The Role of Banks and Building Societies in UK General Insurance
Introduction
Over the last decade the distribution of general insurance has dramatically changed, threatening the role of bancassurers in the household insurance sector. This report therefore analyses bancassurers' current and future roles as insurance distributors and underwriters, examining the current changes that are occurring to their strategies and assessing the likely future success of this channel.
Scope
Current and future market shares of the bancassurance channel across household, creditor, motor and SME insurance.
Insight into the types of consumers that purchase insurance from bancassurers and their motivations for doing so.
Details of competitor market shares and strategies, and an understanding of the ways in which bancassurers' insurance offerings are changing.
Access to Datamonitor's extensive research into this sector, built on a range of primary interviews with senior banking and insurance executives.
Highlights
Lloyds TSB, HBOS and RBS have a growing and important influence on the general insurance market. These three players combined controlled approximately a third of the private motor and household insurance markets in 2003. Underwriting has been the key driver of these banks' insurance income growth over the last few years.
An increasing number of bancassurers are concentrating on motor insurance, either entering the market for the first time, or increasing consumer awareness of their existing offerings. Bancassurers' advertising expenditure on this product line more than doubled in 2003.
Bancassurers need to improve their direct platform capabilities if they are to be successful at selling stand-alone insurance products and at competing with the alternative distribution channels in these sectors. They also need to raise awareness of their roles as insurance providers among their customers.
Reasons to Purchase
Develop more effective distribution strategies through an understanding of the current challenges and opportunities for bancassurers
Target your customers more effectively through a greater understanding of bancassurance customer profiles and their motivations
Understand the critical success factors for your product offering in order to attract customers effectively to the bancassurance channel
TABLE OF CONTENTS
CHAPTER 1 EXECUTIVE SUMMARY 4
Introduction 4
Market context 4
Household and creditor are the main insurance products for this channel 4
Platforms used by bancassurance customers vary 5
Customer focus 5
Direct mail remains the primary advertising medium for bancassurers 5
Bancassurance customers are less likely to be motivated by price than other insurance consumers 5
Competitive dynamics 6
Underwriting has been the key driver of bancassurers’ insurance income 6
Lloyds TSB, HBOS and RBS have an important influence on the general insurance market 7
Market shares in the household and creditor sector depend on lending performance 8
Market shares in the motor and SME sector are more variable 8
The changing role of banks and building societies in general insurance 9
The insurance product range is changing 9
Direct platforms and stand-alone offerings have implications in terms of advertising spend 10
Major players will increase their roles as underwriters 11
FSA regulation is not expected to have a major impact on bancassurance offerings 11
The future decoded 11
Bancassurers face challenges in each of their key insurance markets 11
Success in current market conditions requires commitment 12
CHAPTER 2 INTRODUCTION 27
What is this report about? 27
Who is the target reader? 28
How to use this report 28
CHAPTER 3 MARKET CONTEXT 29
Introduction 29
Key findings 29
Market share of banks and building societies in UK general insurance distribution 30
ABI market shares for banks and building societies 30
Banks and building societies’ share of the household insurance market 32
Banks and building societies’ share of the creditor insurance market 37
Banks and building societies’ share of the private motor insurance market 38
Banks and building societies’ share of other personal lines markets 40
Banks and building societies’ share of the SME insurance market 42
Analysis of platforms used by banks’ and building societies’ insurance customers 43
Branch distribution dominates in banks’ and building societies’ distribution of household insurance 43
Creditor insurance distribution relies predominantly on the platform used to sell the lending product 45
Direct distribution platforms dominate the provision of motor insurance for banks and building societies 47
The vast majority of SMEs arrange insurance face-to-face 49
CHAPTER 4 CUSTOMER FOCUS 51
Introduction 51
Key findings 51
