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  4. > UK Commercial Insurance Distribution 2016; An industry where adapting to the market is key

Summary
Commercial insurance has become a highly competitive market, and the distribution of its products is evolving. Brokers continue to hold the highest share of the commercial market, despite growth in other channels. The small and medium-sized enterprise (SME) market has been driving this change. SMEs that require less comprehensive insurance products have been moving away from the added-value advice service from brokers, instead shifting towards self-service, online purchasing platforms.

The broker landscape continues to be dominated by the top few global companies and a multitude of smaller firms. Consolidation of the broker market is set to continue; however, the rate of acquisitions has significantly slowed after the major consolidation and growth rush of the late 2000s. Brokers are now looking to use their existing products and sectors of expertise to grow, meanwhile focusing on developing their online propositions to enable them to regain share previously lost by the SME market.

The Insurance Act 2015, which comes into force in August 2016 will make significant changes to commercial contract law. It will make contracts more certain and passes the responsibility of compliance to insurers. It will promote better communication and co-operation between all parties involved in arranging commercial contracts, ultimately giving underwriters a better understanding of the practices and the subsequent risks of those being insured.

Key Findings
- Brokers continue to dominate the distribution of commercial insurance, with a 78.2% share of the market.

- Provincial brokers are less concerned about growing their online propositions.

- Banks have the potential to cross-sell insurance with their existing business services.

- Micro-sized enterprises are driving the growth of price comparison sites.

Synopsis
Verdict Financial's “UK Commercial Insurance Distribution 2016” report provides an in-depth study into the trends of commercial insurance distribution. It discusses the influence of the differing purchasing behaviours of SMEs compared to larger corporate businesses, and pays particular attention to the role and strategies of brokers within product distribution. It addresses the challenges the market is facing, and key changes in regulation, before concluding with a five-year forecast for each distribution channel.

Reasons To Buy
- Adapt your distribution strategy to ensure it still meets the needs of clients and intermediaries. Ensure you remain competitive as new innovations revolutionize the purchasing journey for clients and brokers.

- Benchmark your firm against other players in the market.

- Be prepared for how regulation will impact the commercial market over the next few years.

