Motor Insurance - UK - May 2007

ISSUES IN THE MARKET
Key issues
Definitions
INSIGHTS AND OPPORTUNITIES
Aggregators could go beyond price
New ways to reward loyalty
‘Big Brother’ could be a good thing
Success is in the detail
MARKET IN BRIEF
More drivers and a growing car parc fuel demand
Market grows in size, but performance is still lacklustre
Figure 1: Illustration of NWP and outgoing payments vs the underwriting result for the business and domestic market, 1994-2006
The claims performance also worsened in 2006
Figure 2: Total number of private motor insurance claims and claims frequency, 1996-2006
Key underwriters
Direct insurers take business away from independent intermediaries
Figure 3: Motor insurance distribution trends, 1992-2006
Some 50% of adults have comprehensive motor cover
Online arrangement of car insurance has risen rapidly
Motorists are less likely to ‘just renew’
FAST FORWARD TRENDS
Trend 1: Pay Attention
Definition
Context
What next?
Trend 2: Non-standard Society
Definition
Context
What next?
BROADER MARKET ENVIRONMENT
Key points
Spending power will slow slightly
Figure 4: PDI and consumer expenditure, 1996-2012
Savings ratio will increase from 2006 onwards
Population rises among the 45-54s
Figure 5: UK adult population trends, 1996-2011
Internet penetration appears to have peaked
Figure 6: British Internet penetration, at home/work/place of study or elsewhere, 2002-06
INTERNAL MARKET ENVIRONMENT
Key points
New car registrations have slowed
Figure 7: UK new car registrations, 1995-2008
Car parc is now over 31 million vehicles
Figure 8: UK car parc, 1995-2012
There are over 33 million driving licence holders in the UK
Figure 9: Full driving licence holders, by gender, 1975-2005
Almost 80% of households have at least one car
Figure 10: Household ownership of cars, 1998-2006
COMPETITIVE CONTEXT
Comprehensive or non-comprehensive?
Figure 11: Proportion of cars covered with comprehensive and non-comprehensive cover, 1995-2005
STRENGTHS AND WEAKNESSES IN THE MARKET
New opportunities will materialise for providers…
…but trading conditions are likely to remain difficult
WHO’S INNOVATING?
Norwich Union develops an alternative online sales channel
Price rather than product rules in this sector
Aggregator websites continue to proliferate
CIS launches ‘Eco’ car insurance
TRADE PERSPECTIVE
Buying motor insurance via the Internet…
…and the impact on brokers
Rising rates
Challenges for the industry
The role of aggregators
MARKET SIZE AND FORECAST
Key points
Profitability is still elusive
Figure 12: UK motor insurance revenue account for all business and domestic market, incorporating investment income, 1994-2006
Market deficit remains a concern
Figure 13: Illustration of NWP and outgoing payments vs the underwriting result for the business and domestic market, 1994-2006
Rates have fallen in real terms
Figure 14: Domestic motor insurance exposure, gross written premiums and average premium rates, at current and constant prices, 2000-06
There are around 27 million policies in force
Figure 15: Estimate of the number of live motor insurance policies, 2007
Forecast
Figure 16: Forecast of private motor insurance market, 2006-12
NWPs will increase – but so will Outgoing payments.
Factors used in the forecast
CLAIMS PERFORMANCE AND PRICING
Key points
Claims frequency starts to rise again
Figure 17: Total number of private motor insurance claims and claims frequency, 1996-2006
Net claims cost the industry £6.2 billion in 2005
Figure 18: Value of claims in the domestic motor insurance sector, 1995-2005
Average motor theft claim surpasses £1,500
Figure 19: Motor theft claims, by volume, cost, and average claim, 1995-2006
Rise in bodily injury claims
Figure 20: Number and average cost of bodily injury claims, 2000-05
Comprehensive rates rose in the last quarter of 2006
Figure 21: AA’s British Insurance Premium Index, July 1994-January 2007
MARKET SHARE
Key points
Slight increase in concentration
No change in the top three
Figure 22: Top 20 insurers for private motor risks, by GWP, 2005
COMPANIES AND PRODUCTS
Key points
The two ‘super-insurers’ dictate pricing strategies
 PROFILES
RBS
Aviva
Zurich Financial Services
Royal & SunAlliance
Fortis
BRAND ELEMENTS
Figure 23: Motor Insurance brand map, May 2007
 DIRECT LINE
Figure 24: Words associated with Direct Line brand, May 2007
Brand qualities
Perfect positioning in a hardening market
 NORWICH UNION
Figure 25: Words associated with Norwich Union brand, May 2007
Brand qualities
Time to phone home?
 AA
Figure 26: Words associated with AA brand, May 2007
Brand qualities
It’s a very nice brand – a very, very nice brand
 SHEILA’S WHEELS
Figure 27: Words associated with Sheila’s Wheels, March 2007
Brand qualities
Sheila’s Wheels on fire? Or does it lack traction?
 USAGE OF BRANDS
RBS brands it way to success
Figure 28: Consumer usage of various Motor Insurance brands, May 2007
 ATTITUDES TOWARDS MOTOR INSURANCE BRANDS
Sheila’s Wheels – in need of a puncture repair kit?
