UK Commercial Insurance Distribution 2006

Content

• Chapter 1 Executive Summary
  • The number of enterprises in the UK grew in 2005, driven by increases in sole proprietorships and partnerships
  • Growth in the UK business parc is occcuring at the smallest end of the scale
  • The majority of companies registered in the UK have no employees
  • Commercial insurance is largely distributed through intermediaries, however, there are signs of growth in other channels
  • Brokers still dominate the distribution of commercial lines insurance
  • Direct insurers hold a relatively small share of the commercial market
  • Banks and building societies remain small players in the commercial insurance market
  • Retention rates were high in commercial lines, with very few companies changing insurance broker between 2005 and 2006
  • Retention levels are generally high, though SMEs were less loyal to their provider than larger companies between 2005 and 2006
  • Most companies switched from one multinational to another, though multinationals also won business from national brokers and lost business to smaller intermediaries
  • Most of the clients that switched between 2005 and 2006 moved between multinational brokers
  • The top 10 brokers account for the vast majority of client turnover with multinational brokers having the highest market share of larger clients
  • The top 10 brokers accounted for 95.8 per cent of client turnover in 2006
  • Multinational brokers are most successful among companies with high turnovers
  • 20 companies in Datamonitor's Insurance Broker Database arranged their insurance in-house
  • Intermediaries will continue to be the dominant distribution channel, while other channels will grow marginally
  • The intermediary channel will retain its dominance in the commercial insurance sector
  • The direct channel will see marginal growth
• Chapter 2 Introduction
  • What is this report about?
  • Who is the target reader?
  • How to use this report
• Chapter 3 Market Context
  • Introduction
  • Profits slipped in the UK general insurance market in 2005, as soft market conditions took their toll on most lines of business
  • Soft market conditions were evident in many lines of business in 2005
  • The motor market led the decline with a reduction of 1.5 per cent
  • Property Finance and accident and health also went into decline
  • Liability and pecuniary loss continued to improve
  • The commercial market suffered more than the personal market in 2005
  • Property Finance Finance and commercial motor led the commercial GWP contraction
  • Please note, changes to FSA Returns mean that it is now possible to estimate the commercial pecuniary loss market size. Please see the Appendix for details.
  • The number of enterprises in the UK grew in 2005, driven by increases in sole proprietorships and partnerships
  • Growth in the UK business parc is occcuring at the smallest end of the scale
  • The majority of companies registered in the UK have no employees
• Chapter 4 Distribution Dynamics
  • Introduction
  • Commercial insurance is largely distributed through intermediaries, however, there are signs of growth in other channels
  • Brokers still dominate the distribution of commercial lines insurance
  • Independent intermediaries are still the major distribution channel within commercial lines insurance
  • Direct insurers hold a relatively small share of the commercial market, however, growth is expected to pick up in terms of policy numbers
  • Direct insurers hold a small share of the commercial insurance market
  • Insurers are expecting to see growth in the direct channel
  • The growth of the direct channel will be limited by low average premium spends and buying behaviour
  • Banks and building societies remain small players in the commercial insurance market
  • There is potential for retailers and affinity groups to grow their market share, however, this is limited by the need for advice
  • imarket makes interactions between insurers and brokers more efficient and further progress is expected in the coming years
  • imarket is an internet portal for brokers that allows multiple quotes to be generated from one application form
  • imarket added two new carriers in 2005 and 2006
  • Further integration with software houses would benefit imarket
  • Broker networks are a popular model and membership looks set to grow further whilst the main threat to smaller brokers is the nationals
  • Survey respondents view national brokers as the biggest threat to their business
  • Over 30 per cent of respondents are part of a broker network
  • Over 10 per cent of respondents said that they may join a broker network in the next 12 to 18 months
