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MAPS : General Insurance: October 2001

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This report covers: general insurance, motor insurance, household insurance, buildings, insurance, contents, trasvel, accident and health, personal accident, permanent medical, long-term care, sickness, general liability,

Companies covered include: CGNU, Royal & Sun Alliance, AXA, Zurich Financial Services, Cornhill, Allianz, Direct Line , Churchill, Winterthur, Credit Suisse, BUPA, Groupama,

EXECUTIVE SUMMARY

Executive Summary

Risk has rarely been so pervasive in peacetime, as today, and this report demonstrates the role general insurance plays in preserving the fabric of society.

With the aid of a survey of 1,116 adults undertaken, between 10th and 15th May 2001, Key Note summarises the issues that the buyers of insurance want to raise:

they want the detailed terms of their insurance policies spelt out in plain English

they want their policies to cover them properly, without obscure get-out clauses

they believe that a company's reputation is important in judging whether it is safe to insure with it

they also believe that the experience of people they know is important in making their judgement

they like to deal with insurance representatives face-to-face

the telephone is the only remote market channel they are happy to use.

The general insurance industry has undergone radical consolidation during the last 3 years, resulting in an industry dominated by five giant companies, only 2 of which are UK-centred. This has implications for competition, because premiums are able to rise faster in an oligopolistic market than in one with many equal players.

The distribution of insurance has continued to change gradually, as the company agent continues to lose market share to direct methods of insurance selling. The impact of the Internet is still tiny, although considerable effort is being exerted to increase the use of sites. The role of the independent financial adviser has not been superseded entirely, and the increased complexity of products in the market is likely to put a premium on the role of adviser.

Motor insurance is an area where competition is still fierce, and there are innovative or cost-cutting companies that widely advertise their websites and telephone contact numbers. Aggregators are already entering this market, though it is too early to say whether they will take market share from more traditional players. Although Direct Line is a dominant player, other traditional providers are producing interesting sites. The distribution of motor insurance through the population is still low, particularly among the poorer deciles.

Household insurance is a lot less dynamic. The rise in house prices may have increased the amount of insurance taken out, but the level of competition is lower. Buildings insurance is more valuable than contents insurance, but the link with mortgage lenders remains strong, and the traditional insurers dominate. Contents insurance is different — clearly the number of households without it is large, and social policy will have to be brought into play to ensure a larger market penetration for contents protection.

Travel insurance is an example of a competitive market where traditional insurers act as suppliers to retailers, offering travel insurance as a commodity. Here, too, there is a considerable need to penetrate the market further.

Accident and health insurance is vital to ensure that people are able to recover from bad luck and remain useful members of the community. The markets are not as large as they could be, and the penetration of health insurance through society remains very low. There are issues of price and suitability of products.

This report looks at the future for the main players in the general insurance industry in the aftermath of the World Trade Centre disaster, and considers political, social, economic and technological issues. Key Note concludes that technology is no longer the exciting answer to the problems of the industry — in a dangerous world, the insurer is an increasingly vital part of the social structure and has a responsible role to play.

TABLE OF CONTENTS

Executive Summary 1

1. Introduction 10

2. Strategic Overview 11

Market Dynamics and Segmentation 11

Market Sectors Covered 11

Current Status of the Market 11

Table 1: The Largest General Insurers (£m), 1999 11

Figure 1: The Largest General Insurers (£m), 1999 12

Total Industry Value and Growth 13

Figure 2: UK Total Premium Income by Class (£bn), 1995-2000e 13

Figure 2: UK Total Premium Income by Class (£bn), 1995-2000e 14

Largest Sectors and Market Share 14

Table 3: UK General Business Net Written Premium Income by Class (%), 1988-2000 14

Market with Highest Growth Rate 15

Market with Lowest Growth Rate 15

Distribution 16

Table 4: UK Sources of Total General Insurance Business Premiums (% and £bn), 1995-2000 16

Table 5: UK General Insurance Sources of Personal Lines Business (% and £bn), 1995-2000 17

Competitive structure 19

Table 6: Recent Mergers and Acquisitions in the UK General Insurance Industry, 1998-2000 19

advertising 20

Table 7: Top General Insurance Advertising Spend (£m), April 1999/2000-March 2000/2001 20

The Consumer 22

Unemployment and Earnings 22

Table 8: UK Claimant Unemployment and Average Earnings Growth Rate (%), 1997-2000 22

Prices, Interest Rates and Savings 22

Table 9: Consumer Expenditure, Retail Prices (1995=100), 1997-2000 22

Table 10: Interest Rates, Saving Ratio, Equity Prices, House Prices (1995=100), 1997-2000 23

