Market Developments in UK Household Insurance 2009
Introduction
This brief analyses the issues affecting the market and also provides data on the market size, structure and profitability. It discusses the impacts of the credit crunch on the market and the growing use of aggregators. It also includes data and insight on market growth, premium rates, claims costs, underwriting profit and includes market forecasts.
Scope
*Insight into the effects of the credit crunch, including the major changes to the competitor rankings.
*Data on market growth, premium rate changes, claims costs and underwriting profits.
*Forecasts of the future size of the market, its underwriting profit and the drivers that will affect the market going forward.
Highlights
The merger of Lloyds TSB and HBOS Group to form Lloyds Banking Group has created a home insurance powerhouse Datamonitor estimates that the new group becomes the third largest home insurance underwriting group, given the combination of Lloyds TSB Insurance and St. Andrew's and esure.
The growing use of aggregators has served to increase consumers' focus on the price of home insurance. Interviewees commented that aggregators were a large part of the reason for the lack of price movement in 2008.
Reasons to Purchase
*Understand which of your competitors pose the greatest threat, which competitors are gaining market share and which are losing market share.
*Gain insight into the future direction of the sector, including market size and underwriting profitability and the major issues affecting the market.
DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
The credit crunch is having a major impact on the home insurance market 2
Lloyds Banking Group and Santander have gained significant market share from the credit crunch 2
Lloyds Banking Group has become the biggest distributor and the third largest home insurance underwriting group 2
Santander has become one of the top ten distributors of home insurance in the UK 2
Insurance providers may need to consider launching low cost policies 4
Consumers may reduce their level of cover in the recession 4
The recession will present new opportunities to target consumers with cheaper products 4
Insurers are likely to be faced with an increasing number of fraudulent claims 5
Some banks have seen their home insurance sales fall due to lower mortgage volumes 5
Aggregators are presenting opportunities and challenges for market participants 7
Aggregators are becoming a more important route to market 7
Use of aggregators will increase during the recession 8
Some home insurance providers have launched products to be used specifically on aggregators 8
Aggregators went on a huge marketing drive in 2008 8
A number of interviewees feel that aggregators are holding down price movements 9
The Pitt review could see government and insurers work more closely together to combat flood risk 9
The summer floods in 2007 are estimated to have cost the market approximately £3 billion in total 9
The Pitt report recommended a greater level of collaboration between the government and insurers 10
Growth in the household insurance market was muted by strong competition in 2008 11
The market is estimated to have grown by 2% to £7.8 billion in 2008 11
Combined insurance policies account for the majority of home insurance GWP 12
There was marginal price growth in 2008 with prices for combined and contents policies coming under particular pressure in H2 14
The price of combined insurance policies came under pressure in the last two quarters of 2008 14
The market for contents insurance policies became much more competitive in the third and fourth quarters of 2008 14
Insurers have been pushing up the price of buildings insurance policies 15
There is a vast potential market for household insurance 18
There is a potential market of 21.4m households in England 18
The number of households in England grew by 1.1% in 2008 providing home insurers with new business opportunities 19
Privately rented households are a growing market for household insurance providers 20
2008 was a far better year for claims costs 22
Claims costs fell by a quarter in 2008 22
Escape of water claims increased by 13.7% to £662m in 2008 24
Claims relating to flood and storm damage fell significantly in 2008 24
Domestic fire claims costs increased in 2008 25
Accidental damage claims costs declined to £397m in 2008 26
The average value of a theft claim rose by 7.4% to £1,086 in 2008 27
The number of burglaries increased slightly in 2007/8 28
Older and settled homeowners continue to represent the best theft risks for insurers 30
2008 was a good year for subsidence claims 32
The market returned to a profit in 2008 33
The market returned an underwriting profit in 2008 33
The market continues to grow and returns profits until 2012 under the neutral scenario 34
Premium rate increases are expected to drive growth in household GWP 34
The market will reach a peak of £9 billion in 2013 35
Household insurers make an underwriting profit until 2012 under the neutral scenario 38
Competition restricts premium rate increases in the pessimistic scenario 39
Competitive pressures are forecast to keep rate increases low throughout the forecast period 39
GWP is forecast to rise marginally under the pessimistic scenario due to competitive pressures 40
The market moves into an underwriting loss as early as 2010 under the pessimistic scenario 42
