UK Household Insurance 2004

CHAPTER 1 EXECUTIVE SUMMARY

Introduction
Market context
Customer focus
Competitive dynamics
The future decoded
LIST OF TABLES
LIST OF FIGURES

CHAPTER 2 INTRODUCTION

What is this report about?
Who is the target reader?
How to use this report

CHAPTER 3 MARKET CONTEXT

Introduction
PESTEL analysis of the UK household insurance market
UK household trends
The number of households continued to grow faster than the population in 2003
Household insurance growth
The household market outpaced private motor in 2003
GWP nevertheless showed a marginal slowdown compared to 2002
Less reinsurance ceded in 2002
Robust premium rate increases continued
Buildings and contents split in domestic property
Underwriting result
The total property market inched closer to profitability in 2002
Comparison of household and commercial underwriting result
Household underwriting result improves but still remains unprofitable
Household claims
Benign weather has reduced reinsurers’ share of claims
Total claims costs in the household insurance market
Seasonal impact of claims
Weather damage claims
Theft claims
Domestic subsidence claims
Fire claims
Niche markets
High Net Worth and Mid Net Worth
Students
Rural property

CHAPTER 4 CUSTOMER FOCUS

Introduction
Distribution in the household insurance market
The share of home insurance distributed by brokers dropped a further five per cent in 2002 due to strong competition from banks, building societies and brandassurers
Increased mortgage lending saw the share of home insurance distributed through banks and building societies increase by three per cent
The direct channel remained stable in 2002
Brandassurers show strong growth
Customer distribution platforms
How consumers arrange their home insurance
Household insurance consumer trends
Sources of information used to find a home insurer
Choosing a provider
Customer loyalty
Advertising in household insurance
Introduction
Direct players build brand awareness via television advertising
Tesco aims for growth

CHAPTER 5 COMPETITIVE DYNAMICS

Introduction
Top ten players in the household insurance market
The top ten players lost market share as portfolio rationalization continued
Lloyds TSB and Churchill improved their market position in 2002
Growth of the top ten household insurers
Analysis of the performance of the top ten players in 2002
Performance ratio analysis
Loss ratio analysis
Expense ratio analysis
Combined ratio analysis
Competitive context
RBS buys Churchill to form a home insurance giant
HBOS is set to become a top five household insurer
Esure makes a good start
Brandassurers are an increasing threat

CHAPTER 6 THE FUTURE DECODED

Introduction
Overview of Datamonitor’s forecasts
Scenario 1 : Insurers continue to price for profitably
Scenario 2: The market softens in 2007 and 2008
Comparison of GWP growth under both scenarios
Underwriting result

