Household Insurance for the Affluent 2006

A report examining the competitive strategies at work in attracting the high and mid net worth customer groups in the household insurance market.

Report Highlights

Insurers are finding that they can establish long relationships with young professionals by getting them into the market early, and retaining their business as their liquid assets increase over the duration of their careers

There is a consensus that, for the mass affluent and MNW package, there is certainly a chance for direct platforms to grow, because these risks do not require the same level of underwriting as HNW cases

The HNW market is still one of the most untapped in the general insurance industry and insurers are faced with major growth opportunities if they can increase penetration. However, this has been the case for a number of years, and the general feeling expressed by industry executives is that penetration is only likely to increase gradually
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CHAPTER 1 MARKET CONTEXT 9
Introduction 9
High Net Worth insurance products distinguish themselves from standard policies by offering a higher level of cover 9
Who are HNW individuals? 10
The number of HNW individuals rose to almost 1 million in 2004 12
Datamonitor’s Global Wealth Model generates HNW and MNW populations 12
The total number of HNW individuals grew by 11.7 per cent in 2004 12
HNW insurance providers unanimously believe that product penetration needs to increase 14
HNW individuals are frequently underinsured, and without a specialist policy, this problem is greatly exacerbated 16
Premium rates have been flat in 2004 and 2005, with declines on some business 18
Insurers recorded a less favorable claims experience in 2005 19
Mid Net Worth insurance caters for mass affluent consumers 20
What is Mid Net Worth insurance? 20
The growth of MNW individuals outstripped HNW growth in 2004 22

CHAPTER 2 DISTRIBUTION 25
Introduction 25
Brokers remain dominant in HNW distribution 25
Brokers control around 85 per cent of distribution 25
However, as insurers target the emerging mass affluent, fundamental changes to product distribution and marketing could result 26
Product development has occurred with HNWs in mind 26
Banks are targeting the HNW insurance market 27
FSA regulation has pushed up the cost of business for brokers in the HNW market 28

CHAPTER 3 CUSTOMER FOCUS 29
Introduction 29
While the HNW market has a significant potential customer base, product penetration is low 29
Revealing the limitations of standard policies to affluent homeowners is usually a very powerful selling strategy 30
Stressing the comprehensive nature of cover reassures reluctant customers 30
Higher-end consumers are likely to be attracted by HNW services 31
Crime statistics suggest that incidents of cheque and credit card theft are declining, however many crimes go unreported and the severity of this problem should not be underestimated 32
Ensuring a good claims experience is essential 35
Exploring new distribution methods may lead to an increase in penetration 36
Most HNW individuals are over 75, however younger demographic bands are growing proportionately 37

CHAPTER 4 COMPETITIVE DYNAMICS 40
Introduction 40
Competition in the UK market was intense in 2004 and 2005 40
Insurers have doubts over whether such intense competition is sustainable 40
Several competitors are looking to grow their HNW books, but given the current market conditions, this is unlikely to be successful 41
The British HNW insurance market is considerably more competitive than others in Europe 41
The market is split between composites and specialists 41
HNW players can be split into two key groups 41
Hiscox has expanded into direct distribution channels, while retaining a broad customer base 43
Norwich Union is hoping to increase sales of its Tapestry product through corporate partnership deals 43
Zurich aims to attract consumers by enabling clients to combine various policies into one package 44
Chubb’s Masterpiece policy remains one of the most exclusive on the market, aimed at the top HNW individuals 45
Oak Underwriting focuses on ultra high net worth households 46
Still relative newcomers, AIG has succeeded in growing its business, but has priced low 47
HSBC Insurance is looking to expand into the market 47
Sterling offers comprehensive HNW cover, or customers can choose a more basic policy and select extra cover options 48
AXA, Royal & SunAlliance and MMA supplement their household offerings with a HNW product 48

CHAPTER 5 THE FUTURE DECODED 50
Introduction 50
The HNW insurance market is expected to remain highly competitive in 2006 50
Premium rates flattened in 2005, with some reductions 50
Rates are expected to remain flat in 2006 50
The number of affluent homeowners looks set to rise, offering significant growth opportunities for insurers 51
The number of HNW individuals is forecast to grow by an annual average of 8.1 per cent until 2009 51
The number of MNW individuals will continue to grow 53

CHAPTER 6 APPENDIX 55
Research methodology 55
Global Wealth Model 55
Definitions 58
Future readings 59
Relevant links 60
Datamonitor’s custom research capabilities 60
SPP writing team 61
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Table 1: Number of UK HNW individuals by liquid asset band, 2000-4 14
Table 2: The number of MNW individuals in the UK by liquid asset band, 2000-4 24
Table 3: Selected number of offences from the British Crime Survey 2000-4 35
Table 4: UK HNW individuals by age band, 2000-4 39
Table 5: Forecast number of HNW individuals by liquid asset band, 2004-9f 52
Table 6: Forecast number of MNW individuals by liquid asset band, 2004-9f 54
Table 7: Countries that can be modeled using Datamonitor’s Global Wealth Model 58




Figure 1: Methods used to identify HNW and affluent consumers 11
Figure 2: The number of HNW individuals increased in 2004, driven by growth in the £200K-£250K asset band 13
Figure 3: The number of MNW individuals has grown rapidly since 2002 23
Figure 4: Crimes such as aggravated vehicle taking and credit card fraud declined in 2005 34
Figure 5: The majority of HNW individuals are over 75, however in 2004 the 18–45 age band grew significantly 38
Figure 6: Composite and specialist insurers both compete in the HNW market, but often target different ends of the spectrum 42
Figure 7: Steady growth of HNW numbers is forecast to increase between 2006 and 2009 52
Figure 8: The number of MNW individuals is forecast to grow by an annual average of 7.0 per cent to 2009 53
Figure 9: Datamonitor’s core consulting capabilities 61
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