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KN66019 KEY NOTE INSURANCE MARKET (UK) OCTOBER 1999

ISBN 1-85765-683-0

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Table of Contents

Executive Summary

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EXECUTIVE SUMMARY

• INTRODUCTION
• LIFE INSURANCE
• MOTOR INSURANCE
• PROPERTY INSURANCE
• ACCIDENT AND HEALTH
• PECUNIARY LOSS
• GENERAL LIABILITY
• THE FUTURE

INTRODUCTION

This report looks at the UK insurance market both in terms of the market itself and of the industry that serves it. The emphasis in the report is on UK risks; that is, risks that relate to the UK. It therefore excludes risks that may be insured in the UK (by UK or foreign insurers), but which are located outside the UK. The report looks at the UK market and the industry within the context of world insurance. This seems appropriate since the insurance industry is becoming much more international.
The report examines general and long-term insurance.
General insurance covers:

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

Long-term insurance covers:

* death
* prolonged life
* critical illness
* income protection (formerly called permanent health insurance -- PHI).

Key Note estimates that the total UK market in 1998 was worth £90.33bn, of which £68.15bn (75.4 percent of the total) was long-term insurance and £22.18bn (24.6 percent) was general insurance.
UK-based companies control most of this market, although it has to be pointed out that some of the leading UK companies are no longer UK-owned.
UK-based companies are also very active overseas. Key Note estimates that in 1998 their overseas earnings (including income from the Continent) amounted to £29.3bn. Around 40 percent of all general insurance premium income earned by UK companies now comes from outside the UK. Although Germany is Europe's largest insurance market, it is France that has become the UK's best Continental market. Taken as a whole, Europe now accounts for more premium income in the UK insurance market than the US.
Key Note estimates that in 1998 there were 839 companies authorised to operate in the UK market and that they employed 227,000 people. Including related organisations and professional practices such as brokers, the insurance industry now employs around 340,000 people. This takes account of those who have been made redundant in 1999, as a result of mergers in the insurance companies and among the brokers.
Lloyd's moved into profit in 1997 and 1998, according to estimates by its Chairman, Max Taylor, but when its 1999 figures emerge they are expected to show a loss. Nevertheless, Lloyd's appears to have come through its recent troubles well and has embarked on several initiatives that should ensure its future. It is currently considering demutualising, which would be a very controversial move.
In the distribution of insurance, intermediaries play a very big part; they account for 56 percent of personal lines general insurance business, 85 percent of commercial lines general insurance business, 44 percent of new yearly premium long-term business and 61 percent of new single-premium pensions business.

LIFE INSURANCE

Life insurance in the UK accounted for 73.6 percent of the total insurance market in 1998, and is growing at a much faster rate than non-life insurance.
Data from the Association of British Insurers (ABI) shows a year-on-year increase of 10 percent in 1998, from £60.41bn in 1997 to £66.45bn. The fastest growing part of the market is occupational pensions which has grown by 61.2 percent since 1993.
Key Note expects the current level of economic activity to continue, more or less, into 2000. There may well be a slowdown in the latter part of 1999, but, overall, the effect on long-term insurance premiums should be minimal. After 2000, there are two factors to consider:

* slower economic growth
* the launch of stakeholder pensions.

In the 5-year period from 1999 to 2003, Key Note forecasts that the life insurance market will increase by 20.4 percent, from £73bn to £87.88bn.

MOTOR INSURANCE

The UK motor insurance sector represents 8 percent of the industry's total premium income.
The industry's income from this sector is lower than it was in 1993, and the industry has made no profits from this sector since 1994. In addition, the actuary Bacon & Woodrow has predicted that losses are set to continue into 2000, and implied that losses, although at a reduced level, will continue into 2001.
In 1998, five companies had a combined market share of 59.2 percent. It is estimated that in 1999, ten companies had 75 percent of this market. Smaller companies are being squeezed out of the market.
Key Note forecasts that between 1999 and 2003, the value of this market will grow by 10.6 percent to £8.13bn. Given that inflation is unlikely to fall below 2 percent in each of those years, this still means that the real value of the market will in fact fall. Losses may well start to fall during 2000 and beyond, but the sector is unlikely to be hugely profitable for the next few years.

