TABLE OF CONTENTS
CHAPTER 1 EXECUTIVE SUMMARY 3
Introduction 3
Employers’ liability 3
The market continued to grow strongly in 2003 3
Capacity is beginning to return to the market 3
Rates started to soften in 2004 4
Employers’ liability will grow at a significantly slower rate to 2009 4
Professional indemnity 4
The professional indemnity market grew by over 15 per cent in 2003 4
An influx of new capacity has put an end to hard market conditions 4
There are a variety of customer segments with differing levels of product penetration 5
The market is dominated by Lloyd’s and six company market players 5
New entrants have placed established players under pressure 6
The top competitors’ claims ratios improved in 2003 due to premium rate rises 6
Price based competition will be countered by rising penetration in the short to medium term 6
Directors’ and officers’ 6
The directors’ and officers’ market grew by 20 per cent in 2004 6
The penetration of directors’ and officers’ insurance is expected to increase 7
The primary market is highly consolidated 7
New capacity has entered the market in 2004, increasing competitive intensity 8
GWP to reach three quarters of a billion pounds by 2009 9
Targeting SME customers 9
Purchasing behavior 10
Satisfaction and loyalty 10
Premiums 10
Additional services 11
The broker perspective 11
Placement 11
Alternative distribution channels 11
Satisfaction 12
CHAPTER 2 INTRODUCTION 33
What is this report about? 33
Who is the target reader? 33
How to use this report 34
CHAPTER 3 EMPLOYERS’ LIABILITY 35
Introduction 35
Market context 35
The market continued to grow strongly in 2003 35
The market made a signficant step towards underwriting profitability in 2003 38
A market in crisis? 40
But has the crisis subsided? 40
Government investigations 41
Claims costs and numbers continue to rise 43
Trends in workplace accidents and disease 53
Other issues affecting the number and cost of claims 61
Competitive dynamics 65
There have been few new entrants since 2002, but capacity is returning to the market 65
Analysis of top 10 employers’ liability insurers 66
Claims ratio analysis of the top 10 competitors in the UK employers’ liability market 72
The future decoded 86
There has been talk of the market undergoing major reform but it will not happen in the short to medium term 86
Key assumptions for employers’ liability forecasts 87
The employers’ liability market will be worth approximately £3 billion by 2009 88
The market attained profitability in 2004 but loss ratios are expected to deteriorate 89
CHAPTER 4 PROFESSIONAL INDEMNITY 91
Introduction 91
Market context 91
The professional indemnity market grew by over 15 per cent in 2003 91
Premium rates increased in 2003 but market adjustment followed in 2004 94
Softening market has primarily been caused by new capacity 95
Customer focus 97
Distribution is dominated by brokers 97
There are a variety of customer segments in the professional indemnity market, with varying levels of product penetration 98
SMEs are less loyal than larger corporations 102
Competitive dynamics 103
The market is dominated by Lloyd’s and six large company market players 103
New entrants have placed established players under pressure 107
Claims ratio analysis by competitor demonstrates general improvement 108
The future decoded 121
Forecast GWP for the professional indemnity market 121
CHAPTER 5 DIRECTORS’ AND OFFICERS’ 126
Introduction 126
Market context 126
The directors’ and officers’ market grew by 20 per cent in 2004 126
Premium rates have been put under pressure from new capital 126
Claims trends 128
Regulation – past and present 130
Customer focus 132
Distribution is dominated by brokers 132
SME focus will continue to grow 132
Predicted IPO and merger growth offers insurers further opportunities in 2005 135
Alternatives to directors’ and officers’ cover have not taken off 136
Competitive dynamics 137
Leading competitors 137
Lloyd’s’ share of the directors’ and officers’ market 140
New entrants 142
The future decoded 144
Forecast GWP for the directors’ and officers’ market 144
Future regulation in the directors’ and officers’ market 148
CHAPTER 6 TARGETING SME CUSTOMERS 151
Introduction 151
Opportunities exist to boost the penetration of professional indemnity and directors’ and officers’ insurance among SMEs 151
Most SMEs buy their liability insurance products from the same company, presenting clear cross-selling potential 152
The majority of SMEs purchase liability insurance through brokers and are largely satisfied with their relationships 153
Brokers are the primary distribution channel for SMEs purchasing liability insurance 153
Broker satisfaction levels are currently high among SMEs 154
SMEs have fairly long-term relationships with their brokers 155
The price-sensitivity of SMEs presents opportunities for providers to win business from their competitors 156