The market sees better margins under the optimistic scenario 43
A stronger focus on restoring margin to the market will lead to strong growth in premium income 43
The market experiences stronger growth in 2009 and 2010, attaining a value of £9.3 billion by 2013 44
Underwriting profits improve substantially in the optimistic scenario, peaking in 2011 at £212m 46
APPENDIX 49
Datamonitor Consumer Survey 49
Further reading 50
Ask the analyst 50
Datamonitor consulting 50
Disclaimer 50
List of Tables
Table 1: UK home lending volume and value, 2004-08 6
Table 2: Estimated aggregator-instigated home insurance sales, 2007e-2008e 8
Table 3: UK household insurance GWP, 2004-08e (£m) 12
Table 4: Estimated split of household insurance GWP by type of cover, 2008 (£m) 13
Table 5: Average household insurance premium rates, January 2007-09 (£) 17
Table 6: The size and tenure of households in England, 2008 (000s) 19
Table 7: The number of households in England, 2005-08 (000) 20
Table 8: Trends in household tenure for England, 1998-2008, (000s) 22
Table 9: UK domestic property insurance claims by peril, 2004-08 (£m) 23
Table 10: Escape of water claims cost and number of claims for escape of water in the UK, 2004-08 24
Table 11: Gross claims incurred for domestic property weather claims, 2004-08 (£m) 25
Table 12: UK claims incurred by fire, domestic and total, 2004-08, (£m) 26
Table 13: Accidental damage claims costs and the number of claims for accidental damage in the UK, 2004-08 27
Table 14: Number of household theft and average theft claims cost in the UK, 2004-08 28
Table 15: Number of burglaries in England and Wales, 2001/02 to 2007/08 29
Table 16: UK unemployment, Q4 2004-Q4 2008 30
Table 17: Household types by risk of burglary in the UK, 2005/6 to 2007/8 32
Table 18: Average subsidence claims cost compared to claims costs and number of claims for subsidence in the UK, 2004-08 33
Table 19: Key variables affecting household insurance GWP, neutral scenario, 2009-13 35
Table 20: Forecast of household insurance GWP, neutral scenario, 2009-13 (£m) 37
Table 21: Forecast of UK household insurance underwriting result, neutral scenario, 2009-13 (£m) 39
Table 22: Key variables affecting household insurance GWP, pessimistic scenario, 2009-13 40
Table 23: Forecast of UK household insurance GWP, pessimistic scenario, 2009-13 (£m) 42
Table 24: Forecast of UK household insurance underwriting result, pessimistic scenario, 2009-13 (£m) 43
Table 25: Key variables affecting household insurance GWP, optimistic scenario, 2009-13 44
Table 26: Forecast of UK household insurance GWP, optimistic scenario, 2009-13 46
Table 27: Forecast of UK household insurance underwriting result, optimistic scenario, 2009-2013 (£m) 48
Table 28: Breakdown of consumer survey respondents by household income and age 49
Table 29: Breakdown of consumer survey respondents by socio-economic group 50
List of Figures
Figure 1: Lloyds Banking Group has become the number one distributor of home insurance while Santander has become the ninth biggest distributor 3
Figure 2: Tesco Personal Finance launched a "no frills" home insurance package in June 2008 5
Figure 3: Banks saw their opportunity for mortgage related home insurance sales plummet in 2008 6
Figure 4: Aggregator-instigated home insurance sales doubled in 2008 7
Figure 5: Aggregators were focused on building their brand in 2008 9
Figure 6: Strong competition meant the home insurance market saw marginal growth in 2008 12
Figure 7: Combined insurance policies account for the majority of home insurance GWP 13
Figure 8: There was a strong element of price competition in the last two quarters of 2008 14
Figure 9: Contents insurance prices came under real pressure in the last two quarters of 2008 15
Figure 10: The market average price of buildings insurance grew strongly in the fourth quarter of 2008 16
Figure 11: Home insurance providers can target a potential market of 6.7m rented households and 14.6m owner occupied households in England 18
Figure 12: The number of households in England continues to grow 20
Figure 13: The private rented sector is a growing market for household insurance providers 21
Figure 14: Weather related claims decreased significantly in 2008 as claims volumes returned closer to normal levels 23
Figure 15: Flood and storm related claims fell significantly in 2008 25
Figure 16: Domestic fires accounted for almost a third of total fire claims costs in 2008 26
Figure 17: The number of theft related household insurance claims fell to 328,000 in 2008 28
Figure 18: The number of burglaries in England and Wales increased marginally in 2007/08 29
Figure 19: Older homeowners are the least likely to be burgled 31
Figure 20: Insurers benefited from low subsidence claims costs in 2008 33
Figure 21: Datamonitor estimates that the household insurance market will have recorded a profit of over £100m in 2008 34
Figure 22: Household GWP will rise at an average annual rate of 3%, reaching £9 billion in 2013 under the neutral scenario 36
Figure 23: The market is forecast to be profitable for most of the forecast period, under the neutral scenario 38
Figure 24: GWP growth will be lower due to smaller premium rate increases under the pessimistic scenario 41
Figure 25: Under the optimistic scenario GWP is predicted to rise to £9.3 billion in 2013 45
Figure 26: The market is predicted to be profitable throughout the forecast period under the optimistic scenario 47