PROPERTY INSURANCE

Property insurance represents 7.9 percent of the insurance market. Key Note estimates that in 1998, premium income from this sector was only 1.8 percent higher than it was in 1993. Figures from the insurers in 1999, suggest that the sector made a loss for the second year running -- largely as a result of unexpectedly high weather-related claims.
While claims for theft -- both in the personal and commercial sector -- are now lower than they were in 1993 and 1994, claims for fire and for business interruption are higher and rising.
After motor insurance, this sector has become the most competitive and, unlike the motor sector, the most unpredictable. Flooding and storm damage claims are rising in value and becoming more frequent, but their incidence remains impossible to forecast.
Key Note forecasts that this market will grow in value by 13.7 percent between 1999 and 2003, but that the market is unlikely to be very profitable.

ACCIDENT AND HEALTH

Accident and health accounts for 3.6 percent of the total UK insurance market. Since 1993, the market has grown by 17.4 percent whereas there had been expectations of a 25 percent growth. Around two-thirds of the market comprises private medical insurance (PMI). In terms of profitability, this market is improving -- profitability is higher now than at any time since 1994.
Around 73 percent of this market is in the hands of ten companies. In the PMI sector, five companies have an 80 percent share of the market according to estimates by the Association of British Insurers (ABI). The leaders are BUPA and PPP -- now under the ultimate ownership of the French insurer, AXA -- and they have 70 percent of the market between them.
The insurers are seeking to expand this market by offering healthcare management services to corporate buyers. Key Note forecasts that the market will grow by 19.4 percent between 1999 and 2003.

PECUNIARY LOSS

Pecuniary loss accounts for 2.8 percent of the UK insurance market, but its share is gradually growing. Between 1993 and 1998, the market grew by 37.3 percent and Key Note expects the market to rise by a further 35.5 percent between 1999 and 2003.
Pecuniary loss includes business interruption, mortgage payment protection and credit insurance. Credit insurance not only includes non-payment, but late payment and late delivery.Hence, this is quite a complex market and it is becoming progressively more important. Profitability has been good in 1997 and 1998, with underwriting results representing 17 percent to 18.5 percent of net premiums. However, in the long-term it is unlikely that these levels of profits will continue. Like the property insurance sector, this sector is extremely unpredictable.

GENERAL LIABILITY

General liability insurance covers a policyholder's legal liability for injury, property damage or financial loss caused to others. This part of the market covers a wide range of insurance risks. Approximately 50 percent of the market is accounted for by employers' liability insurance. General liability represents 2.3 percent of the total UK insurance market.
Market growth has been extremely weak between 1993 and 1998, due to low premium rates. However, Key Note believes that the market will grow by 24.2 percent between 1999 and 2003. The main reason for putting forward this optimistic projection is that companies are becoming much more concerned about their legal liability. For example, the 1999 Employee Rights Act (originally known as Fairness at Work), has raised the stakes for employers who dismiss their employees unfairly: the ceiling for compensation has been raised from £12,000 to £50,000.
Whether this sector will become more profitable is another matter. In the short term this is unlikely. This sector has been operating at a loss every year since 1993, and there is little prospect that this will suddenly change in the near future, but higher rates could reduce the losses, as indeed they need to.

THE FUTURE

Key Note estimates that the total UK insurance market will grow by 19.6 percent between 1999 and 2003, and that long-term insurance will grow by 20.4 percent. Industry profits are not likely to rise in the near future and could well decline.
The future poses three challenges for UK insurers:

* stakeholder pensions, which are to be launched by the Government in 2001/2002, with insurance companies' participation
* the Woolf legal reforms, which will impact on the claims-handling process
* competition from foreign insurers.

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TABLE OF CONTENTS

Executive Summary

Market Overview

INTRODUCTION

MARKET SECTORS

THE UK MARKET

INDUSTRY STRUCTURE

INDUSTRY CONCENTRATION

LLOYDS

DISTRIBUTION

MARKET SIZE

PEST ANALYSIS

KEY TRENDS AND PROSPECTS

Table 1.1: Active London Market Participants, 1998

Table 1.2: UK Insurance Industry by Net Written Premiums from Overseas (£bn and percent), 1997 and 1998

Table 1.3: Participants in the UK Long-Term Insurance Market by Net Premium Income (£m), 1997 and 1998

Table 1.4: Participants in the UK General Insurance Market by Net Premium Income (£m), 1997 and 1998