Market forecasts 23

Corporate governance 24

Table 11: Asset Holdings of Insurance Companies (%), 1998 24

Figure 3: Asset Holdings of Insurance Companies (%), 1998 25

3. Motor Insurance 27

background 27

consumer trends 27

Table 12: Exposure and Total Claims for Private Cars (000 and %), 1996-2000 27

Table 13: Yearly Expenditure on Motor Insurance (£ per household), 1995-2000 28

Table 14: Annual Expenditure on Motor Insurance by Income Decile (£ per household), 1998/1999 and 1999/2000 29

marketing activity 29

Advertising 30

Table 15: Top Motor Insurance Advertising Expenditure (£m), April 2000-March 2001 30

Figure 4: Top Motor Insurance Advertising Expenditure (£m), April 2000-March 2001 31

4. Household Insurance 33

Buildings Insurance 33

Contents Insurance 34

market size 35

Table 16: Concentration in the Property Insurance Market (%) , 1999 35

Figure 5: Concentration in the Property Insurance Market (%), 1999 36

Table 17: UK Property Underwriting Results (£m), 1995-2000 36

Table 18: Property Insurance Total Claims for Major Perils (£m), 1995-2000 37

Figure 6: Property Insurance Claims for Major Perils (£m), 1995-2000e 37

distribution 38

Table 19: Sources of Personal Household Insurance Premiums (% and £bn), 1995-2000 38

consumer trends 40

Table 20: Yearly Expenditure on Household Insurance (£ per household and %), 1995-2000 40

Table 21: Annual Expenditure on Structure Insurance by Income Decile (£ per household), 1998/1999 and 1999/2000 42

Table 22: Annual Expenditure on Contents Insurance by Income Decile (£ per household), 1998/1999 and 1999/2000 43

Table 23: Annual Expenditure on Combined Structure and Contents Insurance by Income Decile (£ per household), 1998/1999 and 1999/2000 44

Table 24: Annual Expenditure on Mortgage Protection Insurance by Income Decile (£ per household), 1999/2000 45

mARKETING 46

Table 25: Top Home Insurance Brands Advertised (£m), April 2000-March 2001 46

Figure 7: Top Home Insurance Brands Advertised (£m), April 2000-March 2001 47

Pecuniary loss: Mortgage payment protection Insurance and mortgage indemnity insurance 47

Table 26: UK Pecuniary Loss Underwriting Results (£m), 1995-2000 48

Table 27: Largest Insurers in Miscellaneous and Pecuniary Loss (£m), 1999 49

Suppliers of household insurance 50

Table 28: Largest Domestic Household Insurers (£m), 1999 50

5. Travel Insurance 51

Market shares 51

consumer trends 51

Table 29: Visits Abroad by UK Residents (millions), 1981, 1991, 1996-2000e 51

Table 30: Annual Expenditure on Travel Insurance (£ per household), 1996/1997-1999/2000e† 52

Table 31: Annual Expenditure on Travel Insurance by Income Decile (£ per household), 1998/1999 53

MarKeting activity 53

distribution 54

6. Accident and Health 56

Personal accident 56

Permanent medical insurance 56

Long-Term Care 57

Table 32: Projections for the Cost of Long-Term Care (£bn), 1995-2051 57

Sickness Insurance 58

Market shares 58

Table 33: Market Concentration in the Accident and Health Market (%), 1999 59

Table 34: UK Accident and Health Underwriting Results (£m), 1995-2000 59

Market size 60

Table 35: Size of the Medical Insurance Market (millions and £bn), 1996-2000e 60

Table 36: Market Share of Premiums by Insurer (%), 1998 60

consumer trends 61

Table 37: Annual Expenditure on Medical Insurance (£ per household), 1994/1995-1999/2000 61

Table 38: Annual Expenditure on Medical Insurance by Income Decile (£ per household), 1998/1999 and 1999/2000 62

Table 39: Annual Expenditure on Personal Accident Insurance by Income Decile (£ per household), 1999/2000 63

MARKETING ACTIVITY 63

distribution 64

Table 40: Largest Accident and Health Insurers (£m), 1999 64

7. General Liability 65

Market shares 65

Table 41: Largest Third-Party Liability Insurers (£m), 1999 65

Table 42: UK General Liability Underwriting Results (£m), 1995-2000e 66

8. An International Perspective 67

Insurance density 67

Table 43: Non-Life Insurance Density in the 10 Largest Insurance Markets (£ per head), 1995 and 1998 67

The importance of life and non-life business 68

Table 44: The Importance of Life and Non-Life Business by Region (%), 1998 68

9. PEST Analysis 69

Political factors 69

General Insurance Standards Council 69

economic factors 70

social factors 71

technological factors 72

10. Consumer Dynamics 73

Overview 73

Table 45: Ranked Comparison of 1998 and 2001 Questionnaire Answers 73

Use of television advertising and of Ceefax/Teletext 75

Table 46: Television Advertising and Ceefax/Teletext (% respondents), 2001 75

Television 76

Ceefax and Teletext 77

Use of newspaper/magazine advertising, or the Internet 77

Table 47: Newspaper Advertising and The Internet (% respondents), 2001 77

Newspapers and Magazines 78

Internet 79

Reference to company reputation or personal recommendation 79

Table 48: Company Reputation and Personal Recommendation (% respondents), 2001 79

