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Motor Insurance - UK - May 2008

ISSUES IN THE MARKET
Key issues in the market
Definitions
Abbreviations
INSIGHTS AND OPPORTUNITIES
Is switching satisfying?
Converting aggregator business into loyal business
Appealing to older drivers
Providing a human touch
Distinctive brand – the key to success?
MARKET IN BRIEF
Underwriting deficit continues to plague industry
Figure 1: Illustration of NWP, outgoing payments and underwriting result for the domestic private motor insurance market, 1994-2007
Claims costs up by a third since 2000
Figure 2: Value of claims in the domestic motor insurance sector, 1999-2006
Underlying market factors drive demand…
… however, economic uncertainty creates difficult conditions
RBS Insurance tops market share
Figure 3: Market share for personal motor insurance, based on NWP, 2006
Distribution changes continue to shape market landscape
More than 23 million adults have comprehensive policy
Figure 4: Estimate of the number of live motor insurance policies, 2008
Switching activity continues to increase
Figure 5: Length of time with current motor insurance provider, February 2008
FAST FORWARD TRENDS
Trend: Over-Optioned Consumers
How do people decide?
Aggregators inform and empower…
… but is too much choice a good thing?
Trend: Play Ethic
Making things easier
Promoting happiness
Improving reputations and profitability
INTERNAL MARKET ENVIRONMENT
Key points
Over 31 million cars in use
Figure 6: UK car parc, 2000-13
Private car registrations have fallen
Figure 7: Trends in private, business and fleet new car registrations, 2001-07
Around 7.5 million used cars sold each year
Figure 8: Sales of used cars, 2002-06
More than 33 million driving licence holders
Figure 9: Full GB driving licence holders, by gender 1975-2006
Steady growth in multi-car ownership
Figure 10: Household ownership of cars, 1998-2007
Electronic motor certificates introduced
ABI demand action on third party costs
Greater emphasis placed on tackling fraud
Figure 11: Percentage of personal motor claims repudiated due to detected fraud, 2004-06
Insurers clamp down on fronting
BROADER MARKET ENVIRONMENT
Key points
Consumer expenditure expected to slow
Figure 12: Trends in PDI, consumer expenditure and savings, 2000-13
Saving rather than spending to become a priority
Figure 13: Intentions to spend and save in the next 12 months, January 2001-December 2007
Bank rate cuts may increase appeal of car finance
Changing population profile will impact demand for insurance
Figure 14: UK adult population trends, 1993-2013
Internet penetration has reached 64%
Figure 15: British Internet penetration, at home/work/place of study or elsewhere, 2002-08
Rising costs of motoring
Many policies are not car friendly
COMPETITIVE CONTEXT
Key points
Legal obligation – so no competition
Battle waged against uninsured drivers
Figure 16: MIB claims, 2005-07
STRENGTHS AND WEAKNESSES IN THE MARKET
Figure 17: Strengths and weaknesses in the motor insurance market, 2008
Strengths of the motor insurance market
Weaknesses of the motor insurance market
WHO’S INNOVATING?
Key points
‘Black box’ technology enables pay-as-you-go insurance
Other insurers may consider similar schemes
Telematics could spark further innovation
Going carbon neutral
Green issue puts recycled parts back on agenda
Sheila’s Wheels
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
Figure 18: Illustration of NWP and outgoing payments and underwriting result for the domestic private motor insurance market, 1994-2007
Premiums are rising, but so are outgoings
Figure 19: UK motor insurance revenue account for domestic market, 1994-2007
Premiums rose by almost 6% in 2007…
Figure 20: AA British Insurance Premium Index, Motor risks, July 1994-April 2008
…but rates are falling in real terms
Figure 21: Domestic motor insurance exposure, GWP and average premium rates, at current amd constant prices, 2000-07
Number of policies in force approaches around 27 million
Figure 22: Estimate of the number of live private motor insurance policies, 2008
Almost nine in ten policyholders has comprehensive cover
Figure 23: Proportion of cars with comprehensive and non-comprehensive cover, 1998-2007
Forecast
Figure 24: Forecast of private motor insurance market, 2003-13
Figure 25: Forecast of UK motor insurance revenue account for domestic market, 2003-13
Factors used in the forecast
CLAIMS EXPERIENCE
Key points
Claims frequency on downward trend…
Figure 26: Total number of private motor insurance claims and claims frequency, 1996-2007
…but claims costs have risen by 36% since 1999
Figure 27: Value of claims in the domestic motor insurance sector, 1999-2006
Theft claims fall, but average claim rises
Figure 28: Private car theft claims, by volume, cost and average claim, 1996-2007
Personal injury claims have rocketed