Price is the most important factor behind SMEs’ purchase decisions 156
SMEs that have switched broker in the last two years have largely done so on the basis of price 157
Around 20 per cent of SMEs are considering changing their broker in the next 12 months for a cheaper premium 158
Price-based competition in the SME sector is increasing 159
Several insurers and brokers have been increasing their focus in this area 159
Premium rates freeze for over one-third of SMEs 160
12 per cent of SMEs saw a decrease in their liability premiums at last renewal 160
Alternative distribution channels could threaten broker dominance with competitive pricing and product offerings 161
Over 61 per cent of SMEs would consider buying direct if they were offered a better package 161
Almost 40 per cent of SMEs would consider buying liability insurance from a bank or building society if they got a cheaper deal 163
However, price alone is not enough to win SME customers 165
A significant number of SMEs would not consider alternative distribution channels as they are content with their broker and value their expertise 165
Brokers can influence SME purchasing behavior through their reputation and service levels 166
The direct channel has more potential than the bancassurance channel 167
Additional services are valued by the SMEs that receive them, but there is no real desire for an increase in such services 168
Almost 50 per cent of SMEs receive no additional services from their broker 168
The additional services that SMEs receive usually come as standard 169
The SMEs that receive additional services find them useful 169
However, the vast majority of SMEs feel no need for any further services from their broker 170
Survey conclusions 171
CHAPTER 7 THE BROKER PERSPECTIVE 174
Introduction 174
Risk placement 174
Brokers are not having problems placing liability risks as capacity has now re-entered the market 174
There is no specific market that stands out as having a lack of appetite for liability risks 175
The large composites and the London Market have the most appetite for liability risks 176
Expertise and low premiums are key to successful risk placement in the current soft market 178
Placement of risks by profession 179
Construction and engineering are the hardest employers’ liability risks to place 179
Accountants are the easiest risks for professional indemnity brokers to place 180
In the directors’ and officers’ sector, retail risks are easiest to place 181
Alternative distribution methods 182
The direct channel poses the biggest threat to brokers 182
Risk management 184
Insurers have been providing more risk management support 184
Brokers feel insurers paid greater attention to risk management in 2004 184
Assessments and surveys are the primary support services offered 185
Satisfaction 186
Levels of broker satisfaction are high 186
Service and long-term relationships are the key factors behind broker satisfaction 187
There is still room for improvement on service standards 188
Survey conclusions 189
CHAPTER 8 APPENDIX 190
Supplementary data 190
Employers’ liability GEP by competitor 190
Employers’ liability market share by competitor 192
Professional indemnity GEP by competitor 194
Professional indemnity market share by competitor 195
Employers’ liability 209
SME Insurance survey data tables 210
Broker survey data tables 218
Definitions 225
DTI definitions of SME businesses 226
Research methodology 226
Datamonitor’s SME and broker surveys 227
Lloyd’s market data 228
Employers’ liability claims data 228
Explanatory notes to competitor tables 229
Accuracy of figures 230
Future readings 230
Recent titles 230
Forthcoming titles 230
Relevant links 230
Do you need more information? 231
Datamonitor Financial Services Consulting 231
SPP writing team 232
LIST OF TABLES
Table 1: Employers’ liability premium income 1999-2003 36
Table 2: Lloyd’s premium income in the UK employers’ liability market, 1999-2003 38
Table 3: Employers’ liability underwriting result, 1999-2003 39
Table 4: Employers’ liability gross incurred claims, 1999-2003 44
Table 5: Number of employers’ liability personal injury claims split by accident and disease, 2001-4 45
Table 6: Number of employers’ liability claims paid by year of origin, 1994-2003 47
Table 7: Claims paid to date by year of origin, 1994-2003 48
Table 8: Employers’ liability claims costs as a percentage of GEP in year of origin, 1994-2003 49
Table 9: Average cost of paid employers’ liability claims by year of origin, 1994-2003 52
Table 10: Number of cases of occupational disease and work-related mental ill health, 1999-2003p 54
Table 11: Workplace injuries reported under RIDDOR, 1999 – 2004p 57
Table 12: Total number of injuries by occupation, 2002-4p 59
Table 13: Workplace fatalities reported under RIDDOR, 1999-2004p 61
