This report focuses primarily on the UK insurance market and on the industry that provides the insurance products. Reference is made to overseas markets in two chapters: Market Overview and Competitor Analysis. This report comes at a time of great change in the industry. There have been many mergers and acquisitions in recent years, foreign ownership of UK insurers has increased, and the downfall of several insurers during 2000 and 2001 has once again put the spotlight on this industry.

Market Overview

Insurance is split into two sectors: long-term and general insurance.
Long-term insurance includes:

• life insurance
• pensions
• annuities
• income protection (formerly called permanent health insurance).

General insurance covers:

• motor
• property
• accident and health
• pecuniary loss
• general liability.

Key Note estimates that the total UK market in 2000 was £132.53bn, of which £108.28bn (81.7 percent of the total) was long-term insurance and £24.25bn (18.3 percent) was in general insurance.

Most of the market is in the hands of UK-based companies, but some of these are actually owned by foreign insurers.

Insurance is an international business in which the UK, through the 'London Market', plays a big part. The Association of British Insurers (ABI) describes the London Market as the world's leading market for internationally traded insurance and reinsurance. The London Market has around 30 percent of the world's aviation and marine insurance.

UK-based insurance companies derive a growing proportion of their income from overseas. In 2000, Key Note estimates that 15.6 percent of the total market for long-term insurance income came from overseas and that 36 percent of general insurance income was won in overseas markets.

Key Note estimates that, in 2000, there were 827 companies authorised to operate in the UK market and that they employed 229,000 people. Including related organisations and professional practices such as brokers, the insurance industry now employs around 344,000 people.

Lloyd's has recovered from the problems that beset it for many years. Improving profitability, coupled with stronger premium rates globally, mean that its future is more secure. In addition, the top management of the Corporation of Lloyd's have brought in new capital and effectively doubled its insurance capacity since 1997.

Distribution

Distribution channels are an important feature of insurance. There are a number of different channels, including: intermediaries, direct salesforces, tied agents and independent financial advisers. Insurance intermediaries represent a key channel for insurance products, accounting for 50 percent of personal lines general insurance business, 87 percent of commercial lines general insurance business, 40 percent of new yearly premium long-term business and 56 percent of new single premium pensions business.

The Global Context

Key Note estimates that the global market for insurance in 2000 was £1,380bn, of which Europe accounted for £441.6bn and the UK for £132.53bn. The UK market therefore represents 9.6 percent of the global market.

Key Trends and Prospects

Some clear patterns are emerging, with the two key ones being a more focused approach by the leading insurers and a hardening of premium rates. The hardening of rates in the UK and internationally is extremely welcome for the insurers, coming as it does after years of generally weak rates. As this report was published in September 2001, a senior executive at CGNU commented that he did not see any weakening of rates in the near future.

Consumer Research

Key Note commissioned NOP World to survey public attitudes towards, and experience of, insurance companies. The survey showed that most people, by their own admission, have little understanding of what their insurance policy gives them. The survey also shows that most people are satisfied with the claims process when they have made a claim.

According to the survey results, fairly few people actually change their insurer. However, in motor insurance and property insurance, 15 percent and 9 percent of people respectively, do change their insurer.

The survey also suggested that people rarely feel that their policies give them value for money. However, satisfaction with the value of motor and property insurance tends to be much higher than for other kinds of insurance, but this may be because people have taken more trouble to ensure that the motor or property policy that they have is right for them.

When people were questioned as to whether they were concerned about the financial health of their insurers, the majority stated that they were not. Only 5 percent expressed such a concern, but those aged 35 to 44 and those in the AB social group (the professional classes) are more inclined to have some worries on this score.

Competitor Analysis

The Competitor Analysis chapter lists the top ten general insurers, the top ten long-term insurers and also the top ten insurers in Europe by market capitalisation. The European table shows the strength of the major German, Swiss and French insurers.

This chapter profiles the 17 largest UK-based companies insurers.

Advertising spending, which has increased by 14 percent in the year to March 2001, is also examined.

INDUSTRY SECTORS

The Future

Key Note estimates that the total UK insurance market will grow by 35.3 percent between 2001 and 2006 and that long-term insurance will grow by 39.8 percent. These figures need to be set against an economy that looks certain to weaken during 2002. A recession may well be avoided, but a prolonged slowdown does look likely.

There are three continuing developments:

• mergers and acquisitions are likely to continue as companies expand and refocus their activities
• insurance provision by well-known consumer brands is set to rise
• online insurance is likely to grow as more and more people become acclimatised to this method of insurance buying and as the insurers put in place the necessary technical initiatives.