CHAPTER 7 APPENDIX

Total property insurance market, by premiums
Property insurance performance ratios by competitor
MORI survey data
Definitions
Definitions of general terms
Methodology
MORI data
Explanatory notes to competitor tables
Accuracy of figures
Research sources
Current publications
Future publications
Relevant links
Do you need more information?
Datamonitor Financial Services Consulting
SPP writing team
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Table 1: The size of UK households by the number of people, 1971-2003 27
Table 2: Tenure structure in UK households, 1992-2002p 29
Table 3: Personal insurance market GWP by sector, 1998-2003e 31
Table 4: Annual growth in household insurance market GWP, 1998-2003e 33
Table 5: Domestic reinsurance ceded compared to NWP and GWP, 1998-2002 34
Table 6: Change in household insurance premiums, Jan 1998-Jan 2004 36
Table 7: Penetration levels and average annual expenditure on buildings and contents insurance 37
Table 8: GWP split in household insurance between buildings and contents cover, 1998-2003e 39
Table 9: Total property underwriting account, 1992-2002 41
Table 10: Breakdown of property insurance underwriting result, 1998-2002 41
Table 11: Household and commercial property underwriting result, 1998-2002 42
Table 12: Breakdown of household underwriting result, 1998-2002 44
Table 13: Commissions and expenses decrease slightly as a percentage of GWP 45
Table 14: Reinsurers’ share of claims, 1998-2002 46
Table 15: Gross claims incurred in the household insurance market, by peril, 1998-2003 48
Table 16: Proportion of household claims by peril, 1998-2003 49
Table 17: Household claims by major peril, by quarter, 2000-2003 51
Table 18: Weather damage claims incurred by cause in domestic property, 1998-2003 52
Table 19: Government funding for flood defenses, 2001-6 53
Table 20: Total cost of household theft claims and average claim cost, 1998-2003 58
Table 21: Number of burglaries and attempted burglaries in the UK, 1993-2003 59
Table 22: Unemployment among 18-24 year old males, 1993-2002 60
Table 23: Number of recorded burglaries in the UK, 2002-3 61
Table 24: Household types most at risk of burglary, 2002/3 63
Table 25: Average subsidence claim payout compared to total claims incurred and number of subsidence claims, 1998-2003 64
Table 26: Gross incurred household fire claims, 1998-2003 66
Table 27: Total number of property fires in the UK by type, 1997-2002p 67
Table 28: Household insurance distribution by channel, 1998-2002 75
Table 29: Total advertising spend on buildings and contents insurance by company, 2001-2 87
Table 30: Percentage of advertising spend by medium, 2003 89
Table 31: Percentage of advertising spend by medium, 2003 (cont) 90
Table 32: Total advertising spend on domestic contents by company, 2002-3 93
Table 33: Percentage of advertising spend by medium for domestic contents, 2003 95
Table 34: Market share of top ten household insurers, 2001-2 98
Table 35: Growth of top ten household insurers, 2001-2 101
Table 36: Household GEP compared to total property loss ratio, top 20 domestic insurers, 2001-2 108
Table 37: Total property expense ratio and annual change, top 20 household insurers, 2001-2 111
Table 38: Household GEP compared to total property combined ratio, top 20 household insurers, 2001-2 115
Table 39: Scenario 1: Pricing for profitability 123
Table 40: Scenario 2: The market softens in 2007 and 2008 127
Table 41: Comparison of GWP growth under both scenarios 129
Table 42: Forecast underwriting result, 1994-2008f 131
Table 43: Total property insurance GEP by competitor, 1998-2002 132
Table 44: Total property insurance GEP by competitor, 1998-2002, cont. 133
Table 45: Total property insurance GEP by competitor, 1998-2002, cont. 134
Table 46: Total property insurance GEP by competitor, 1998-2002, cont. 135
Table 47: Total property insurance market share by competitor, 1998-2002 136
Table 48: Total property insurance market share by competitor, 1998-2002, cont. 137
Table 49: Total property insurance market share by competitor, 1998-2002, cont. 138
Table 50: Domestic property GEP by competitor, 1998-2002 139
Table 51: Domestic property GEP by competitor, 1998-2002, cont. 140
Table 52: Domestic property GEP by competitor, 1998-2002, cont. 141
Table 53: Domestic property market share by competitor, 1998-2002 142
Table 54: Domestic property market share by competitor, 1998-2002, cont. 143
Table 55: Domestic property market share by competitor, 1998-2002, cont. 144
Table 56: Property loss ratio, by competitor, 1998-2002 145
Table 57: Property loss ratio, by competitor, 1998-2002, cont. 146
Table 58: Property loss ratio, by competitor, 1998-2002, cont. 147
Table 59: Property expense ratio, by competitor, 1998-2002 148
Table 60: Property expense ratio, by competitor, 1998-2002, cont. 149
Table 61: Property expense ratio, by competitor, 1998-2002, cont. 150
Table 62: Property combined ratio, by competitor, 1998-2002 151
Table 63: Property combined ratio, by competitor, 1998-2002, cont. 152
Table 64: Property combined ratio, by competitor, 1998-2002, cont. 153
Table 65: Property commission ratio, by competitor, 1998-2002 154
Table 66: Property commission ratio, by competitor, 1998-2002, cont. 155
Table 67: Property commission ratio, by competitor, 1998-2002, cont. 156
Table 68: Property commission ratio, by competitor, 1998-2002, cont. 157
Table 69: Property management expenses ratio, by competitor, 1998-2002 158
Table 70: Property management expenses ratio, by competitor, 1998-2002, cont. 159
Table 71: Property management expenses ratio, by competitor, 1998-2002, cont. 160
Table 72: Property management expenses ratio, by competitor, 1998-2002, cont. 161
Table 73: Property net / gross premiums ratio, by competitor, 1998-2002 162
Table 74: Property net / gross premiums ratio, by competitor, 1998-2002, cont. 163
Table 75: Property net / gross premiums ratio by competitor, 1998-2002, cont. 164
Table 76: Which of the following types of home insurance are you covered by? 165
Table 77: How did you arrange the home insurance policy you currently have? 165
Table 78: Which sources of information did you use to find out about your home insurance provider? By age 166
Table 79: Which of the following sources of information did you use to find out about your home insurance provider? By income 167
Table 80: Why did you take out your home insurance with your provider? By age 168
Table 81: Why did you take out your home insurance with your provider? By income 168
Table 82: When you last renewed your policy did you change company or stay with the same one? 169
Table 83: Market share of the top ten insurers in each year, 1999-2002 169
Table 84: Methodology for Datamonitor’s property premium income splits 174