  • Many brokers are enticed into a network by the prospect of a larger panel of underwriters
  • Nearly a quarter of brokers have acquired another broker in the last 12-18 months and this trend looks set to continue
  • Nearly 25 per cent of respondents have acquired another broker in the last 12-18 months
  • Broker consolidation looks set to continue with 41 per cent of brokers saying that they are looking to acquire other brokers in the next 12-18 months
  • Brokers have ambitions to grow in a region
• Chapter 5 Customer Focus
  • Introduction
  • Retention rates were high in commercial lines, with very few companies changing insurance broker between 2005 and 2006
  • Retention levels are generally high, though SMEs were less loyal to their provider than larger companies between 2005 and 2006
  • Most companies switched from one multinational to another, though multinationals also won business from national brokers and lost business to smaller intermediaries
  • Most of the clients that switched between 2005 and 2006 moved between multinational brokers
  • Many switchers changed from a national broker to a multinational broker
  • Multinational brokers lost some clients to smaller rivals
  • Willis outshined its large rivals in 2005 and 2006 in terms of customer acquisition and retention while Aon lost the most clients to rival multinational brokers
  • Willis performed better than the other multinationals in terms of customer acquisition and retention
  • Aon lost the largest number of clients to the other multinational brokers between 2005 and 2006
  • Among SMEs retention rates and satisfaction levels are high
  • SMEs are satisfied with their brokers
  • As a result, retention levels are high
  • Most SMEs are not looking to switch provider, as a result of satisfaction with their existing relationships
  • However, some SMEs are potential switchers in search of a better price
  • Around 20 per cent of SMEs have switched provider in the last two years
  • Around 15 per cent of SMEs are planning to change provider in the next year, in the hope of finding a better price
  • SMEs are more likely to plan to switch providers in a hard market
  • Brokers are the first choice for SMEs, however, when prompted, some are willing to consider alternative distribution channels
  • Brokers would be the first choice for SMEs if they were to switch provider
  • More than 50 per cent of SMEs would consider buying direct
  • SMEs' attitudes to buying insurance online supports the potential for direct selling
  • Norwich Union and AXA are the insurers most likely to be approached for alternative quotes
  • A slightly smaller proportion of SMEs would consider buying from banks or building societies
  • The SMEs that would consider alternative distribution channels hope for a better price
  • The SMEs that are willing to buy direct, or through banks and building societies, would be attracted by a better price
  • The SMEs that will not consider alternative distribution channels have concerns about these channels
  • SMEs worry that they will not be able to get a good deal if they buy direct from insurers
  • SMEs worry that banks charge higher rates and lack the specialist expertise they require
• Chapter 6 Competitive Dynamics
  • Introduction
  • The fragmented nature of the broker market, the age profile of many principals, venture capital and more recently FSA regulation have combined to create the consolidation in the broking sector
  • The broker market is fragmented
  • Venture capitalists and investors see strong commercial opportunity in consolidating a number of brokers
  • Many principals are nearing retirement age
  • The costs and administration requirements of FSA regulation have provided a further driver for consolidation
  • A small number of major consolidators exist, with Towergate being the largest with its dual approach to acquisition
  • There are a small number of broker consolidators
  • There are two prongs to Towergate's acquisition strategy
  • 2006 saw a number of underwriting agency start-ups
  • Start-up ABC Insurance was bought by Liverpool Victoria
  • M4 Underwriting started writing business in June 2006 backed by Allianz
  • Capital Protection Underwriting was formed in July 2006
  • I-prism ran a pilot in 2006 and is set to launch fully in January 2007
  • Underwriting agency Arista was formed in August 2006
  • The top 10 brokers account for the vast majority of client turnover with multinational brokers having the highest market share of larger clients
  • The top 10 brokers accounted for 95.8 per cent of client turnover in 2006