Table 14: Top 10 competitors in the UK employers’ liability market by market share, 1999-2003 70
Table 15: Top 10 competitors in the UK employers’ liability market by GEP, 1999-2003 71
Table 16: Gross claims ratio of top 10 employers’ liability insurers, 2002-3 72
Table 17: Royal & SunAlliance’s employers’ liability claims ratio, GEP and claims incurred, 1999-2003 74
Table 18: Ecclesiastical’s employers’ liability claims ratio, GEP and claims incurred, 1999-2003 75
Table 19: Aspen’s employers’ liability claims ratio, GEP and claims incurred, 2002-2003 76
Table 20: Norwich Union’s employers’ liability claims ratio, GEP and claims incurred, 1999-2003 77
Table 21: Zurich’s employers’ liability claims ratio, GEP and claims incurred, 1999-2003 79
Table 22: St Paul’s employers’ liability claims ratio, GEP and claims incurred, 1999-2003 80
Table 23: Allianz’s employers’ liability claims ratio, GEP and claims incurred, 1999-2003 82
Table 24: AXA’s employers’ liability claims ratio, GEP and claims incurred, 1999-2003 83
Table 25: NFU Mutual’s employers’ liability claims ratio, GEP and claims incurred, 1999-2003 85
Table 26: Forecast GWP for employers’ liability market, 1999-2009f 89
Table 27: Forecast GWP, gross claims and loss ratio 1999-2009f 90
Table 28: Professional indemnity insurance premium income, 1999-2003 92
Table 29: Lloyd’s’ premium income and share of the UK professional indemnity market, 1999-2003 94
Table 30: UK professional indemnity market premium income by competitor, 1999-2003 104
Table 31: Market share of UK professional indemnity competitors, 1999-2003 107
Table 32: Gross claims ratio of leading professional indemnity insurers, 2002-3 110
Table 33: New Hampshire professional indemnity claims ratio, GEP and claims incurred, 1999-2003 112
Table 34: Royal & SunAlliance professional indemnity claims ratio, GEP and claims incurred, 1999-2003 114
Table 35: St Paul professional indemnity claims ratio, GEP and claims incurred, 1999-2003 115
Table 36: Norwich Union professional indemnity claims ratio, GEP and claims incurred, 1999-2003 117
Table 37: Zurich FS professional indemnity claims ratio, GEP and claims incurred, 2001-3 119
Table 38: MMA professional indemnity claims ratio, GEP and claims incurred, 1999-2003 120
Table 39: Forecast GWP for professional indemnity insurance, 1999-2009f 123
Table 40: Estimated primary market share of directors’ and officers’ insurers, 2004 139
Table 41: Lloyd’s premium income in the UK directors’ and officers’ market, 1999-2003 141
Table 42: Forecast GWP for the directors’ and officers’ market, 2003-9f 146
Table 43: Employers’ liability GEP by competitor, 1999-2003 190
Table 44: Employers’ liability GEP by competitor, 1999-2003, contd. 191
Table 45: Employers’ liability market share by competitor, 1999-2003 192
Table 46: Employers’ liability market share by competitor, 1999-2003, contd. 193
Table 47: Professional indemnity GEP by competitor, 1999-2003 194
Table 48: Professional indemnity market share by competitor, 1999-2003 195
Table 49: General liability loss ratio by competitor, 1999-2003 196
Table 50: General liability loss ratio by competitor, 1999-2003, contd. 197
Table 51: General liability expense ratio, by competitor, 1999-2003 198
Table 52: General liability expense ratio by competitor, 1999-2003, contd. 199
Table 53: General liability combined ratio by competitor, 1999-2003 200
Table 54: General liability combined ratio by competitor, 1999-2003, contd. 201
Table 55: General liability commission ratio, by competitor, 1999-2003 202
Table 56: General liability commission ratio by competitor, 1999-2003, contd. 203
Table 57: General liability management expenses ratio, by competitor, 1999-2003 204
Table 58: General liability management expenses ratio by competitor, 1999-2003, contd. 205
Table 59: General liability net / gross premium ratio by competitor, 1999-2003 206
Table 60: General liability net / gross premium ratio, by competitor, 1999-2003, contd. 207
Table 61: FTSE 100 index and Bank of England base rate, 2001-4 208
Table 62: Injuries to employees by occupation and severity of injury, 2002-2004p 210
Table 63: “Which types of commercial liability do you have?” 211
Table 64: “Do you get all your liability insurance from the same place?” 211
Table 65: “Where did you purchase your commercial liability insurance from?” 211
Table 66: “What were the most important reasons for choosing your current commercial liability insurance broker?” 212
Table 67: “How satisfied are you with your commercial liability insurance broker?” 212
Table 68: “How long have you been with your current commercial liability insurance broker?” 213
Table 69: “Why have you changed your commercial liability insurance broker in the past two years?” 213
Table 70: “Do you think you will change your commercial liability insurance broker in the next 12 months?” 213
