UK Personal Insurance Distribution 2009
Introduction
The distribution of personal lines insurance is going through significant changes as new distribution models challenge all providers. This report analyzes the main distribution channels, providing unique market share estimates and forecasts on personal lines distribution in the UK. The report also details the market shares of the leading insurance brands based on Datamonitor's own consumer survey.
Scope
*Datamonitor's unique distribution estimates by channel and platform
*Forecasts for the main distribution channels up to 2013, based on Datamonitor's unique model, survey and interviews with industry executives
*Analysis of the main developments within each of the main distribution channels
*Market shares of the top home and motor insurance distributors
Highlights
An increasing number of high-profile direct motor insurance brands have incorporated an element of a panel into their distribution model, including the motor insurance accounts of More Th>n, AIG Direct and the RAC, which are run by Junction.
The leading banks and building societies cut back their insurance advertising in 2008, spending only £29.9m on their general insurance related offering. The credit crunch has hit these distributors hardest and it is likely that a number of bancassurers cut back their advertising efforts in light of its effects.
In January 2009, Comparethemarket.com launched a new marketing campaign centered around its new mascot, Aleksandr the meerkat. The distinctive campaign is likely to have a positive impact on the company's brand awareness among consumers, with the company actively seeking numerous opportunities do engage with the consumer through its meerkat theme
Reasons to Purchase
*Obtain a comprehensive understanding of the key trends driving changes to personal insurance distribution in the UK
*Gain insight into the shifting consumer motivations and purchasing strategies for personal insurance
*Plan your distribution strategy with confidence using Datamonitor's channel and platform distribution forecasts
Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Brokers have gained market share while partnerships have stabilized 2
The direct channel is the primary route to market for private motor insurers 2
Banks and building societies are the largest distribution channel for home insurance 2
Three aggregators appeared in the top 10 advertisers in 2008, highlighting their importance to the market 2
The internet has fast become a major distribution platform for home and motor insurance 3
The internet dominated new sales for home and motor insurance in 2008 3
Consumers aged 18-29 were most likely to take up motor insurance for the first time and switch their provider 4
Brokers have reversed previous losses in market share in both home and motor markets 4
Brokers gained market share in the private motor insurance market 4
LV= bought insurer Highway and disposed of its in-house broker Hero 5
Banks have retained their gains in motor but have suffered in the home insurance market 5
Lloyds Banking Group has become the largest distributor of home insurance to UK consumers 5
Lower mortgage volumes have disrupted the flow of new business into many banks' household insurance books 6
Leading retail brands have secured significant market share in the home and motor markets 7
Panel underwriting of affinity contracts allows for specialist insurers to take the more difficult risks 7
Motor manufacturer-branded products are likely to suffer due to the recession 7
Aggregator-instigated insurance sales have grown dramatically in 2008 highlighting their importance to the industry 7
Aggregators are estimated to have generated over 40% of new private motor business GWP in 2008 7
Datamonitor estimates that aggregator-instigated home insurance sales accounted for 4% of new home insurance business sales in 2008 7
Table of Contents 8
Table of figures 9
Table of tables 10
Personal Insurance Distribution Dynamics 11
Introduction 11
Brokers have gained market share while partnerships have stabilized 11
The direct channel is the primary route to market for private motor insurers 11
The direct channel continues to be the dominant route to market for private motor insurance 11
The broker channel is the second largest distribution channel for private motor insurance 11
Corporate partnerships also play a strong role in the distribution of private motor insurance 11
Banks and building societies have a market share of 7% 12
Banks and building societies are the largest distribution channel for home insurance 13
The majority of home insurance is distributed via banks and building societies 13
Brokers accounted for an estimated 26% of home insurance premium income in 2008 13
The direct channel accounts for around a quarter of home insurance premium income 14
Around 15% of home insurance premium income is distributed via the partnerships channel 14
The home and motor insurance markets are largely distributed through the same top 10 groups and brands 15
The largest 10 groups have brands that give them control of the majority of both the private motor and home insurance markets 15
Direct Line was the top provider of private motor insurance policies and has a particularly strong presence among younger consumers 17