  • Multinational brokers are most successful among companies with high turnovers
  • 20 companies in Datamonitor's Insurance Broker Database arranged their insurance in-house
  • The Spitzer enquiry into contingent commissions has led to major change at the big four brokers
  • The Spitzer enquiry has led to major change among the big four brokers
  • Contingent commissions were paid to brokers in return for a target level of business
  • Aon was the UK's number one broker in 2006 despite turbulence at the firm
  • Aon was the UK's largest broker in 2006
  • Aon has implemented a large scale restructuring initiative
  • Marsh is the UK's second largest broker and has also undergone significant restructuring
  • Marsh was the UK's second largest broker in 2006
  • Marsh introduced a new business model for its brokerage business and has undergone a large scale restructuring
  • Willis held a 21.2 per cent market share of client turnover in 2006 and aims to grow revenue by over 27 million per year up to 2011
  • Willis held a 21.2 per cent market share of client turnover in 2006
  • Willis intends to grow its UK revenues by 27 million per year between 2006 and 2011
  • Jardine Lloyd Thompson is the UK's fourth largest broker and was close to buying fellow broker Heath Lambert in 2006
  • Jardine Lloyd Thompson's is the UK's fourth largest broker
  • Jardine Lloyd Thompson was close to acquiring Heath Lambert in 2006
• Chapter 7 The Future Decoded
  • Introduction
  • Consolidation will continue, driven by small and large brokers, while the large consolidators themselves may be targeted by insurers
  • Consolidation will continue, driven by small and larger brokers alike
  • Large insurance companies may continue to buy into consolidators in order to increase their market share in commercial lines
  • Use of imarket is likely to increase and broker networks are set to continue their growth
  • Use of imarket will increase as more carriers get on board and the tool becomes more effective
  • imarket will grow as more carriers join the system
  • Further developments by broker softare houses will benefit imarket
  • Broker Networks will continue their growth
  • Intermediaries will continue to be the dominant distribution channel, while other channels will grow marginally
  • The intermediary channel will retain its dominance in the commercial insurance sector
  • The direct channel will see marginal growth
  • Affinities will continue to see their market share creep up slowly
  • Banks and building societies will see their share of the commercial insurance market grow incrementally as the large banks focus on this area
• Chapter 8 Appendix
  • Definitions
  • SME
  • Definitions of ABI terms
  • Brokers
  • National brokers
  • Other intermediaries & brokers
  • Chain brokers & telebrokers
  • Direct
  • Other company agents
  • Utilities/retailers/affinity groups
  • Company staff
  • Banks/building societies
  • Written premiums
  • Research methodology
  • Datamonitor's Insurance Broker Database
  • Datamonitor's Commercial Broker Survey
  • Datamonitor's SME Survey
  • Datamonitor's SME Insurance Survey Q3 2005
  • Datamonitor's SME Insurance Survey Q1 2006
  • Current readings
  • Future readings
  • Do you need more information?
  • Datamonitor Financial Services Consulting
  • SPP writing team
• List of Tables
  • Table 1: Total general insurance GWP by line of business, 2001-5
  • Table 2: Commercial general insurance market GWP and year-on-year growth, split by sector 2001-5
  • Table 3: Number of enterprises, employees and turnover by size of enterprise, 2005
  • Table 4: Market share of distribution channels in the commercial general insurance market, 2002-5
  • Table 5: Percentage of companies that changed broker between 2005-6, by company turnover band
  • Table 6: Switching of commercial clients between broker segments, 2005-6
  • Table 7: Acquisition and attrition performance of top four brokers, 2005-6
  • Table 8: Customer retention within Aon, 2005-6
  • Table 9: Customer retention within Marsh, 2005-6
  • Table 10: Customer retention within Willis, 2005-6
  • Table 11: Customer retention within Jardine Lloyd Thompson, 2005-6
  • Table 12: Top 10 brokers by client aggregate turnover, 2005-6
  • Table 13: Market share of multinational brokers by client size, 2006
  • Table 14: UK companies arranging insurance in-house, 2006
  • Table 15: Premium turnover of major consolidators and projected growth to 2010f
  • Table 16: Forecast market share of distribution channels in the commercial general insurance market, 2003-10f
  • Table 17: Crawford's Directory industry sectors
  • Table 18: What business sector are you involved in?