Figure 29: Number and average cost of bodily injury claims, 2000-06
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
Figure 30: Market share for personal motor insurance, based on NWP, 2006
RBS Insurance dominates motor insurance market
Figure 31: NWP for top 15 insurers for personal motor insurance, 2006
COMPANIES AND PRODUCTS
Market overview
Fluctuations in number of motor insurers
Figure 32: Number of ABI members writing motor business, 1996-2006
Developments in aggregator market
 INSURER PROFILES
RBS Insurance
Aviva
Royal & SunAlliance (RSA)
Zurich
Fortis
BRAND ELEMENTS
 BRAND MAP
Figure 33: Attitudes towards and usage of motor insurance brands, January 2008
 AA
What the brand is trying to achieve
What the consumer thinks
Figure 34: Attitudes towards the AA brand, January 2008
 MORE TH>N
What the brand is trying to achieve
What the consumer thinks
Figure 35: Attitudes towards the More Th>n brand, January 2008
 DIRECT LINE
What the brand is trying to achieve
What the consumer thinks
Figure 36: Attitudes towards the Direct Line brand, January 2008
 ESURE
What the brand is trying to achieve
What the consumer thinks
Figure 37: Attitudes towards the Esure brand, January 2008
 SHEILA’S WHEELS
What the brand is trying to achieve
What the consumer thinks
Figure 38: Attitudes towards the Sheila’s Wheels brand, January 2008
 LLOYDS TSB
What the brand is trying to achieve
What the consumer thinks
Figure 39: Attitudes towards the Lloyds TSB brand, January 2008
 BRAND QUALITIES OF MOTOR INSURANCE BRANDS
AA leads the way on competence, authority and reliability
Figure 40: Consumer usage of various motor insurance brands, January 2008
 EXPERIENCE OF MOTOR INSURANCE BRANDS
More established brands are preferred
Figure 41: Consumer usage of various motor insurance brands, January 2008
 BRAND INTENTIONS FOR MOTOR INSURANCE BRANDS
Sheila’s Wheels is least likely to be considered
Figure 42: Consideration of various motor insurance brands, January 2008
 BRAND MOMENTUM FOR MOTOR INSURANCE BRANDS
Sheila’s Wheels and Direct Line are gaining most ground
Figure 43: Momentum of various motor insurance brands, January 2008
 BRAND SATISFACTION FOR MOTOR INSURANCE BRANDS
AA satisfaction is most likely to be rated as excellent
Figure 44: Satisfaction of various motor insurance brands, January 2008
 BRAND COMMITMENT TO MOTOR INSURANCE BRANDS
AA heads table for brand loyalty
Figure 45: Commitment to various motor insurance brands, January 2008
 ROUND-UP
BRAND COMMUNICATION AND PROMOTION
Key points
Motor insurance tops financial adspend
Figure 46: Annual advertising expenditure on general insurance products, 2003-08
Adspend on motor insurance products tops £250 million per year
Figure 47: Annual expenditure on motor insurance products, 2003-08
TV dominates motor insurance adspend
Figure 48: Motor insurance advertising expenditure, by media type, 2008
Direct line and Confused.com top adspend in 2007/08
Figure 49: Top motor insurance advertisers, 2003-08
CHANNELS TO MARKET
Key points
The direct revolution continues…
Figure 50: Motor insurance distribution trends, 1999-2006
…although intermediaries are taking battle online
More than half of all policyholders go direct
Figure 51: Distribution channel used to purchase motor insurance, February 2008
Telephone remains preferred arrangement method…
Figure 52: Method used to arrange most recent motor insurance policy, 2007
…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
Figure 53: Ownership of motor insurance, February 2008
Comprehensive cover has increased in popularity
Figure 54: Trends in motor insurance ownership, 2004-08
Over-35s more likely to have comprehensive cover
Figure 55: Motor insurance ownserhip by gender, age, lifestage and marital status, February 2008
Three-fifths of ABs have comprehensive cover
Figure 56: Motor insurance ownership by socio-economic group, gross annual household income, household tenure and working status, February 2008
Internet users more likely opt for full cover
Figure 57: Motor insurance ownership, by TV region, technology users, Internet usage, newspaper readership and supermarket used, February 2008
THE CONSUMER – PURCHASING CAR INSURANCE
Key points
More than half of policyholders go direct to insurer
Figure 58: Distribution channel used to purchase last motor insurance policy, February 2008
Influence of direct insurers grows, at the expense of brokers
Figure 59: Distribution channel used to purchase motor insurance, 2001-08
Women more likely to use a price comparison site
Figure 60: Distribution channel used to purchase most recent motor insurance policy, by gender, age, lifestage and marital status, February 2008
C1s are more likely to use brokers
Figure 61: Distribution channel used to purchase most recent motor insurance policy, by socio-economic group, gross annual household income, household tenure and working status, February 2008