Table 1.5: Number of Authorised Insurance Companies and Their Employees, 1990-1998

Table 1.6: Authorised Insurers in the UK by Class of Business, 1994-1998

Table 1.7: General Business Insurance of Association of British Insurers' Members by Class of Insurance (number and percent), 1997 and 1998

Table 1.8: Underwriting Results for Lloyd's (£m), 1991-1998

Table 1.9: Geographical Composition of Lloyd's Net Premium Income ( percent), 1998

Table 1.10: Sectoral Composition of Lloyd's Net Premium Income ( percent), 1996

Table 1.11: General Insurance Sales by Distribution Channels ( percent share of premium), 1994-1998

Table 1.12: New Long-Term Business by Distribution Channel ( percent share of premium), 1994-1998

Table 1.13: The Total UK Insurance Market by Net Premium Income (£m), 1994-1998

Table 1.14: The Total European Insurance Market by Net Premium Income (£bn), 1996 and 1998

Table 1.15: The Total US Insurance Market by Net Premium Income (£bn), 1996 and 1998

Table 1.16: The Global Market in Insurance by Net Premium Income (£bn), 1996 and 1998

Key Note Field Research

INSURANCE SPENDING

INSURANCE CLAIMS/CLAIMS EXPERIENCE

UNDER-INSURED OR OVER-INSURED?

LIFE COVER

SATISFACTION WITH PENSION COVER

VALUE FOR MONEY?

BUYING BY SATELLITE OR DIGITAL TELEVISION

Table 2.1: percentage of UK Households with Insurance Expenditure ( percent), 1994/1995-1997/1998

Table 2.2: Claimants of Various Types of Insurance in the Last 12 Months by Age and Sex ( percent), 1999

Table 2.3: Satisfaction with the Result of an Insurance Claim in the Last 12 Months by Age and Sex, ( percent)

Table 2.4: Claimants of Various Types of Insurance in the Last 12 Months by Social Class and Region ( percent), 1999

Table 2.5: Satisfaction with the Result of an Insurance Claim by Social Class and Region in the Last 12 Months ( percent), 1999

Table 2.6: Perceptions of Being Under-Insured by Age and Sex ( percent), 1999

Table 2.7: Perceptions of Being Under-Insured by Social Class and Region ( percent), 1999

Table 2.8: Satisfaction With Life Cover by Age and Sex ( percent), 1999

Table 2.9: Satisfaction With Life Cover by Social Class and Region ( percent), 1999

Table 2.10: Satisfaction With Pension Cover by Age and Sex ( percent), 1999

Table 2.11: Satisfaction With Pension Cover by Social Class and Region ( percent), 1999

Table 2.12: Perceptions of Value for Money in Insurance Policies by Age and Sex ( percent), 1999

Table 2.13: Perceptions of Value for Money in Insurance Policies by Social Class and Region ( percent), 1999

Table 2.14: Willingness to Buy Insurance by Satellite or Digital Television by Age and Sex ( percent), 1999

Table 2.15: Willingness to Buy Insurance by Satellite or Digital Television by Social Class and Region ( percent), 1999

Competitor Analysis

MARKET LEADERS

LEADING INSURERS

ADVERTISING EXPENDITURE

Table 3.1: The UK's Top Ten Insurers in Long-Term and General Business by Worldwide Net Premium Income (£m), 1998

Table 3.2: Europe's Top Ten Quoted Insurance Companies Ranked by Market Capitalisation (£bn), 1998

Table 3.3: Main Media Advertising Expenditure in the UK Insurance Market (£000), 12 Months to June 1999

Life Insurance

INTRODUCTION

FORECASTS

Table 4.1: UK Long-Term Insurance Premium Income by Sector (£m), 1993-1998

Table 4.2: Total UK Individual Life Yearly Premium Business in Force - Linked and Non-Linked (£m), 1993-1998

Table 4.3: New UK Individual Life Business - Ordinary (Linked and Non-Linked) and Industrial Branch (£m and million), 1993-1998

Table 4.4: UK Personal Pensions - New Business (£m), 1993-1998

Table 4.5: UK Personal and Occupational Schemes in Force - Premium Income (£m), 1993-1998

Table 4.6: Individual Annuities in the UK, 1993-1998

Table 4.7: UK Income Protection Insurance Business Number of Policies and Premium Income (000 and £m), 1993-1998