Table 71: “If yes, why?” 214
Table 72: “Would you consider buying commercial liability insurance direct from an insurer?” 214
Table 73: “If no, why not?” 214
Table 74: “If yes, why?” 215
Table 75: “Would you consider buying commercial liability insurance from a bank or building society?” 215
Table 76: “If no, why not?” 215
Table 77: “If yes, why?” 216
Table 78: “Did your commercial liability insurance premium change at last renewal?” 216
Table 79: “If yes, by approximately what percentage?” 216
Table 80: “Why do you think your insurance premium increases from one year to the next?” 217
Table 81: “What services do you receive from your current commercial liability insurance broker?” 217
Table 82: “Overall, how useful are these services?” 217
Table 83: “Do you pay extra for these services?” 218
Table 84: “What other services would you like to receive?” 218
Table 85: “Which of the following types of liability cover do you provide?” 219
Table 86: “Are you having trouble placing risks for each of these product types?” 220
Table 87: “And where are you having the least success placing liability risks?” 220
Table 88: “Under current market conditions, where are you having the most success placing liability risks?” 220
Table 89: “Why are you having more success placing your commercial liability risks with these types of insurance providers?” 221
Table 90: “Which professions are you finding it easiest and hardest to find employers’ liability coverage for?” 221
Table 91: “Which professions are you finding it easiest and hardest to find professional indemnity coverage for?” 222
Table 92: “Which professions are you finding it easiest and hardest to find directors’ and officers’ coverage for?” 222
Table 93: “What level of threat do the following distribution channels pose to you?” 223
Table 94: “Have insurers been paying more attention to risk management practices in the last 12 months?” 223
Table 95: “Have insurers been providing more risk management support in the last 12 months?” 224
Table 96: “If so, what risk management services are insurers offering to their customers?” 224
Table 97: “How satisfied are you with your insurance partners?” 224
Table 98: “What business sector are you involved in?” 228
LIST OF FIGURES
Figure 1: New capital from a range of writers flocked to the directors’ and officers’ market in 2004 8
Figure 2: Key findings of Datamonitor’s SME survey 9
Figure 3: Employers’ liability premium income more than doubled between 2001 and 2003 36
Figure 4: Lloyd’s share of the market dropped by 1.8 per cent in 2003 37
Figure 5: Underwriting losses in the employers’ liability market peaked in 2002 39
Figure 6: Employers’ liability claims costs are experiencing double digit growth 44
Figure 7: 2003-4 has seen an escalation in the number of employers’ liability disease claims 45
Figure 8: Employers’ liability claims have a long latency period 46
Figure 9: The cost of settling a claim increases over time 50
Figure 10: The cost of settling claims continues to rise 51
Figure 11: Cases of lung disease are becoming more prevalent while the number of non-lung disease and mental ill health cases falls 54
Figure 12: Overall workplace injuries are in decline 56
Figure 13: Process, plant, machinery and elementary occupations account for the vast majority of injuries 58
Figure 14: The total number of workplace fatalities fell in 2003/4 60
Figure 15: Market share movement of top 10 players 66
Figure 16: Zurich is the largest player in the employers’ liability market 69
Figure 17: Royal & SunAlliance’s claims ratio improved significantly 73
Figure 18: Ecclesiastical achieved the largest percentage decrease in gross claims ratio in 2003 75
Figure 19: Norwich Union reported a claims ratio of 70.4 per cent in 2003 77
Figure 20: Zurich FS managed to get its loss ratio below the 100 per cent barrier in 2003 78
Figure 21: St Paul’s improved its loss ratio by 3.9 per cent 80
Figure 22: Allianz managed to reduce its loss ratio from in excess of 100 per cent to 92.1 per cent 81
Figure 23: AXA’s gross claims ratio remained over 100 per cent 83
Figure 24: NFU Mutual had the worst loss ratio among the leading players in the market 84
Figure 25: Key assumptions for employers’ liability forecasts 87
Figure 26: Growth will be more moderate over the next five years 88
Figure 27: Growth in the UK professional indemnity market slowed to 15.4 per cent in 2003 92
Figure 28: Lloyd’s professional indemnity premium income fell in 2003 93
Figure 29: Key determinants of investment income are making a robust recovery 97
Figure 30: New Hampshire and Royal & SunAlliance are the market leaders 106
Figure 31: A widespread improvement in claims ratios was evident in 2003 109
Figure 32: New Hampshire’s claims ratio improvement has been driven by strong GEP growth 111