Consumer awareness of leading banks’ insurance offerings in comparison to other insurance providers 51
Unprompted awareness 52
Advertising spend of banks and building societies 54
Total advertising spend by product 54
Total advertising spend by media 56
Customer profile – typical customers purchasing insurance through banks and building societies 59
Age profiles of banks’ and building societies’ insurance customers 59
Income profiles of banks’ and building societies’ insurance customers 63
Motivations for purchasing through banks and building societies 67
Customer loyalty among bank and building society customers 71
Conclusion 75
CHAPTER 5 COMPETITIVE DYNAMICS 77
Introduction 77
Key findings 77
General insurance income by competitor 78
Underwriting has been the key driver of bancassurers’ insurance income growth 78
There is a clear divide between HBOS, Lloyds TSB and RBS and the other players in the non-life bancassurance arena 79
The ‘big three’ banks are heavily involved in both underwriting and distributing insurance 79
GI profits of the ‘big three’ have steadily increased 80
HBOS, Lloyds TSB and RBS have a growing and important influence on the general insurance market 82
Lloyds TSB and HBOS have achieved higher levels of consumer awareness than other bancassurers due to their large advertising spends 84
Banks’ general insurance offerings 86
Product offerings 86
Partnerships 88
Building societies’ general insurance offerings 90
Building society product offerings 90
Building society partnerships 91
Market shares of banks and building societies by product 94
Household 95
Creditor 98
Motor 99
SME 101
Profiles of major banks 102
Lloyds TSB 103
HBOS 110
Royal Bank of Scotland 117
CHAPTER 6 THE CHANGING ROLE OF BANKS AND BUILDING SOCIETIES IN GENERAL INSURANCE 126
Introduction 126
Key findings 126
Product focus 127
Expanding the insurance product ranges has been used as a way of countering declining margins 127
The household insurance product offering is changing 128
Creditor is likely to come under increasing scrutiny 130
Motor insurance is a growing area of focus 134
Bancassurers are seeking to improve the cross-selling of insurance to SMEs, yet they are facing many obstacles 138
Other insurance products are also being considered 142
Platform focus 142
Bancassurers are focusing on promoting direct platforms in addition to branch-based offerings 142
Brand and advertising focus 144
Product launches and stand-alone offerings require increased advertising spend 144
Bancassurers need to ensure they are not overstretching themselves with their insurance ranges 146
Increasing focus on underwriting 147
The impact of FSA regulation 149
CHAPTER 7 THE FUTURE DECODED 151
Introduction 151
Key findings 151
Household insurance forecasts 151
Motor insurance forecasts 153
Commercial insurance forecasts 155
Bancassurers will slowly grow market share 155
There are several key success factors that need to be in place in order for bancassurers to increase insurance cross-selling rates to SMEs 156
Summary of the bancassurance channel’s prospects 157
The market can be divided into three key sectors 157
Building societies will struggle but there is still potential 158
Key success factors 159
CHAPTER 8 APPENDIX 160
Supplementary data 160
Market context 160
The changing role of banks and building societies 160
Competitor data 162
Advertising spend data 168
Definitions 168
Research methodology 169
MORI data 169
SME Survey 170
Do you need more information? 171
Future/Current readings 172
SPP writing team 173
LIST OF TABLES
Table 1: Banks’ and building societies’ market share by product line, 1999-2003 31
Table 2: Percentage of consumers arranging household insurance through banks and building societies, 1999-2003 34
Table 3: PPI GWP split between mortgage, credit card and personal loan cover, 2003 37
Table 4: Gross advances by lending product, 1999-2003 37
Table 5: Motor insurance product launch dates of selected banks and building societies 40
Table 6: Percentage of consumers arranging health insurance through banks and building societies, 1999-2003 41
Table 7: Platforms used by consumers when purchasing household insurance from banks and building societies, 1999-2003 45
Table 8: Platforms used by consumers when purchasing motor insurance from banks and building societies, 1999-2003 49
Table 9: Unprompted awareness of leading banks’ insurance offerings compared to selected insurance providers, 2003 53
Table 10: Total advertising spend of banks and building societies by product, 2003 55
Table 11: Total advertising spend of banks and building societies by medium, 2003 57
Table 12: Total motor insurance advertising spend of banks and building societies by media, 2003 58