Lloyds TSB is the market leader in the distribution of home insurance policies 19
Halifax was the top provider of combined contents and buildings policies, while other top distributors included Direct Line, Lloyds TSB, Norwich Union and More Th>n 21
Lloyds TSB was the top provider of contents only insurance policies and has a particularly strong hold of consumers aged over 60 22
A number of aggregators as well as LV= entered the top 10 advertisers in 2008 24
RBS's biggest brands, Direct Line and Churchill, were the biggest insurance advertisers in 2008 24
Three aggregators appeared in the top 10 advertisers in 2008, highlighting their importance to the market 24
LV= entered the top 10 after almost doubling its advertising spending in 2008 25
Norwich Union Direct's advertising spend declined the most in 2008 25
The top insurance advertisers devoted the bulk of their budgets to TV advertising in 2008 27
The top 10 insurance advertisers collectively spent more than £128.6m on TV advertising in 2008 27
Saga spent the most on direct mail, highlighting its importance in cross-selling 28
Other media such as radio and press played a smaller role 28
Personal Insurance Consumers 30
Introduction 30
The home and motor insurance markets are the largest potential pool of customers for personal lines insurers 30
The market for private motor insurance is large, with penetration highest among older and more affluent consumers 30
Older consumers are more likely to have motor cover, validating the strategy of those catering to over 50s 30
Motor insurance consumers with higher incomes have higher penetration rates 31
Consumers in the DE social grade are the least likely to have motor insurance 32
There is a healthy market for home insurance products, with consumers over 60 being the largest target market 33
There is a healthy market for home insurance products 33
Consumers over the age of 60 are the largest target market for combined policies 34
Higher income households form the core market for combined home insurance cover, while contents only cover is most popular with lower income consumers 35
Penetration rates are highest among AB and C1 consumers 37
The internet has fast become a major distribution platform for home and motor insurance 38
The internet dominated new sales for home and motor insurance in 2008 39
The vast majority of consumers use the internet and telephone to arrange their motor insurance 40
Nearly half of the consumers surveyed purchased their motor insurance over the internet 40
It is essential for home insurance providers to have a phone and internet sales strategy 41
An internet sales strategy is key to maximizing sales of personal insurance policies among younger buyers 42
Consumers aged 60-plus were least likely to use the internet to arrange their motor cover 43
An internet sales strategy is key to maximizing sales of contents insurance among younger buyers 44
A phone-based sales strategy is important when targeting the over 60s consumer with combined buildings and contents cover 46
The internet is most effective at targeting mid to high income households 47
Higher income consumers are more comfortable purchasing their motor cover over the internet 47
Mid to higher income households are most likely to buy a combined policy over the internet 48
An internet strategy is the core way of reaching mid and higher income consumers when selling contents insurance policies 50
AB and C1 consumers prefer to purchase their cover over the internet 52
The internet was the most popular platform for arranging motor insurance across all social grades 52
AB and C1 consumers are most likely to purchase a combined policy over the internet 53
Internet sales of contents insurance policies dominate among AB and C1 consumers 55
It is easier to grow market share among younger consumers 56
Younger consumers are more likely to change their provider, presenting an opportunity to gain new customers 56
Consumers aged 18-29 were most likely to take up motor insurance for the first time and switch their provider 56
Consumers between the ages of 18 and 29 are the softest targets for contents insurance providers 58
Switching rates of combined buildings and contents policies are broadly similar across age groups 60
More affluent consumers were more likely to search for a new quote at next renewal 62
Switching was relatively common across income bands, but more affluent consumers were more likely to search out a new quote at renewal 62
Switching of combined contents and building policies stays relatively the same across household income bands 64
Higher income consumers are most likely to switch their contents insurance provider 66
It is essential that providers stress a price-based marketing message when selling insurance 68
Price was cited most often by consumers as a factor in their choice of motor insurance provider 68
Providers need to stress the low price of their policies in order to acquire buyers of combined policies 69
The promise of a cheaper quote will attract buyers of all ages, however, providers must place more emphasis on the secondary and tertiary buyer needs for middle aged consumers and those over 60 71
Older motor insurance consumers are less motivated by price, though it remains important 71
While price is important to older consumers, they also tend to demand more from their providers as well 72
