained the market leader in 2006 despite a decrease in its market share

Figure 20: Three insurers achieved gross claims ratios below 60% in 2006

Figure 21: The market is forecast to grow at a CAGR of 3.9% between 2002 and 2012

Figure 22: Under the neutral scenario the gross claims ratio in the employers liability market is expected to reach 135.8% by 2012

Figure 23: The UK employers' liability is forecast to reach £2.7 billion in 2012 under less competitive conditions

Figure 24: The combined ratio is expected to decrease to 121.4% by 2012 under the optimistic scenario