Table 13: Total household insurance advertising spend of banks and building societies by media, 2003 59
Table 14: Age profiles of household insurance customers 61
Table 15: Age profiles of motor insurance customers 63
Table 16: Income profiles of household insurance customers 65
Table 17: Income profiles of motor insurance customers 66
Table 18: Reasons for choosing household insurance provider, 2003 68
Table 19: Reasons for choosing motor insurance provider, 2003 71
Table 20: Length of customer relationships with banks and building societies compared to other household insurance distributors 73
Table 21: Length of customer relationships with banks and building societies compared to other motor insurance distributors 75
Table 22: General insurance income by competitor, 2001-3 79
Table 23: GI profits before tax as a percentage of banks’ total profits, 2001-3 82
Table 24: Market share of ‘big three’ banks in motor and household insurance market, 2001-3 84
Table 25: Unprompted consumer awareness compared to total general insurance advertising spend of banks and building societies, 2003 85
Table 26: Banks’ general insurance offerings 87
Table 27: Banks’ insurance partnerships by product 88
Table 28: Axa and Norwich Union are the most prolific bancassurance partners 89
Table 29: Building societies’ general insurance offerings 91
Table 30: Building societies’ insurance partnerships, by product 93
Table 31: Building society partnerships of Norwich Union, Royal & SunAlliance and Axa 94
Table 32: Household insurance market share of main bancassurers, 2001-3 97
Table 33: Personal lending balances outstanding, top five players, 2003 98
Table 34: Motor insurance market share of main bancassurers, 2001-3 101
Table 35: SME premium income and insurance partners of selected banks 102
Table 36: Lloyds TSB general insurance business split by underwritten and brokered business, 1999-2003 106
Table 37: Lloyds TSB advertising spend by product, 2002-3 109
Table 38: Lloyds TSB advertising spend by medium, 2002-3 110
Table 39: HBOS’s general insurance business split by underwritten and brokered business, 2000-3 113
Table 40: Number of HBOS general insurance policies in-force, 2000-3 113
Table 41: HBOS advertising spend by product, 2002-3 116
Table 42: HBOS advertising spend by medium, 2002-3 117
Table 43: RBS Insurance premium income by line of business, 1999-2003 121
Table 44: Number of RBS general insurance in-force policies, 1999-2003 122
Table 45: RBS advertising spend by product, 2002-3 124
Table 46: RBS advertising spend by medium, 2002-3 125
Table 47: Motor insurance advertising spend of selected bancassurers, 2002-3 136
Table 48: Total advertising spend by competitor, 2002-3 145
Table 49: Bancassurers’ market share of household insurance, 2003-9f 152
Table 50: Bancassurers’ market share of commercial insurance market, 2003-9f 156
Table 51: Where do you purchase your commercial insurance? 160
Table 52: Would you consider purchasing commercial insurance from your business bank rather than through a broker: If so, why? 160
Table 53: Would you consider purchasing commercial insurance from your business bank rather than through a broker: If not, why not? 161
Table 54: Abbey general insurance data, 2001-3 162
Table 55: Abbey advertising spend by product, 2002-3 163
Table 56: Abbey advertising spend by medium, 2002-3 163
Table 57: Barclays advertising spend by product, 2002-3 164
Table 58: Barclays advertising spend by medium, 2002-3 164
Table 59: Barclaycard advertising spend by product, 2002-3 165
Table 60: Barclaycard advertising spend by medium, 2002-3 165
Table 61: HSBC advertising spend by product, 2002-3 166
Table 62: HSBC advertising spend by medium, 2002-3 166
Table 63: Nationwide general insurance data, 2002-3 166
Table 64: Nationwide advertising spend by product, 2002-3 167
Table 65: Nationwide advertising spend by medium, 2002-3 167
Table 66: Total advertising spend of banks and building societies by product, 2002-3 168
Table 67: Total advertising spend of banks and building societies by medium, 2002-3 168
LIST OF FIGURES
Figure 1: A cheap motor quote is less important for customers of banks and building societies compared to those purchasing through other channels 6
Figure 2: The ‘big three’ banks controlled a third of the motor and household insurance markets in 2003 7
Figure 3: Motor insurance advertising spend has increased dramatically 10
Figure 4: Banks and building societies have the greatest market share in household insurance and other personal lines, such as creditor 31
Figure 5: The number of consumers taking out household insurance with banks and building societies has fallen since 1999 34
Figure 6: The main banks’ share of household insurance has increased since 1999 36