Direct Insurance 74
Introduction 74
Direct insurers have experienced little change in market share 74
Direct insurers have maintained their share in the private motor market 74
Direct insurers distributed an estimated 25% of household insurance in 2008 74
Large advertising campaigns are a key element of the direct insurance model 75
The top advertisers among the direct insurers devoted £87.7m to motor insurance advertising 75
Direct insurers need to market their brand and products through mass market media such as TV 77
Direct Line remained the top direct insurance advertiser in 2008 but many other brands are gearing up to increase their market share 79
The direct insurance market is highly consolidated, with the top five players accounting for the majority of policies sold direct 81
The top direct insurers accounted for a quarter of all motor insurance policies 81
The top direct insurance brands were strongest in the buildings only insurance market in 2008 82
Direct insurers have increasingly turned to panels to help widen their customer base 84
More Th>n adopted a panel to capture more business 84
AIG Direct has made use of panels for its expansion in home and motor 84
Norwich Union has enlisted Junction to provide its RAC brand motor insurance with a panel 84
Norwich Union has rebranded to Aviva 85
Brokers and Intermediaries 86
Introduction 86
Brokers have reversed previous losses in market share in both the home and motor insurance markets 86
Brokers gained market share in the private motor insurance market 86
Brokers distributed an estimated 26% of household insurance GWP in 2008 86
Brokers have mainly focused on advertising home and motor insurance through direct mail 88
The top brokers primarily draw in consumers with motor and home insurance advertising 88
Brokers have focused on direct mail, supporting a cross-selling strategy 89
The AA supported its substantial market share with a large investment in marketing 91
The largest brokers held approximately 10% of the market in the UK home and motor insurance markets 92
Large broker brands have been able to obtain substantial market share in the motor insurance market 92
Brokers faired the best in the contents only insurance market 93
Mergers and acquisitions in the broker sector continued despite the credit crunch 95
IAG disposed of its UK distribution assets via a sale to Swinton and a management buyout 95
LV= bought insurer Highway and disposed of its in-house broker Hero 96
Aggregators have continued to challenge brokers, though they offer an opportunity to grow 96
Brokers can compete more effectively with direct insurers and affinity brands through partnering with aggregators 96
Aggregators have taken steps to increase the number of brokers appearing on their sites, improving coverage 96
Banks and Building Societies 97
Introduction 97
Banks have retained their gains in motor but have suffered in the home insurance market 97
Bank distributed motor insurance accounted for an estimated 7% of the market in 2008 97
The credit crunch has resulted in a decline in bank-distributed home insurance 97
Advertising by the leading bancassurance advertisers declined in 2008 99
Banks have focused on their core product of home insurance while scaling back advertising 99
Bank marketing strategies are heavily reliant upon direct mail campaigns 101
The majority of the top 10 bancassurers spent less money on insurance advertising in 2008 102
The leading banks have substantial market share in the home market but struggle in motor 104
Only Lloyds TSB has achieved a significant market share among motor insurance consumers 104
The top bank brands are among some of the largest distributors in the home insurance market 105
The credit crunch is causing significant consolidation within the bancassurance channel 107
Major new distributors of home insurance have been created as a result of consolidation 107
Lloyds Banking Group has become the largest distributor of home insurance to UK consumers 107
Santander has become one of the top 10 distributors of home insurance in the UK as a result of acquisitions 107
Britannia and Co-operative to merge to form a 'super mutual' with a significant customer pool 107
Smaller building societies have consolidated as a result of the credit crunch, resulting in fewer but more lucrative accounts 108
Nationwide, Britain's biggest building society, was also the most active in its M&A activity 108
The Chelsea Building Society announced it was merging with the Catholic Building Society in June 2008 109
Skipton Building society, one of the more active in the insurance market, merged with the Scarborough 109
Barnsley Building Society merged with the Yorkshire Building Society 109
Lower mortgage volumes have disrupted the flow of new business into many banks' household insurance books 109
The UK government has become a majority shareholder in major home insurance distributors 111
Government-owned Northern Rock should be able to gain more market share in the home insurance market 111
A number of bancassurance deals were agreed in 2008 and 2007 112
HSBC and Norwich Union renewed their insurance partnership in 2007 112
Junction now provides a panel for HSBC's motor insurance product 112
