Market Developments in UK Commercial Property Insurance 2008: Industry Report

Market Developments in UK Commercial Property Insurance 2008

Product Type: Market Research Report
Published by: Datamonitor
Published: June 2008
Product Code: R313-33522

Description

Introduction

This report provides a comprehensive analysis of the commercial property insurance market in the UK. It looks at the size of the market, claims costs and the main market trends. It also includes forecasts of the size of the market and the profitability of the market up until 2012.

Scope

In-depth analysis of GWP and the underwriting result for the commercial property insurance market
Data on the key drivers of claims inflation
Three different scenarios looking at the future prospects for premium income and claims inflation until 2012.

Highlights

Intense competition in the commercial property market saw GWP continue on its downward trajectory. It shed a further 7.1% off its 2006 level falling to £4.6 billion. After three consecutive years of decline, the market looks on the verge of turning the corner, with increased underwriting discipline set to return to the market.

Following a fall in claims costs in 2006, largely as a result of benign weather conditions, windstorm Kyrill and the summer floods of 2007 were the chief contributors towards an upward spike in the cost of commercial property claims from weather-related incidents.

The increase in business interruption costs in 2007 came largely as a result of weather damage. After falling by 57% in 2006, claims costs following weather damage increased by 730% from £20m to £166m, in 2007.

Reasons to Purchase

Gain a deeper insight into key trends in the UK commercial property market
Develop a greater understanding of the key drivers of claims inflation
Provides three different future market scenarios

Table of Contents

DATAMONITOR VIEW
CATALYST
SUMMARY
MARKET CONTEXT: Introduction; Despite falling GWP, the commercial property insurance market made a respectable return in 2006; GWP in the commercial property market continued to fall in 2007; Commercial property insurance remained profitable in 2006 albeit at lower levels; Market expense and claims ratios showed little movement; The claims ratio remained fairly static in 2006; The expense ratio experienced the greatest movement between 2005 and 2006; The underwriting ratio suffered a negligible deterioration in 2006; Commercial property claims costs soared in 2007 due to the summer floods; The summer floods effectively pushed weather-related claims costs up significantly in 2007; Weather claims costs were much higher in 2007; Business interruption costs following both fire and weather damage rose in 2007; The increase in the total cost of theft claims was mainly driven by an increase in the total number of claims; The summer weather events were estimated to cost the industry £3 billion; The windstorm ""Kyrill"" left insurers with an estimated bill of £350m; Heavy rainfall in both June and July led to flooding in various locations across the UK costing the insurance industry an estimated £3 billion; Insurers believe that commercial property fire regulation should be reformed; Despite a blaze at a Cornish hotel, the number of commercial property fires was down even though overall costs were not; Insurers are alarmed over non-existent government measures regarding the prevention of warehouse fires; The impact of fires on modern construction is not always fully known
FUTURE DECODED: Introduction; Under the neutral scenario the market makes an underwriting profit between 2008 and 2012; The commercial property market moves into a loss as fierce competition maintains downward pressure on premiums; Datamonitor forecasts that after contracting in 2007, the commercial property market will grow to £5.4 billion in GWP by 2012; The commercial property market experienced a large underwriting loss in 2007 but is forecast to make underwriting profits from 2008 onwards; The market remains unprofitable in our pessimistic scenario throughout the forecast period; The market experiences intense competition in 2007 and pressure continues to be exerted on rates for longer than anticipated; The market is expected to contract sharply again in 2008 under this pessimistic scenario; The market is estimated to have made a large underwriting loss in 2007 and is forecast to remain unprofitable; In the optimistic scenario, commercial property insurance GWP increased steadily between 2008 and 2012 and the market makes solid underwriting profits; After intense price competition in 2007, the market sees prices rise in 2008 and thereafter; The commercial property insurance market experiences strong growth after a dip in 2007; The commercial property insurance market returns to profitability in 2008
APPENDIX: Definitions; ABI definitions; Brokers; National brokers; Chain brokers & telebrokers; Other intermediaries & brokers; Direct; Other company agents; Utilities/retailers/affinity groups; Company staff; Banks/building societies; Written premiums; Gross premiums; SynThesys Non-Life database definitions; Total commercial property; Further reading; Ask the analyst; Datamonitor consulting; Disclaimer
List of Tables: Table 1: Commercial property insurance GWP, 2002-07e; Table 2: Commercial property insurance underwriting account, 2002-06; Table 3: Commercial property insurance claims, expense and underwriting ratios, 2002-06; Table 4: Gross incurred commercial property claims by peril, 2003-07 (£m); Table 5: Weather-related claims costs for commercial property insurance, 2003-07 (£m); Table 6: Costs of business interruption claims by cause, 2003-07 (£m); Table 7: Cost, volume and average value of commercial property theft claims, 2003-07; Table 8: Neutral scenario: Key variables affecting commercial property insurance GWP, 2007e-2012f; Table 9: Neutral scenario: forecast GWP for the commercial property market, 2002-2012f; Table 10: Neutral scenario: forecast underwriting result for commercial property, 2002-12; Table 11: Pessimistic scenario: Key variables affecting commercial property insurance GWP, 2007e-2012f; Table 12: Pessimistic scenario: forecast GWP for the commercial property market, 2007e-2012f; Table 13: Pessimistic scenario: forecast underwriting result for the commercial property insurance market, 2002-2012f; Table 14: Optimistic scenario: Key variables affecting commercial property insurance GWP, 2007e-2012f; Table 15: Optimistic scenario: forecast GWP growth, 2007e-2012f; Table 16: Optimistic scenario: forecast underwriting result for the commercial property market, 2002-2012f
List of Figures: Figure 1: The commercial property underwriting result decreased in 2006; Figure 2: The commercial property insurance underwriting ratio fell slightly in 2006 as the expense ratio rose; Figure 3: Weather claims costs increased significantly in 2007, while other costs remained fairly flat; Figure 4: The cost of commercial property weather-related claims grew significantly in 2007; Figure 5: The surge in business interruption costs was driven by claims following weather damage; Figure 6: In 2007, the number of theft claims began to increase, while average value leveled off; Figure 7: Under our neutral scenario, GWP declines further in 2008 before experiencing solid growth between 2009 and 2012; Figure 8: Under our neutral scenario the market makes an underwriting profit between 2008 and 2012; Figure 9: Under our pessimistic scenario, GWP grows less than 1% annually between 2007 and 2012; Figure 10: Under our pessimistic scenario the market remains unprofitable; Figure 11: Under our optimistic scenario, commercial property insurance GWP is set to reach £6.1 billion in 2012; Figure 12: Under our optimistic scenario the market makes strong profits

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