Table Of Contents

UK Commercial Insurance Distribution 2016; An industry where adapting to the market is key
Table of Contents
EXECUTIVE SUMMARY
Brokers remain dominant in a market shifting towards online purchasing
Key findings
Critical success factors
COMMERCIAL INSURANCE: THE DISTRIBUTION CHANNELS
Introduction
Brokers remain dominant despite growth in other channels
The complexity of commercial insurance sustains the dominance of the broker channel
Brokers are becoming less significant in the distribution of uncomplicated products
The distribution of SME insurance is moving away from brokers
SMEs are purchasing commoditized commercial products online
The direct channel is competitive against brokers within the SME market
Micro enterprises are driving the growth of price comparison sites, whereas small and medium enterprises are driving the growth of the banking channel
Commercial insurance distribution and the direct channel
Insurers are growing their direct channels
Product commoditization has limited scope within commercial insurance
Only a few commercial insurers have developed a direct proposition
AXA's commercial direct offering is now digital-only
Direct Line for Business offers customers a range of additional online features and service options
Hiscox offers guidance to help customers build their own insurance package
NFU Mutual offers a traditional broker-like direct service
Aviva has brought back its direct offering for commercial insurance
Allianz has a long-established direct offering called Premierline
Price comparison sites and commercial insurance distribution
Aggregators target SMEs with commercial insurance products
Price comparison sites' commercial offerings are in partnership with Simply Business and Towergate's YOUR Insurance brand
Moneysupermarket.com and Comparethemarket.com are favored by SMEs
Banks and building societies and commercial insurance distribution
Banks and building societies are the least used channel through which commercial insurance is purchased
Banks have the potential to cross-sell insurance with their existing business services
Barclays and Lloyds are the leading banks providing SME insurance
Barclays' business insurance is underwritten by Allianz
Lloyds Bank tailors its business offerings by company size
BROKERS AND THE DISTRIBUTION OF COMMERCIAL INSURANCE
The broker landscape is dominated by the top few global brokers
Global brokers have the largest share of commercial insurance revenues
The broker landscape is dominated by the top few global brokers
JLT is now the UK's largest broker
Marsh is expanding into the UK SME market through acquisitions
Aon's revenue remains steady year-on-year
Willis merges with Tower Watson to offer insurance broking and consultancy
Growth has slowed for Arthur J. Gallagher as it integrates its acquired businesses
There is a downward curve in revenue from global brokers to provincial brokers
National brokers handle significantly less GWP than global brokers
Super-regional brokers' revenue is representative of their varying stages of growth
National, super-regional, and provincial broker growth strategies
Brokers are looking to use their existing products and expertise to grow
Brokers look to create a multi-channel distribution strategy by growing online
Acquisitions are an effective way to rapidly grow revenue
Brokers are using social media to engage with clients
National brokers are looking to expand their range of online services
Super-regional brokers have prioritized online quotation systems
Provincial brokers are less concerned about developing their online propositions
THE FUTURE OF UK COMMERCIAL INSURANCE DISTRIBUTION
The Insurance Act 2015 will modernize UK commercial contract law
UK insurance contract law is undergoing transformation
The Duty of Fair Presentation will pass disclosure responsibility from clients to insurers
Remedies for non-disclosure will be proportionate to the breach
Warranties will now only suspend cover until a breach has been remedied
Insurers can now only recover sums paid since an act of fraud
Insurers will have to highlight disadvantageous terms
The Insurance Act 2015 will have a positive effect on the commercial insurance market
How will the distribution landscape change in the coming years?
The SME market will become more dominant within commercial insurance
The decline of the non-SME market will cause brokers to lose share
Online offerings will rule for SMEs regardless of channel
Micro and small-sized enterprises will drive change in the SME market
The future of the SME market will be indicative of future commercial distribution
APPENDIX
Abbreviations and acronyms
Definitions
Brokers
Direct
MGA
SME
Methodology
Primary sources
Secondary sources
Bibliography
Further reading
About Verdict Financial
Disclaimer

List of Tables
Table 1: Percentage point movement in channel share by SME size, 2014-15
Table 2: The top five direct insurers (percentage of SME respondents), 2015
Table 3: Broker business growth strategies, 2016
Table 4: Broker business growth strategies, percentage point movement 2015-16
Table 5: Share of commercial insurance distribution by channel (%), 2013-20f
Table 6: Share of SME insurance distribution by channel (%), 2013-20f

List of Figures
Figure 1: Brokers retain their dominance but have slightly lost share
Figure 2: The online channel is a popular method used by SMEs to purchase cover
Figure 3: Micro-sized enterprises are purchasing directly and through price comparison sites
Figure 4: The direct channel is becoming more popular within commercial insurance
Figure 5: The direct channel was worth £2.37bn in GWP in 2014
Figure 6: Direct Line for Business offers a range of 10 insurance products
Figure 7: Hiscox understands that each small business is unique
Figure 8: Price comparison sites have gained share within commercial insurance
Figure 9: Price comparison sites generated £624.3m GWP in 2014
Figure 10: The banking channels holds the smallest share within commercial insurance
Figure 11: The banking channel generated £480.3m GWP in 2014
Figure 12: Barclays' Cover Finder Tool is simple but effective
Figure 13: Lloyds Bank tailors its business services to companies of varying annual turnover
Figure 14: JLT replaces Marsh as the UK's largest broker in 2015
Figure 15: National brokers account for the greatest proportion of business totaling over £250m
Figure 16: Brokers are looking to grow by cross-selling and upselling their products 34
Figure 17: Marketing activity and web presence have become more popular growth strategies
Figure 18: Super-regional and national brokers have the strongest presence on social media
Figure 19: National brokers are looking to introduce the ability to get quotes from their websites
Figure 20: Super-regional brokers have the lowest adoption of a claims tracking process
Figure 21: Provincial brokers stay true to traditional brokering strategies
Figure 22: The commercial market is forecast to grow
Figure 23: Brokers will lose share within the distribution of commercial insurance products
Figure 24: SME preference to buy online is forecast to grow
Figure 25: Micro and small SMEs have generated more GWP over time

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