Motor Insurance - UK: Industry Report

Motor Insurance - UK

Product Type: Market Research Report
Published by: Mintel International Group Ltd.
Published: May 2008
Product Code: R560-3277

Description

The private motor insurance market continues to suffer an underwriting loss, due to rising claims costs and intense competition placing a downward pressure on premiums. Speculation that the sector would witness significant premium hikes in 2007 failed to materialise, although premiums have risen steadily over the last year. However, these increases have been insufficient to help the industry achieve an underwriting profit, in the face of growing claims inflation.

Over recent years, the sector has seen a dramatic shift in distribution away from intermediated channels towards direct insurer sales. At the same time, online channels have grown in importance and popularity, with around three in ten policies now arranged online. The move online has enabled insurers to reduce costs and thereby provide more competitive policies, however it has also led to higher levels of customer churn and reduced loyalty. Against this intensely competitive backdrop, it continues to be challenging for insurers to pass on significant premium increases and thereby to improve the underwriting performance.

This report examines the key issues facing the motor insurance industry. It considers the current economic climate, and trends in the wider motoring industry. Data provided by the ABI are used to establish the market size and also an evaluation of the claims experience. Analysis of market share and changes in distribution are included, while the report also identifies key trends relating to distribution, brand perception and innovation. Mintel’s consumer research provides an insight into product ownership and purchasing, quotation and switching behaviour, as well as the wider attitudes of car owners.

Main themes of the report:

The sector continues to suffer an underwriting loss, due to rising claims and intense competition.
Over the last 12 months, premiums have risen gradually; the AA estimates that average quoted premiums have increased by around 6% over this period.
There has been a downward trend in claims frequency in recent years, although the overall cost of claims continues to increase, due to substantial increases in personal injury costs.
Distribution changes continue to impact the market for motor insurance, with intermediated sales suffering to the benefit of direct providers.
An increase in online sales and the growing importance of price comparison sites maintain the pressure on providers to keep premiums low.
The shift towards direct sales has seen a substantial increase in adspend as providers seek to compete in a price-led market.

Table of Contents

ISSUES IN THE MARKET: Key issues in the market; Definitions; Abbreviations
MARKET IN BRIEF: Underwriting deficit continues to plague industry; Claims costs up by a third since 2000; Underlying market factors drive demand…; … however, economic uncertainty creates difficult conditions; RBS Insurance tops market share; Distribution changes continue to shape market landscape; More than 23 million adults have comprehensive policy; Switching activity continues to increase
INTERNAL MARKET ENVIRONMENT: Key points; Over 31 million cars in use; Private car registrations have fallen; Around 7.5 million used cars sold each year; More than 33 million driving licence holders; Steady growth in multi-car ownership; Electronic motor certificates introduced; ABI demand action on third party costs; Greater emphasis placed on tackling fraud; Insurers clamp down on fronting
BROADER MARKET ENVIRONMENT: Key points; Consumer expenditure expected to slow; Saving rather than spending to become a priority; Bank rate cuts may increase appeal of car finance; Changing population profile will impact demand for insurance; Internet penetration has reached 64%
COMPETITIVE CONTEXT: Key points; Legal obligation - so no competition; Battle waged against uninsured drivers
STRENGTHS AND WEAKNESSES IN THE MARKET: Strengths of the motor insurance market; Weaknesses of the motor insurance market
TRADE PERSPECTIVE: Participating companies; Premium hikes fail to materialise; Underwriting losses to continue in the short-term; The shift online; Aggregators are here to stay but fewer new entrants expected; Industry views vary on extent of innovation; Future challenges and developments
MARKET SIZE AND FORECAST: Key points; Private motor insurance continues to suffer underwriting deficit; Premiums are rising, but so are outgoings; Premiums rose by almost 6% in 2007…; …but rates are falling in real terms; Number of policies in force approaches around 27 million; Almost nine in ten policyholders has comprehensive cover; Forecast; Factors used in the forecast
CLAIMS EXPERIENCE: Key points; Claims frequency on downward trend…; …but claims costs have risen by 36% since 1999; Theft claims fall, but average claim rises; Personal injury claims have rocketed; Claims service is a key retention issue; Bilateral agreements aim to lower costs
MARKET SHARE: Key points; Top five insurers account for almost 70% of market; RBS Insurance dominates motor insurance market
COMPANIES AND PRODUCTS: Market overview; Fluctuations in number of motor insurers; INSURER PROFILES
BRAND COMMUNICATION AND PROMOTION: Key points; Motor insurance tops financial adspend; Adspend on motor insurance products tops £250 million per year; TV dominates motor insurance adspend; Direct line and Confused.com top adspend in 2007/08
CHANNELS TO MARKET: Key points; The direct revolution continues…; …although intermediaries are taking battle online; More than half of all policyholders go direct; Telephone remains preferred arrangement method…; …but aggregator sites are drawing people online; FSA turns attention to aggregators
THE CONSUMER - PRODUCT OWNERSHIP: Key points; More than three-fifths have motor insurance cover; Comprehensive cover has increased in popularity; Over-35s more likely to have comprehensive cover; Three-fifths of ABs have comprehensive cover; Internet users more likely opt for full cover
THE CONSUMER - PURCHASING CAR INSURANCE: Key points; More than half of policyholders go direct to insurer; Influence of direct insurers grows, at the expense of brokers; Women more likely to use a price comparison site; C1s are more likely to use brokers; Price comparison sites attract heavy Internet users; More than half use the telephone to arrange cover; The rise of the Internet is detrimental to other channels; Age is a major influence in the channel used; Price comparison sites have wide appeal; Broadsheet readers more likely to turn to the Internet; Most direct policies are arranged over the phone
THE CONSUMER - QUOTATION ACTIVITY: Key points; 28% obtained four or more quotes; Renewal activity is changing; A third of over-65s just renew their policy; Mortgage holders more likely to shop around; Heavy Internet users are more likely to obtain multiple quotes; Third party policyholders are more likely to shop around; Price comparison sites are behind multiple quotes; Internet enables multiple quotes
THE CONSUMER - SWITCHING BEHAVIOUR AND LOYALTY: Key points; Two-fifths have been with their current insurer less than two years; Loyalty is in decline; Loyalty increases with age; DEs more likely to be recent switchers; Scottish drivers are the most loyal; Third party policyholders are frequent switchers; 50% of price comparison users have moved insurers in last year; Telephone customer more likely to be loyal; Switchers obtain more quotes
APPENDIX: RESEARCH METHODOLOGY

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