UK Personal Insurance Distribution 2009: Industry Research Report

UK Personal Insurance Distribution 2009

Published Date: June 2009

Published By: Datamonitor

Page Count: 13

Order Code: R313-52347

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Overview: Catalyst; Summary; Executive Summary; Brokers have gained market share while partnerships have stabilized; The direct channel is the primary route to market for private motor insurers; Banks and building societies are the largest distribution channel for home insurance; Three aggregators appeared in the top 10 advertisers in 2008, highlighting their importance to the market; The internet has fast become a major distribution platform for home and motor insurance; The internet dominated new sales for home and motor insurance in 2008; Consumers aged 18-29 were most likely to take up motor insurance for the first time and switch their provider; Brokers have reversed previous losses in market share in both home and motor markets; Brokers gained market share in the private motor insurance market; LV= bought insurer Highway and disposed of its in-house broker Hero; Banks have retained their gains in motor but have suffered in the home insurance market; Lloyds Banking Group has become the largest distributor of home insurance to UK consumers; Lower mortgage volumes have disrupted the flow of new business into many banks' household insurance books; Leading retail brands have secured significant market share in the home and motor markets; Panel underwriting of affinity contracts allows for specialist insurers to take the more difficult risks; Motor manufacturer-branded products are likely to suffer due to the recession; Aggregator-instigated insurance sales have grown dramatically in 2008 highlighting their importance to the industry; Aggregators are estimated to have generated over 40% of new private motor business GWP in 2008; Datamonitor estimates that aggregator-instigated home insurance sales accounted for 4% of new home insurance business sales in 2008; Table of Contents; Table of figures; Table of tables; Personal Insurance Distribution Dynamics; Introduction; Brokers have gained market share while partnerships have stabilized; The direct channel is the primary route to market for private motor insurers; The direct channel continues to be the dominant route to market for private motor insurance; The broker channel is the second largest distribution channel for private motor insurance; Corporate partnerships also play a strong role in the distribution of private motor insurance; Banks and building societies have a market share of 7%; Banks and building societies are the largest distribution channel for home insurance; The majority of home insurance is distributed via banks and building societies; Brokers accounted for an estimated 26% of home insurance premium income in 2008; The direct channel accounts for around a quarter of home insurance premium income; Around 15% of home insurance premium income is distributed via the partnerships channel; The home and motor insurance markets are largely distributed through the same top 10 groups and brands; The largest 10 groups have brands that give them control of the majority of both the private motor and home insurance markets; Direct Line was the top provider of private motor insurance policies and has a particularly strong presence among younger consumers; Lloyds TSB is the market leader in the distribution of home insurance policies; Halifax was the top provider of combined contents and buildings policies, while other top distributors included Direct Line, Lloyds TSB, Norwich Union and More Th>n; Lloyds TSB was the top provider of contents only insurance policies and has a particularly strong hold of consumers aged over 60; A number of aggregators as well as LV= entered the top 10 advertisers in 2008; RBS's biggest brands, Direct Line and Churchill, were the biggest insurance advertisers in 2008; Three aggregators appeared in the top 10 advertisers in 2008, highlighting their importance to the market; LV= entered the top 10 after almost doubling its advertising spending in 2008; Norwich Union Direct's advertising spend declined the most in 2008; The top insurance advertisers devoted the bulk of their budgets to TV advertising in 2008; The top 10 insurance advertisers collectively spent more than £128.6m on TV advertising in 2008; Saga spent the most on direct mail, highlighting its importance in cross-selling; Other media such as radio and press played a smaller role; Personal Insurance Consumers; Introduction; The home and motor insurance markets are the largest potential pool of customers for personal lines insurers; The market for private motor insurance is large, with penetration highest among older and more affluent consumers; Older consumers are more likely to have motor cover, validating the strategy of those catering to over 50s; Motor insurance consumers with higher incomes have higher penetration rates; Consumers in the DE social grade are the least likely to have motor insurance; There is a healthy market for home insurance products, with consumers over 60 being the largest target market; There is a healthy market for home insurance products; Consumers over the age of 60 are the largest target market for combined policies; Higher income households form the core market for combined home insurance cover, while contents only cover is most popular with lower income consumers; Penetration rates are highest among AB and C1 consumers; The internet has fast become a major distribution platform for home and motor insurance; The internet dominated new sales for home and motor insurance in 2008; The vast majority of consumers use the internet and telephone to arrange their motor insurance; Nearly half of the consumers surveyed purchased their motor insurance over the internet; It is essential for home insurance providers to have a phone and internet sales strategy; An internet sales strategy is key to maximizing sales of personal insurance policies among younger buyers; Consumers aged 60-plus were least likely to use the internet to arrange their motor cover; An internet sales strategy is key to maximizing sales of contents insurance among younger buyers; A phone-based sales strategy is important