Price comparison sites attract heavy Internet users
Figure 62: Distribution channel used to purchase most recent motor insurance policy, by TV region, technology users, Internet usage, newspaper readership and supermarket used, February 2008
More than half use the telephone to arrange cover
Figure 63: Method used to arrange most recent motor insurance policy, February 2008
The rise of the Internet is detrimental to other channels
Figure 64: Method used to arrange most recent motor insurance policy, 2001-08
Age is a major influence in the channel used
Figure 65: Method used to arrange most recent motor insurance policy, by gender, age, lifestage and marital status, February 2008
Price comparison sites have wide appeal
Figure 66: Method used to arrange most recent motor insurance policy, by socio-economic group, gross annual household income, household tenure and working status, February 2008
Broadsheet readers more likely to turn to the Internet
Figure 67: Method used to arrange most recent motor insurance policy, by TV region, technology users, Internet usage, newspaper readership and supermarket used, February 2008
Most direct policies are arranged over the phone
Figure 68: Method used to arrange most recent motor insurance policy, by distribution channel used, February 2008
THE CONSUMER – QUOTATION ACTIVITY
Key points
28% obtained four or more quotes
Figure 69: Number of motor insurance quotes obtained on last renewal, February 2008
Renewal activity is changing
Figure 70: Number of motor insurance quotes obtained on last renewal, 2001-08
A third of over-65s just renew their policy
Figure 71: Number of motor insurance quotes obtained at last renewal, by gender, age, lifestage and marital status, February 2008
Mortgage holders more likely to shop around
Figure 72: Number of motor insurance quotes obtained at last renewal, by socio-economic group, gross annual household income, household tenure and working status, February 2008
Heavy Internet users are more likely to obtain multiple quotes
Figure 73: Number of motor insurance quotes obtained at last renewal, by TV region, technology users, Internet usage, newspaper readership and supermarket used, February 2008
Third party policyholders are more likely to shop around
Figure 74: Number of quotes obtained, by type of cover in place, February 2008
Price comparison sites are behind multiple quotes
Figure 75: Number of motor insurance quotes obtained at last renewal, by distribution channel used for most recent policy, February 2008
Internet enables multiple quotes
Figure 76: Number of motor insurance quotes obtained at last renewal, by method used to purchase most recent policy, February 2008
THE CONSUMER – SWITCHING BEHAVIOUR AND LOYALTY
Key points
Two-fifths have been with their current insurer less than two years
Figure 77: Length of time with current motor insurance provider, February 2008
Loyalty is in decline
Figure 78: Length of time with current motor insurance provider, 2001-08
Loyalty increases with age
Figure 79: Length of time with current motor insurance provider, by gender, age, lifestage and marital status, February 2008
DEs more likely to be recent switchers
Figure 80: Length of time with current motor insurance provider, by socio-economic group, gross annual household income, household tenure and working status, February 2008
Scottish drivers are the most loyal
Figure 81: Length of time with current motor insurance provider, by TV region, technology users, Internet usage, newspaper readership and supermarket used, February 2008
Third party policyholders are frequent switchers
Figure 82: Length of time with current motor insurance provider, by type of cover, February 2008
50% of price comparison users have moved insurers in last year
Figure 83: Length of time with current motor insurance provider, by distribution channel, February 2008
Telephone customer more likely to be loyal
Figure 84: Length of time with current motor insurance provider, by method used to arrange cover, February 2008
Switchers obtain more quotes
Figure 85: Length of time with current motor insurance provider, by number of quotes obtained, February 2008
THE CONSUMER – ATTITUDES AND TARGETING OPPORTUNITIES
Key points
Target group analysis
Figure 86: Attitudinal target groups based on adults aged 15+ with at least one car in their household
‘Online advocates’
‘Contented quality seekers’
‘Risk-averse traditionalists’
‘Risk-taking spend-thrifts’
‘Disinterested’
APPENDIX – THE CONSUMER – ATTITUDES AND TARGETING OPPORTUNITIES
Figure 87: Motor insurace target groups based on attitudinal and lifetsytle statements
Figure 88: Detailed demographics of motor insurance target groups, based on attitudinal and lifetsytle statements

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