UK Commercial Property Insurance 2008: Industry Report

UK Commercial Property Insurance 2008

Product Type: Market Research Report
Published by: Datamonitor
Published: June 2008
Product Code: R313-33523

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 analyses the competitive landscape providing market share information and 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.

The dynamics of commercial insurance distribution have shifted between 2003 and 2006 and certain categories of broker have seen their share of distribution diminish. In particular, national brokers saw their distribution share decline from 54% in 2003 to 48% by 2006.

Reasons to Purchase

Gain a deeper insight into key trends in the UK commercial property market
Understand how the distribution channel is evolving in the commercial property insurance market
Gain an understanding of the latest competitive developments within the market

Table of Contents

Overview
Catalyst
Summary
Executive summary: GWP fell in 2007 but is forecast to rise between 2008 and 2012; GWP in the commercial property market continued to fall in 2007; Datamonitor forecasts that after contracting in 2007, the commercial property market will grow to £5.4 billion in GWP by 2012; Royal & SunAlliance became the largest commercial property insurer in the UK in 2006; National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers; Royal & SunAlliance became the new market leader in 2006; Table of Contents; Table of figures; Table of tables; Introduction; What is this report about?; Who is the target reader?; How to use this report; 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; Distribution; 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; Competitive dynamics; Introduction; 2006 saw certain competitors improve their market position; Royal & SunAlliance became the new market leader in 2006; Norwich Union has moved into number two position in the commercial property insurance market; Zurich's market share declined in 2006 however it retained its third place ranking; AXA saw its market share increase by 1.2 percentage points in 2006; Allianz's market share declined by 1.3 percentage points in 2006; NIG saw its market share increase marginally to 4.8%; ACE occupies number seven in the rankings of commercial property insurers; Ecclesiastical saw a modest growth in its commercial property insurance premium income in 2006; New Hampshire saw a small gain in market share in 2006; St Paul gained a small amount of market share in 2006; ABI members underwrote the vast majority of property insurance in 2006; The combined ratios for the top ten commercial property insurers demonstrated a wide range of profitability; Competition in the commercial property insurance market is still strong with major players looking to increase market consolidation; Competition in the SME market is still strong with the aggression of established players limiting the impact of new entrants; Consolidators continue to remain highly active in the market; AXA acquired Smart & Cook commercial brokers; Oval made a succession of purchases throughout 2007; Jelf's acquisitions included taking over a key rival; Allianz secures SME partnership with Tett Hamilton; Some of the major insurance providers are looking to increase their regional presence; 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: Market share of distribution channels in the commercial general insurance market, 2003-06; Table 9: Market share of the top 10 commercial property insurers, 2002-06; Table 10: Property GWP split between ABI members and Lloyd's/other, 1996-2006; Table 11: Combined ratios of the 10 largest commercial property insurers, 2006; Table 12: Neutral scenario: Key variables affecting commercial property insurance GWP, 2007e-2012f; Table 13: Neutral scenario: forecast GWP for the commercial property market, 2002-2012f; Table 14: Neutral scenario: forecast underwriting result for commercial property, 2002-12; Table 15: Pessimistic scenario: Key variables affecting commercial property insurance GWP, 2007e-2012f; Table 16: Pessimistic scenario: forecast GWP for the commercial property market, 2007e-2012f; Table 17: Pessimistic scenario: forecast underwriting result for the commercial property insurance market, 2002-2012f; Table 18: Optimistic scenario: Key variables affecting commercial property insurance GWP, 2007e-2012f; Table 19: Optimistic scenario: forecast GWP growth, 2007e-2012f; Table 20: 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: National brokers dominate the distribution of commercial general insurance in the UK in terms of GWP; Figure 8: Royal & SunAlliance took the helm as commercial property market leader in 2006; Figure 9: The company market underwrote the vast majority of property insurance in 2006; Figure 10: St Paul recorded a relatively low combined ratio on commercial property insurance in 2006; Figure 11: Under our neutral scenario, GWP declines further in 2008 before experiencing solid growth between 2009 and 2012; Figure 12: Under our neutral scenario the market makes an underwriting profit between 2008 and 2012; Figure 13: Under our pessimistic scenario, GWP grows less than 1% annually between 2007 and 2012; Figure 14: Under our pessimistic scenario the market remains unprofitable; Figure 15: Under our optimistic scenario, commercial property insurance GWP is set to reach £6.1 billion in 2012; Figure 16: Under our optimistic scenario the market makes strong profits

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