when targeting the over 60s consumer with combined buildings and contents cover; The internet is most effective at targeting mid to high income households; Higher income consumers are more comfortable purchasing their motor cover over the internet; Mid to higher income households are most likely to buy a combined policy over the internet; An internet strategy is the core way of reaching mid and higher income consumers when selling contents insurance policies; AB and C1 consumers prefer to purchase their cover over the internet; The internet was the most popular platform for arranging motor insurance across all social grades; AB and C1 consumers are most likely to purchase a combined policy over the internet; Internet sales of contents insurance policies dominate among AB and C1 consumers; It is easier to grow market share among younger consumers; Younger consumers are more likely to change their provider, presenting an opportunity to gain new customers; Consumers aged 18-29 were most likely to take up motor insurance for the first time and switch their provider; Consumers between the ages of 18 and 29 are the softest targets for contents insurance providers; Switching rates of combined buildings and contents policies are broadly similar across age groups; More affluent consumers were more likely to search for a new quote at next renewal; Switching was relatively common across income bands, but more affluent consumers were more likely to search out a new quote at renewal; Switching of combined contents and building policies stays relatively the same across household income bands; Higher income consumers are most likely to switch their contents insurance provider; It is essential that providers stress a price-based marketing message when selling insurance; Price was cited most often by consumers as a factor in their choice of motor insurance provider; Providers need to stress the low price of their policies in order to acquire buyers of combined policies; The promise of a cheaper quote will attract buyers of all ages, however, providers must place more emphasis on the secondary and tertiary buyer needs for middle aged consumers and those over 60; Older motor insurance consumers are less motivated by price, though it remains important; While price is important to older consumers, they also tend to demand more from their providers as well; Direct Insurance; Introduction; Direct insurers have experienced little change in market share; Direct insurers have maintained their share in the private motor market; Direct insurers distributed an estimated 25% of household insurance in 2008; Large advertising campaigns are a key element of the direct insurance model; The top advertisers among the direct insurers devoted £87.7m to motor insurance advertising; Direct insurers need to market their brand and products through mass market media such as TV; Direct Line remained the top direct insurance advertiser in 2008 but many other brands are gearing up to increase their market share; The direct insurance market is highly consolidated, with the top five players accounting for the majority of policies sold direct; The top direct insurers accounted for a quarter of all motor insurance policies; The top direct insurance brands were strongest in the buildings only insurance market in 2008; Direct insurers have increasingly turned to panels to help widen their customer base; More Th>n adopted a panel to capture more business; AIG Direct has made use of panels for its expansion in home and motor; Norwich Union has enlisted Junction to provide its RAC brand motor insurance with a panel; Norwich Union has rebranded to Aviva; Brokers and Intermediaries; Introduction; Brokers have reversed previous losses in market share in both the home and motor insurance markets; Brokers gained market share in the private motor insurance market; Brokers distributed an estimated 26% of household insurance GWP in 2008; Brokers have mainly focused on advertising home and motor insurance through direct mail; The top brokers primarily draw in consumers with motor and home insurance advertising; Brokers have focused on direct mail, supporting a cross-selling strategy; The AA supported its substantial market share with a large investment in marketing; The largest brokers held approximately 10% of the market in the UK home and motor insurance markets; Large broker brands have been able to obtain substantial market share in the motor insurance market; Brokers faired the best in the contents only insurance market; Mergers and acquisitions in the broker sector continued despite the credit crunch; IAG disposed of its UK distribution assets via a sale to Swinton and a management buyout; LV= bought insurer Highway and disposed of its in-house broker Hero; Aggregators have continued to challenge brokers, though they offer an opportunity to grow; Brokers can compete more effectively with direct insurers and affinity brands through partnering with aggregators; Aggregators have taken steps to increase the number of brokers appearing on their sites, improving coverage; Banks and Building Societies; Introduction; Banks have retained their gains in motor but have suffered in the home insurance market; Bank distributed motor insurance accounted for an estimated 7% of the market in 2008; The credit crunch has resulted in a decline in bank-distributed home insurance; Advertising by the leading bancassurance advertisers declined in 2008; Banks have focused on their core product of home insurance while scaling back advertising; Bank marketing strategies are heavily reliant upon direct mail campaigns; The majority of the top 10 bancassurers spent less money on insurance advertising in 2008; The leading banks have substantial market share in the home market but struggle in motor; Only Lloyds TSB has achieved a significant market share among motor insurance consumers; The top bank brands are among some of the largest distributors in the home insurance market; The credit crunch is causing significant consolidation within the bancassurance channel; Major new distributors of home insurance have been created as a result of consolidation; Lloyds Banking Group has become the largest distributor of home insurance to UK consumers; Santander has become one of the top 10 