Nationwide and LV= are now partners for motor and travel insurance 112
West Bromwich renewed its motor contract with Norwich Union 112
Bradford & Bingley retained Zurich on its home insurance panel 113
Affinity Groups and Retailers 114
Introduction 114
Affinities have gained ground in the home insurance market 114
Affinity groups and retailers distributed 17% of private motor insurance GWP in 2008 114
Weakness in traditionally dominant distributors has allowed affinities to gain business in home insurance 114
The top affinity insurance advertisers have pursued a cross-selling strategy 115
Insurance products such as warranties and home emergency dominated affinity marketing 115
The top 10 affinity partnership advertisers leveraged their customer databases with direct mail campaigns 117
Most of the top 10 brandassurer advertisers had a smaller advertising spend in 2008 119
Leading retail brands have secured significant market share in the home and motor markets 120
Retailers have become major distributors of motor insurance products 120
Leading retail brands figure less prominently in the home insurance market, though Tesco still leads 121
A number of important accounts changed hands in 2008 123
Ford and RSA agreed to a five-year affinity contract for motor insurance 123
General Motors changed the underwriter for its branded motor insurance products 123
Tesco bought out RBS's stake in their joint venture, Tesco Personal Finance 123
Panel underwriting and a downturn in car sales are having significant impacts on the affinity channel 124
Panel underwriting of affinity relationships has become more prominent, allowing for wider risk selection at competitive rates 124
Panel underwriting of affinity contracts allows for specialist insurers to take the more difficult risks 124
Greenbee has opted for a panel for its motor insurance products 124
Auto Trader extended its partnership with Junction for motor insurance 124
Norwich Union and Asda use broker BDML to provide a panel 125
The Post Office extended its panel arrangement with Junction until 2014 125
Motor manufacturer-branded products are likely to suffer due to the recession 125
Aggregators and Price Comparison Sites 127
Introduction 127
Aggregator-instigated insurance sales have grown dramatically in 2008 highlighting their importance to the industry 127
Aggregators are estimated to have generated over 40% of new private motor business GWP in 2008 127
Datamonitor estimates that aggregator-instigated home insurance sales accounted for 4% of new home insurance business sales in 2008 127
Aggregators have become major insurance advertisers, though mainly only for motor insurance 128
Advertising spend has dramatically increased as new competitors step up their marketing campaigns 128
The leading aggregators are still using TV to establish themselves in the personal insurance market 130
Very little aggregator advertising is conducted by those outside of the top five 131
New players have established strong brand awareness among consumers 133
TescoCompare.com is well positioned to compete with established players in the market 133
More than 60% of consumers that visit price comparison sites paid a visit to Confused.com 134
Comparethemarket.com is likely to see a large increase in brand awareness as a result of its 'meerkat' campaign 136
Aggregators have matured in the market, resulting in regulatory scrutiny and consolidation 137
BIBA's study revealed consumer confusion over price comparison sites 137
An FSA study found that certain price comparison sites had shortcomings 137
A subsequent FSA review found that price comparison sites have made significant improvements 138
The consumer group Which? scrutinized the accuracy of price comparison sites in August 2008 138
Competition between aggregators has been costly and already resulted in some brands dropping out 138
Future Decoded 139
Introduction 139
Affinity partnerships and direct players are expected to gain in the private motor market 139
The direct channel is predicted to remain the largest distribution channel for the private motor insurance market 139
Brokers are predicted to retain their market share over the forecast period 139
The affinity channel is predicted to revive and attain a market share of 19% in 2013 139
Banks will struggle to maintain market share in private motor 140
Direct insurers and banks are predicted to increase household insurance market share 141
Banks and buildings societies are predicted to recover market share lost due to the credit crunch 141
Broker market share is forecast to be approximately 26% throughout the forecast period 141
Direct insurers are predicted to gain market share 142
Affinity partnerships are predicted to remain significant distributors of home insurance 142
APPENDIX 144
Definitions 144
Premium income measures 144
Earned premiums 144
Gross Premium 144
Net Premium 144
Written premiums 144
Distribution definitions 144
Bancassurers 144
Banks/building societies 144
Brandassurers 144
Broker 144
Company staff 145
Direct 145
'Other' company agents 145
Partnerships 145
Methodology 145
Datamonitor Consumer Survey 145
Primary and secondary research 148
Distribution estimates and forecast methodology 148
Advertising and marketing spend data 148
Further reading 149
Ask the analyst 149
Datamonitor consulting 149
Disclaimer 149