Reputation 81

Word of Mouth 81

Attraction of incentives and Need for face-to-face contact 82

Table 49: Promotions and Incentives; Need for Face-to-Face Contact (% respondents), 2001 82

Promotions or Incentives are Important 83

Face-to-Face Contact 83

Use of telephone to organise insurance or electronic purchase of insurance 84

Table 50: Organising Insurance Over the Telephone; Electronic Purchase (% respondents), 2001 84

Organising Insurance Over the Telephone 85

Electronic Insurance 86

Renewal without review and clearly laid-out packages 86

Table 51: Renewal Without Reviewing; Clearly Laid-Out Packages (% respondents), 2001 86

Renewal Without Checking 87

Guarantee of No Hidden Clauses 88

Small print to be clearly laid out 89

Table 52: Clauses Laid Out Clearly; Don't Know/None of These (% respondents), 2001 89

Small Print Laid Out Clearly 90

Don't Know/None of These 90

11. Company/Supplier Profiles 92

CGNU 92

Corporate Strategy 92

Strengths and Weaknesses 92

Innovations 93

Appointments 93

Advertising 93

Significant Advertising Campaigns 93

Distribution 94

Profitability 94

Future Company Developments 94

Royal & Sun alliance 94

Corporate Strategy 95

Strengths and Weaknesses 95

New-Product Development 95

Brand Development 95

Innovations 95

Appointments 96

Advertising 96

Significant Advertising Campaigns 96

Distribution 96

Profitability 96

Future Company Developments 97

aXA 97

Corporate Strategy 97

New-Product Development 97

Brand Development 97

Appointments 98

Advertising 98

Distribution 98

Profitability 98

Zurich financial services 98

Corporate Strategy 99

Appointments 99

Distribution 99

Profitability 99

cornhill (Allianz) 99

Corporate Strategy 99

Strengths and Weaknesses 100

Appointments 100

Advertising 100

Significant Advertising Campaigns 100

Distribution 100

Profitability 101

Direct line insurance/privilege 101

Corporate Strategy 101

Strengths and Weaknesses 101

New-Product Development 101

Brand Development 102

Appointments 102

Advertising 102

Distribution 102

Profitability 102

Churchill (Winterthur/Credit suisse) 103

Corporate Strategy 103

Strengths and Weaknesses 103

Appointments 103

Advertising 104

Significant Advertising Campaigns 104

Distribution 104

Profitability 104

BUPA 104

Corporate Strategy 105

Appointments 105

Advertising 105

Distribution 105

Profitability 105

Groupama 105

Corporate Strategy 106

Strengths and Weaknesses 106

Appointments 106

Distribution 106

Profitability 106

12. The Future 107

Market size 107

Table 53: UK Net Written Premiums, General Business by Class (£bn), 2001-2005 107

Table 54: UK General Business Net Written Premium by Class (%), 2001 -2006 108

consumer issues 108

Table 55: Forecast Change in Average Earnings, Unemployment, Retail Price Index, Interest Rates, 2001-2005 108

supplier issues 109

Distribution of Suppliers 109

Table 56: UK Sources of Total General Insurance Business (%), 2001-2006 109

demographic changes 110

Population Trends 110

Table 57: Population of the UK, by Gender and Age (% and million), 1991-2026 111

Forecasts of Motor Insurance 112

Table 58: Yearly Forecast Annual Expenditure on Motor Insurance Premiums (£ per household), 2000-2006 112

Forecasts of Household Insurance 113

Table 59: Yearly Forecast Expenditure on Household Insurance (£ per household), 2000-2005 113

Forecasts of Travel Insurance 114

Table 60: Forecast Travel Insurance Market Size (£m), 2001-2005 114

Figure 8: Forecast Travel Insurance Market Size (£m), 2001-2005 114

Forecasts of Medical Insurance 115

Table 61: Yearly Expenditure on Medical Insurance (£ per household), 2000/-2006 115

market dynamics 115

Political 115

Economics 116

Social 116

Technology 116

Internet 117

Table 62: Forecast for Users of Insurance Companies on the Internet (millions), 2000-2006 118

Advertising 119

Prospects 119

13. Further Sources 120

Trade Associations 120

Companies 121

Trade Journals 122

Marketing/National Press 122

Miscellaneous Sources 122

General Sources 123

Bonnier Information Sources 123

Government and Official 124

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Last updated by Amanda Porteous 2001