distributors of home insurance in the UK as a result of acquisitions; Britannia and Co-operative to merge to form a 'super mutual' with a significant customer pool; Smaller building societies have consolidated as a result of the credit crunch, resulting in fewer but more lucrative accounts; Nationwide, Britain's biggest building society, was also the most active in its M&A activity; The Chelsea Building Society announced it was merging with the Catholic Building Society in June 2008; Skipton Building society, one of the more active in the insurance market, merged with the Scarborough; Barnsley Building Society merged with the Yorkshire Building Society; Lower mortgage volumes have disrupted the flow of new business into many banks' household insurance books; The UK government has become a majority shareholder in major home insurance distributors; Government-owned Northern Rock should be able to gain more market share in the home insurance market; A number of bancassurance deals were agreed in 2008 and 2007; HSBC and Norwich Union renewed their insurance partnership in 2007; Junction now provides a panel for HSBC's motor insurance product; Nationwide and LV= are now partners for motor and travel insurance; West Bromwich renewed its motor contract with Norwich Union; Bradford & Bingley retained Zurich on its home insurance panel; Affinity Groups and Retailers; Introduction; Affinities have gained ground in the home insurance market; Affinity groups and retailers distributed 17% of private motor insurance GWP in 2008; Weakness in traditionally dominant distributors has allowed affinities to gain business in home insurance; The top affinity insurance advertisers have pursued a cross-selling strategy; Insurance products such as warranties and home emergency dominated affinity marketing; The top 10 affinity partnership advertisers leveraged their customer databases with direct mail campaigns; Most of the top 10 brandassurer advertisers had a smaller advertising spend in 2008; Leading retail brands have secured significant market share in the home and motor markets; Retailers have become major distributors of motor insurance products; Leading retail brands figure less prominently in the home insurance market, though Tesco still leads; A number of important accounts changed hands in 2008; Ford and RSA agreed to a five-year affinity contract for motor insurance; General Motors changed the underwriter for its branded motor insurance products; Tesco bought out RBS's stake in their joint venture, Tesco Personal Finance; Panel underwriting and a downturn in car sales are having significant impacts on the affinity channel; Panel underwriting of affinity relationships has become more prominent, allowing for wider risk selection at competitive rates; Panel underwriting of affinity contracts allows for specialist insurers to take the more difficult risks; Greenbee has opted for a panel for its motor insurance products; Auto Trader extended its partnership with Junction for motor insurance; Norwich Union and Asda use broker BDML to provide a panel; The Post Office extended its panel arrangement with Junction until 2014; Motor manufacturer-branded products are likely to suffer due to the recession; Aggregators and Price Comparison Sites; Introduction; Aggregator-instigated insurance sales have grown dramatically in 2008 highlighting their importance to the industry; Aggregators are estimated to have generated over 40% of new private motor business GWP in 2008; Datamonitor estimates that aggregator-instigated home insurance sales accounted for 4% of new home insurance business sales in 2008; Aggregators have become major insurance advertisers, though mainly only for motor insurance; Advertising spend has dramatically increased as new competitors step up their marketing campaigns; The leading aggregators are still using TV to establish themselves in the personal insurance market; Very little aggregator advertising is conducted by those outside of the top five; New players have established strong brand awareness among consumers; TescoCompare.com is well positioned to compete with established players in the market; More than 60% of consumers that visit price comparison sites paid a visit to Confused.com; Comparethemarket.com is likely to see a large increase in brand awareness as a result of its 'meerkat' campaign; Aggregators have matured in the market, resulting in regulatory scrutiny and consolidation; BIBA's study revealed consumer confusion over price comparison sites; An FSA study found that certain price comparison sites had shortcomings; A subsequent FSA review found that price comparison sites have made significant improvements; The consumer group Which? scrutinized the accuracy of price comparison sites in August 2008; Competition between aggregators has been costly and already resulted in some brands dropping out; Future Decoded; Introduction; Affinity partnerships and direct players are expected to gain in the private motor market; The direct channel is predicted to remain the largest distribution channel for the private motor insurance market; Brokers are predicted to retain their market share over the forecast period; The affinity channel is predicted to revive and attain a market share of 19% in 2013; Banks will struggle to maintain market share in private motor; Direct insurers and banks are predicted to increase household insurance market share; Banks and buildings societies are predicted to recover market share lost due to the credit crunch; Broker market share is forecast to be approximately 26% throughout the forecast period; Direct insurers are predicted to gain market share; Affinity partnerships are predicted to remain significant distributors of home insurance
APPENDIX: Definitions; Premium income measures; Earned premiums; Gross Premium; Net Premium; Written premiums; Distribution definitions; Bancassurers; Banks/building societies; Brandassurers; Broker; Company staff; Direct; 'Other' company agents; Partnerships; Methodology; Datamonitor Consumer Survey; Primary and secondary research; Distribution estimates and forecast methodology; Advertising and marketing spend data; Further reading; Ask the analyst; Datamonitor consulting; Disclaimer

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