Figure 7: The percentage of consumers purchasing motor insurance through the main banks has slowly increased since 1999 39
Figure 8: Few consumers buy health insurance from banks and building societies 41
Figure 9: The broker remains the favored route for SMEs’ insurance purchase decision 43
Figure 10: Most household insurance is sold at the branch 44
Figure 11: Personal loan insurance is best suited to remote sale, whereas MPPI is generally sold at branch level 46
Figure 12: Arranging motor insurance with a bank or building society over the telephone has decreased as the Internet has risen in popularity 48
Figure 13: The phone is the primary medium for SMEs’ insurance arrangement 50
Figure 14: The leading banks score higher than some traditional insurers and brandassurers in terms of customer awareness 53
Figure 15: Household insurance accounted for just under half of banks’ and building societies’ advertising in 2003 55
Figure 16: Direct mail dominates the advertising spend of banks and building societies 56
Figure 17: The advertising of both motor and household insurance is dominated by direct mail 58
Figure 18: The household offerings of banks and building societies attract younger consumers 60
Figure 19: Like other insurers, bancassurers sell insurance to motorists of all ages 62
Figure 20: Banks and building societies attract more middle-income consumers with their household products 64
Figure 21: The incomes of banks’ and building societies’ motor customers do not vary significantly from those of other distributors 66
Figure 22: Many customers purchase household insurance from banks or building societies along with their mortgages 68
Figure 23: A cheap motor quote is less important for customers of banks and building societies compared to those purchasing through other channels 70
Figure 24: There are no significant differences in length of household insurance customer relationships between distribution channels 72
Figure 25: Banks and building societies have a newer motor insurance customer base 74
Figure 26: Non-life bancassurance models in operation 80
Figure 27: Banks’ GI profits have steadily increased over the last three years, with the exception of Abbey 81
Figure 28: The ‘big three’ banks controlled a third of the motor and household insurance markets in 2003 83
Figure 29: There is a close link between advertising spend and spontaneous consumer awareness 85
Figure 30: Of the major banks, Lloyds TSB’s insurance products have the highest unprompted awareness 86
Figure 31: The big three banks have made significant inroads into the household insurance market in between 2001 and 2003 96
Figure 32: Bancassurers’ motor insurance performance has been mixed 100
Figure 33: Lloyds TSB’s non-life bancassurance model 103
Figure 34: Underwritten home insurance business and ‘other’ brokered business are the key growth areas for Lloyds TSB 105
Figure 35: Lloyds TSB stopped advertising its insurance range in 2003 and focused on individual product promotion instead 108
Figure 36: Lloyds TSB stopped using television advertising in 2003 110
Figure 37: HBOS’s non-life bancassurance model 111
Figure 38: Motor insurance and ‘other’ insurance lines are the fastest growing sectors for HBOS 112
Figure 39: HBOS’s advertising spend on motor and household more than doubled in 2003 116
Figure 40: RBS’s non-life bancassurance model 118
Figure 41: Pecuniary loss business has grown dramatically for the Direct Line Group over the last five years to overtake its household insurance book, 1999-2003 119
Figure 42: Property insurance has been a key area of growth for the Churchill Group, 1999-2003 120
Figure 43: Promoting accident and health insurance took priority for RBS in 2003 124
Figure 44: Motor insurance advertising spend has increased dramatically 135
Figure 45: More than half of SMEs would not consider purchasing insurance through their bank 139
Figure 46: Banks would appeal to SMEs if they are perceived to be a cheaper alternative to brokers 140
Figure 47: Broker satisfaction is impeding the growth of the banks and building societies channel, though SMEs also have concerns over cost 141
Figure 48: Bancassurance household insurance consumers are far more likely to purchase insurance face-to-face than those buying through other channels 143
Figure 49: Bancassurers increased their advertising spend by 25 per cent between 2002 and 2003, led mainly by a few major players 145
Figure 50: Comments from industry interviews on the future market share of bancassurers in the household market 152
Figure 51: Comments from industry interviews on the future market share of bancassurers in the motor market 155
Figure 52: Datamonitor’s core consulting capabilities 172