Table 4.8: Breakdown of Benefits Paid on UK Long-Term Insurance, 1993-1998

Table 4.9: Forecast UK Long-Term Insurance Market by Value (£m), 1999-2003

Motor Insurance

INTRODUCTION

MOTOR THEFT

CLAIMS EXPERIENCE

LEADING MOTOR INSURERS

CHANGES IN CLAIMS MANAGEMENT

FORECASTS

Table 5.1: UK Motor Insurance Net Premium (£m), 1993-1998

Table 5.2: UK Motor Insurance Underwriting Result (£m), 1993-1998

Table 5.3: UK Motor Insurance - Composition of Outgoing Expenditure (£m), 1993-1998

Table 5.4: UK Motor Theft Claims Settled and Cost (000 and £m), 1993-1998

Table 5.5: Breakdown of UK Private Motor Claims Experience (000 and £m), 1993-1998

Table 5.6: Breakdown of UK Commercial and Fleet Motor Claims Experience (£m and 000), 1993-1998

Table 5.7: Top Ten UK Motor Insurance Companies ( percent), 1998

Table 5.8: Forecast for the UK Motor Insurance Market (£m), 1999-2003

Property Insurance

INTRODUCTION

UNDERWRITING RESULTS

FRAUD

LEADING PROPERTY DAMAGE INSURERS

FORECASTS

Table 6.1: UK Property Insurance Net Premium Income (£m), 1993-1998

Table 6.2: Underwriting Results for UK Property Insurance (£m) 1993-1998

Table 6.3: UK Property Damage Claims - Domestic (£m), 1993-1998

Table 6.4: UK Property Damage Claims - Commercial (£m), 1993-1998

Table 6.5: UK Property Damage Claims - Domestic and Commercial Combined (£m), 1993-1998

Table 6.6: Number of Fires to Buildings in the UK (number and percent), 1993-1998

Table 6.7: The Top Ten Property Damage Insurers - Market Share ( percent), 1999

Table 6.8: Forecast UK Property Insurance Market by Value (£m), 1999-2003

Accident and Health

INTRODUCTION

PERMANENT HEALTH INSURANCE

CRTICAL ILLNESS INSURANCE

PRIVATE MEDICAL INSURANCE

FORECASTS

Table 7.1: Accident and Health Insurance Net Premium Income (£m) 1993-1998

Table 7.2: Accident and Health Underwriting Results (£m), 1993-1998

Table 7.3: Composition of Outgoing Expenditure (Outgo) in Accident and Health Insurance (£m), 1993-1998

Table 7.4: UK Private Medical Insurance Subscribers and Gross Premium Earned (£m) 1993-1998

Table 7.5: Forecast UK Accident and Health Insurance Market by Value (£m) 1999-2003

Pecuniary Loss Insurance

INTRODUCTION

CREDIT INSURANCE

FORECASTS

Table 8.1: UK Pecuniary Loss Insurance Net Premium (£m) 1993-1998

Table 8.2: UK Pecuniary Loss Insurance Underwriting ResultsÅ (£m) 1993-1998

Table 8.3: The Top Ten Insurers in the Pecuniary Loss Market ( percent share), 1997

Table 8.4: Forecast for UK Pecuniary Loss Market (£m), 1999-2003

General Liability Insurance

INTRODUCTION

PROFFESIONAL INDEMNITY

FORECASTS

Table 9.1: General Liability Net Premium Income (£m), 1993-1998

Table 9.2: General Liability Insurance Underwriting Results (£m), 1993-1998

Table 9.3: The Top Ten General Liability Insurers ( percent), 1998

Table 9.4: Forecast UK General Liability Market by Value (£m), 1999-2003

Strengths, Weaknesses, Opportunities and Threats (SWOT)

STRENGTHS

WEAKNESSES

OPPORTUNITIES

THREATS

The Future

FORECATS 1999 TO 2003

STAKEHOLDER PENSIONS

THE WOOLF REPORT

THE THREAT FROM FOREIGN INSURERS

Table 11.1: Forecast Total UK Insurance Market by Value (£m), 1999-2003

Further Sources

ASSOCIATIONS

PERIODICALS

DIRECTORIES

GENERAL SOURCES

HOPPENSTEDT BONNIER INFORMATION SERVICES

GOVERNMENT PUBLICATIONS

OTHER SOURCES

Text © 1999 Key Note

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