MP66095

MAPS : General Insurance : May 2005

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EXECUTIVE SUMMARY

The general insurance industry underwent radical consolidation between 2000 and 2004, resulting in an industry dominated by five large companies, only two 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 increase in banks as owners of general insurance businesses is notable.

The distribution of insurance has continued to change gradually, as company agents continue to lose market share to direct methods of insurance selling. The impact of the Internet is at last becoming noticeable, in association with call centres, as a result of considerable effort exerted to increase the use of websites. The role of the independent financial adviser (IFA) has not been superseded entirely, and the increased complexity of products in the market is likely to put a premium on the role of advisers. The depolarisation of the industry, and its regulation by the Financial Services Authority (FSA) from the beginning of 2005, is likely to cause some changes in 2005 and later years.

Motor insurance is an area where competition is still fierce; innovative or

cost-cutting companies advertise their websites and telephone contact numbers widely. Aggregators are already entering this market, although it is too early to say whether they will take market share from more traditional players. The dominant player is Direct Line. However, other traditional providers are producing interesting sites. The distribution of motor insurance through the population is still low, particularly among the lower-income groups.

Household insurance is much less dynamic. The rise in house prices might 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: the number of households without it is large, and social policy would have to be brought into play to ensure a larger market penetration for contents protection. Climate change is a growing issue.

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 are 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 across society remains very low. There are issues of price and suitability of products in this market.

This report also examines the main players in the general insurance industry, which is faced with the war on terrorism, global warming and increased awareness of natural disasters such as tsunamis. The report 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 and economic structure, and has a responsible role to play, in association with the Government.

TABLE OF CONTENTS

Text © 2005 Key Note

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Last updated by Amanda Porteous 2005