• List of Figures
  • Figure 1: Soft market conditions were evident in many lines in 2005
  • Figure 2: Commercial motor and Property Finance saw declines in GWP in 2005
  • Figure 3: The number of enterprises rose by 1.4 per cent in 2005
  • Figure 4: Small businesses make up the majority of all UK businesses by number
  • Figure 5: National brokers dominate the distribution of commercial insurance
  • Figure 6: imarket generates a number of quotes, while the user only has to input the risk details once
  • Figure 7: National brokers are seen as a significant threat
  • Figure 8: Nearly 32 per cent of respondents are part of a broker network
  • Figure 9: Nearly 13 per cent of respondents say that they might join a broker network in the next 12-18 months
  • Figure 10: Many brokers have joined a network to access a larger panel of underwriters
  • Figure 11: Growth through acquisition remains an attractive strategy to commercial brokers
  • Figure 12: Over 40 per cent of brokers are considering acquiring a fellow broker in the next 12-18 months
  • Figure 13: Many brokers are planning to acquire other brokers in order to grow in a certain region
  • Figure 14: Companies with a turnover below 20 million were most promiscuous between 2005 and 2006
  • Figure 15: Most customer switching occurs from multinational brokers to other multinational brokers
  • Figure 16: Jardine Lloyd Thompson had the highest rate of client acquisition between 2005 and 2006
  • Figure 17: A number of clients moved within multinational brokers between 2005 and 2006
  • Figure 18: SMEs are largely satisfied with their Property Finance Finance broker
  • Figure 19: SMEs are also happy with their commercial liability broker
  • Figure 20: 43 per cent of SMEs have been with their insurance provider for more than 5 years
  • Figure 21: Most SMEs are not planning to change their insurance broker
  • Figure 22: Of the minority that have been with their Property Finance Finance broker for less than two years, most SMEs mention price as their reason for switching
  • Figure 23: The minority of SMEs that have been with their commercial liability broker for less than two years also mention price as their main reason for switching
  • Figure 24: 85 per cent of SMEs plan to stay loyal to their broker in the next 12 months
  • Figure 25: Fewer SMEs were planning to change their Property Finance Finance broker at the beginning of 2006 than in 2005
  • Figure 26: Fewer SMEs were also planning to change their commercial liability broker at the beginning of 2006 than in 2005
  • Figure 27: Most SMEs would approach another broker if looking to change their provider
  • Figure 28: 73 per cent of SMEs would consider buying insurance direct
  • Figure 29: Just under 50 per cent of SMEs would consider buying Property Finance Finance insurance direct
  • Figure 30: Just under 50 per cent of SMEs would consider buying commercial liability insurance direct
  • Figure 31: A significant proportion of SMEs would consider buying insurance online
  • Figure 32: Norwich Union is mentioned by the highest number of SMEs as the insurer they would approach for an alternative quote
  • Figure 33: Norwich Union is also the insurer that most SMEs mention when asked who provides direct commercial insurance
  • Figure 34: 55 per cent of SMEs would consider buying commercial insurance from banks or building societies
  • Figure 35: 36 per cent of SMEs would consider buying Property Finance Finance insurance from a bank or building society
  • Figure 36: 38 per cent of SMEs would consider buying commercial liability insurance from a bank or building society
  • Figure 37: Many SMEs would consider buying direct if they could get a cheaper and better deal
  • Figure 38: The main reason given by SMEs for considering buying from a bank or building society is price
  • Figure 39: 27 per cent of SMEs will not consider buying direct because they are happy with their current provider and think that a broker will get them a better deal
  • Figure 40: The main reason why 45 per cent of SMEs would not consider banks for their commercial insurance, is that they think banks are more expensive
  • Figure 41: A number of factors are driving consolidation in the broker market
  • Figure 42: Aon led the market in 2006 in terms of its share of client turnover
  • Figure 43: Multinational brokers account for over 80 per cent of clients with turnovers of over 1 billion
  • Figure 44: Aon was the number one UK broker in 2006 with a 28.4 per cent share of client turnover
  • Figure 45: Marsh was the second largest UK broker in 2006
  • Figure 46: Willis intends to grow its revenue by 27 million per year
  • Figure 47: Jardine Lloyd Thompson is the UK's fourth largest broker in terms of client turnover
  • Figure 48: Commercial insurance will continue to be dominated by the intermediary channel between 2006 and 2010
  • Figure 49: The SMEs surveyed in Q1 2006 come from a variety of business sectors, though most are involved in retail