Figure 1: PESTEL analysis of the UK household insurance market 3
Figure 2: Churchill is clearly a rising star in the household market, 1998-2002 7
Figure 3: PESTEL analysis of the UK household insurance market 25
Figure 4: The total number of UK households increased by 0.3 million in 2003 largely due to growth in two person households 27
Figure 5: The number of owner occupied households increased in 2003 28
Figure 6: The household market is expected to grow more slowly in 2003 31
Figure 7: GWP is estimated to have grown by seven per cent in 2003 32
Figure 8: Domestic reinsurance ceded reduced slightly in 2002 34
Figure 9: Buildings and contents premiums grew by two per cent in 2003 according to The AA Insurance Premium Index 35
Figure 10: Combined contents and buildings insurance is the most popular type of policy 38
Figure 11: Premium income for both buildings and contents insurance increased at a slower rate than in 2002 39
Figure 12: Property underwriting remains unprofitable despite surge in NWP 40
Figure 13: Household remains unprofitable while commercial shows a second successive year of profits 42
Figure 14: Household shows an improvement 43
Figure 15: NWP grew faster than both commissions and expenses and claims incurred in 2002 44
Figure 16: 2003 was a benign year for domestic property claims 48
Figure 17: The seasonality of weather claims 50
Figure 18: Little storm damage in 2003 52
Figure 19: Government response to ABI demands 55
Figure 20: Flood developments in the UK 55
Figure 21: The number of theft claims and average claims cost declined in 2003 57
Figure 22: The number of burglaries levels off in 2003 59
Figure 23: Latest quarterly figures show a drop in recorded burglaries to September 2003 61
Figure 24: Burglaries are most likely where the head of the household is aged 16-24, 2002 62
Figure 25: Subsidence claims doubled in 2003 64
Figure 26: More domestic fires in 2003 65
Figure 27: The share of home insurance distributed through brokers declined in 2002, while banks and brandassurers increased their share of distribution 74
Figure 28: Most consumers buy their home insurance over the phone 77
Figure 29: TV adverts are a popular source of information with younger consumers 79
Figure 30: Wealthier consumers are more likely to find an insurer on the Internet 80
Figure 31: Price is the overwhelming consideration for people of all ages 82
Figure 32: Price is the overwhelming reason why people choose to take out their insurance with a particular provider 83
Figure 33: Customer loyalty increased with age 84
Figure 34: Saga Group was the leading advertiser of combined buildings and contents insurance in 2003 86
Figure 35: Direct Line spent more than any other provider on advertising contents only insurance in 2003 92
Figure 36: Norwich Union drops 4.2 per cent market share in 2002 97
Figure 37: Lloyds TSB and Churchill are rising stars in the household market, 2001-2 99
Figure 38: Churchill is clearly a rising star in the household market, 1998-2002 100
Figure 39: Change in GEP compared with change in loss ratio, top 20 household insurers, 2001-2 107
Figure 40: Change in GEP compared with change in expense ratio, top 20 household insurers, 2002 110
Figure 41: GEP compared with combined ratio, top 20 household insurers, 2002 114
Figure 42: The Royal Bank of Scotland Group has 16.2 per cent of the household insurance market, following the purchase of Churchill, pro forma 2002 117
Figure 43: Assumptions under Scenario 1 120
Figure 44: Assumptions under Scenario 1 121
Figure 45: Scenario 1: Pricing for profitability 122
Figure 46: Assumptions under Scenario 2 124
Figure 47: Assumptions under Scenario 2 125
Figure 48: Scenario 2: The market softens in 2007 and 2008 126
Figure 49: Comparison of GWP growth under both scenarios 128
Figure 50: The household insurance market reached profitability in 2003 130
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