Figure 29: Attitudes towards Motor Insurance brands, May 2007
 BRAND SATISFACTION AND PERFORMANCE
Saga – meeting expectations
Figure 30: Customer satisfaction rating of Motor Insurance brands, May 2007
 BRAND COMMITMENT
Direct Line first choice for insurance
Figure 31: Degree of customer commitment to Motor Insurance brands, May 2007
Round up
BRAND COMMUNICATION AND PROMOTION
Key points
Advertising is central in the battle for motor insurance customers
More spent on insurance advertising than any other sector
Figure 32: Advertising expenditure for financial sectors, 2002-06
Nearly £180 million allocated to car insurance promotion in 2006
Figure 33: Annual advertising expenditure for insurance sectors, 2002-06
Direct mail and TV dominate
Figure 34: Motor insurance advertising expenditure, by media outlet, 2006
Direct Line is once again the top advertiser
Figure 35: Top motor insurance advertisers, 2002-06
CHANNELS TO MARKET
Key points
Background to the ‘direct revolution’
The changing distribution balance in detail
Figure 36: Motor insurance distribution trends, 1992-2006
Direct me to the nearest insurer
Figure 37: Distribution channel used to purchase motor insurance, 2001-07
Online is the future
Figure 38: Method used to arrange most recent motor insurance policy, 2001-07
CONSUMER FINANCIAL ACTIVITY
Testing times for financial services providers
Activity levels down again
Figure 39: Savings, investment, borrowing and debt repayment – consumers’ expected activity, September 2005-December 2006
UK savings and spending climate
Figure 40: UK savings and spending climate – indexed, January 2001-January 2007
Subdued picture across all sub-groups
Figure 41: Expected financial activity, by socio-demographic and income groups, December 2006 and average for the last 20 quarters
Declining business across the board
Figure 42: Leading financial activities planned in the next six months, December 2005-December 2006
Mortgage providers may have to work harder for revenue
Figure 43: Intended mortgage and property purchase activity, December 2004-December 2006
Identifying main financial services providers
Abbey customers are the most ‘fairly’ active
Figure 44: Activity levels of main financial services providers’ customer bases, December 2006
Halifax customers are savers
Figure 45: Activity intentions and current household financial situation, by MFSP, December 2006
THE CONSUMER – PRODUCT OWNERSHIP
Key points
Penetration of comprehensive cover reaches 50%
Figure 46: Penetration of motor insurance, 2004-07
Men and those aged 45-64 provide the core of comprehensive business
Figure 47: Motor insurance coverage, by gender, age, socio-economic group and region, February 2007
Part-time workers and those with low incomes tend to favour third party insurance
Figure 48: Motor insurance coverage, by working status, gross annual household income and tenure, February 2007
Waitrose shoppers opt for full cover
Figure 49: Motor insurance coverage, by newspaper readership, new technology, Internet usage, daily commercial TV viewing and supermarket usage, February 2007
THE CONSUMER – SOURCE AND METHOD OF PURCHASE
Key points
Direct insurers supply the majority of policies
Figure 50: Distribution channel used to purchase last policy, February 2007
Brokers lose out to the direct providers
Figure 51: Distribution channel used to purchase motor insurance, 2001-07
Young drivers take the direct route
Figure 52: Distribution channel used to arrange most recent policy, by gender, age, socio-economic group and region, February 2007
‘Stretched’ consumers more likely to visit a broker
Figure 53: Distribution channel used to arrange most recent policy, by working status, gross annual household income and tenure, February 2007
Heavy Internet users go direct
Figure 54: Distribution channel used to buy most recent insurance policy, by newspaper readership, new technology, Internet usage, daily commercial TV viewing and supermarket usage, February 2007
The comforts of home
Figure 55: Method used to arrange most recent motor insurance policy, February 2007
The inexorable rise of the Internet
Figure 56: Method used to arrange most recent motor insurance policy, 2001-07
Click with the kids
Figure 57: Distribution channel used, by gender, age, socio-economic group and region, February 2007
Income and Internet still go together
Figure 58: Distribution channel used, by working status, gross annual household income and tenure, February 2007
The branch makes a change from the TV
Figure 59: Method used to arrange most recent policy, by newspaper readership, new technology, Internet usage, daily commercial TV viewing and supermarkets, February 2007
From nowhere to here
Figure 60: Used Internet to arrange most recent motor insurance policy, 2001-07
New entrants use the Internet for distribution
Figure 61: Method used to arrange most recent motor insurance policy, by distribution channel used, February 2007
THE CONSUMER – QUOTATION SEARCHING, LOYALTY AND SWITCHING BEHAVIOUR
Key points
Just renewing is no longer an option
Figure 62: Number of motor insurance quotes obtained on last renewal, 2001-07
Older drivers go for convenience
Figure 63: Number of quotes received, by gender, age, socio-economic group and region, February 2007
Homebuyers seek more quotations
Figure 64: Number of quotes received, by working status, gross annual household income and tenure, February 2007
Aggregators have growing appeal
Figure 65: Consumers using aggregator websites to get motor insurance quotes, by age group, February 2007
Internet users search far and wide
Figure 66: Number of quotes obtained, by method used to arrange last policy, February 2007
New entrant users make the effort
Figure 67: Number of quotes obtained, by where last policy was arranged, February 2007
The changing nature of ‘loyalty’
Figure 68: Length of time with current provider, 2001-07
Youngsters look for a good deal
Figure 69: Length of time with current provider, by gender, age, socio-economic group and region, February 2007
Retirees maintain the status quo
Figure 70: Length of time with current provider, by working status, gross annual household income and tenure, February 2007
Medium Internet users use their online time wisely
Figure 71: Length of time with current provider, by newspaper readership, new technology, Internet usage, daily commercial TV viewing and supermarket usage, February 2007
Churners seek more quotations
Figure 72: Number of quotes obtained before purchasing last policy, by number of years with existing provider, February 2007