Figure 33: Royal & SunAlliance reversed a trend of rising claims ratios in 2003 113
Figure 34: A sharp drop in claims leads to rapid loss ratio improvement for St Paul in 2003 115
Figure 35: Norwich Union had an impressively low professional indemnity claims ratio in 2003 116
Figure 36: Although comparatively high, Zurich FS’ professional indemnity loss ratio is falling 118
Figure 37: MMA brought its claims ratio under control in 2003 120
Figure 38: The soft cycle will dampen market growth in the short-run 122
Figure 39: Key to relative importance of qualitative forecast variables 123
Figure 40: Key qualitative drivers for the professional indemnity market, 2004e-9f 124
Figure 41: Key qualitative drivers for the professional indemnity market, 2004e-9f, contd. 125
Figure 42: The penetration of directors’ and officers’ products is currently less than 20 per cent 134
Figure 43: Three insurers accounted for over 60 per cent of the market in 2004 139
Figure 44: The directors’ and officers’ market at Lloyd’s grew rapidly in 2003 141
Figure 45: New capital from a range of insurers flocked to the directors’ and officers’ market in 2004 143
Figure 46: The directors’ and officers’ market will experience a short-term growth slowdown 145
Figure 47: Key to relative importance of qualitative forecast variables 146
Figure 48: Key qualitative drivers for the directors’ and officers’ market, 2004e-9f 147
Figure 49: Key qualitative drivers for the directors’ and officers’ market, 2004e-9f, contd. 148
Figure 50: Scope to grow penetration levels in professional indemnity and directors’ and officers’ markets exists 152
Figure 51: Almost three-quarters of SMEs prefer to buy all of their liability insurance from the same place 153
Figure 52: Most SMEs purchase their liability insurance from a broker 154
Figure 53: Levels of broker satisfaction are very high among SMEs 155
Figure 54: SMEs display high levels of broker loyalty 156
Figure 55: Premium price is the most important factor for SMEs 157
Figure 56: Price was usually the motivation for the SMEs that have recently changed broker 158
Figure 57: Cheaper premiums and broker fees could tempt around one in five SMEs to change brokers 159
Figure 58: Over one-third of SMEs saw no change in their annual commercial liability premium 160
Figure 59: Liability premiums are no longer rising dramatically 161
Figure 60: Over 61 per cent of SMEs would buy direct from an insurance company 162
Figure 61: SMEs would buy direct if they were offered a cheaper premium 163
Figure 62: Almost 40 per cent of SMEs said that they would consider buying liability insurance from a bank or building society society 164
Figure 63: Cheaper premiums and a better package would make SMEs consider the bancassurance channel 165
Figure 64: Price alone is not enough to attract SME business 166
Figure 65: Service, prior experience and reputation all matter when SMEs are choosing their commercial property insurance broker 167
Figure 66: Many SMEs are currently not receiving any additional services from their commercial liability brokers 168
Figure 67: Most SMEs do not pay for the additional services they receive 169
Figure 68: Over 80 per cent of SMEs find additional broker service useful 170
Figure 69: Most SMEs feel they don’t need any other additional services 171
Figure 70: Key findings of Datamonitor’s SME survey 172
Figure 71: Brokers are having few problems placing liability risks 175
Figure 72: Most brokers are not having placement problems with any particular market 176
Figure 73: Large composites are most willing to accept liability risks 177
Figure 74: Specialist expertise is a big selling point for providers 178
Figure 75: Construction and engineering are the toughest employers’ liability risks to place 180
Figure 76: Professional indemnity brokers are finding risks from the accountancy sector easy to place 181
Figure 77: Retail and financial services risks are easiest to place for brokers offering directors’ and officers’ policies 182
Figure 78: Brokers fear the direct channel and larger brokers 183
Figure 79: Insurers are doing more to provide brokers with assistance on risk management issues 184
Figure 80: Almost 80 per cent of brokers feel that insurers are now paying more attention to risk management 185
Figure 81: Health and safety assessments and pre-cover surveys are the most common risk management services 186
Figure 82: The level of insurer satisfaction among brokers is high 187
Figure 83: While the number of fatal injuries fell the number of major injuries and over three day injuries rose 209
Figure 84: Most brokers offer the three main types of liability cover 219
Figure 85: Datamonitor’s SME Insurance Survey involves SMEs from a wide array of business sectors 227
Figure 86: Datamonitor’s core consulting capabilities 232
