UK Household Insurance 2009

Introduction

This report provides a comprehensive analysis of the UK household insurance sector. An exclusive survey of over 3,500 consumers provides insight into buyer motivations and behaviours. The report also assesses the current market issues including the credit crunch and aggregators and includes data on market size, structure and underwriting profit, distribution channels and market shares.

Scope

Consumer research on buyer motivations, methods of arrangement and switching behaviour based on an exclusive survey of over 3,500 consumers.

• Insight into the effects of the credit crunch, including the major changes to the competitor rankings.
• Data on the market share of the top brands and groups as well as an analysis of the marketing spend of the top brands.
• Forecasts of the future size of the market, its underwriting profit and the drivers that will affect the market going forward.

Highlights

The merger of Lloyds TSB and HBOS Group to form Lloyds Banking Group has created a home insurance powerhouse Datamonitor estimates that the new group becomes the third largest home insurance underwriting group, given the combination of Lloyds TSB Insurance and St Andrew's and esure.

The growing use of aggregators has served to increase consumers' focus on the price of home insurance. Interviewees commented that aggregators were a large part of the reason for the lack of price movement.

Over half of the sample aged between 18 and 29 had purchased their cover on the internet showing that an internet strategy is an important means of attracting younger buyers.

Reasons to Purchase

• Understand which of your competitors pose the greatest threat, which competitors are gaining market share and which are losing market share.
• Assess the marketing messages that will work best, the potential of the new business market and the most effective distribution channels.
• Gain insight into the future direction of the sector, including market size and underwriting profitability and the major issues affecting the market.

• Overview
• Catalyst
• Summary
  • Methodology
  • Executive Summary
  • The credit crunch is having a major impact on the home insurance market
  • Lloyds Banking Group and Santander have gained significant market share from the credit crunch
  • Lloyds Banking Group has become the biggest distributor and the third largest home insurance underwriting group
  • Santander has become one of the top ten distributors of home insurance in the UK
  • Growth in the household insurance market was muted by strong competition in 2008
  • The market is estimated to have grown by 2% to 7.8 billion in 2008
  • The price of combined insurance policies came under pressure in the last two quarters of 2008
  • It is essential that providers stress a price based marketing message when selling home insurance
  • Providers need to stress the low price of their policies in order to acquire buyers of combined policies
  • An internet sales strategy is key to maximising sales of contents insurance among younger buyers
  • The market continues to grow and returns profits until 2012 under the neutral scenario
  • Premium rate increases are expected to drive growth in household GWP
  • The market will reach a peak of 9 billion in 2013
  • Household insurers make an underwriting profit until 2012 under the neutral scenario
  • Table of figures
  • Table of tables
  • Market Issues
  • Introduction
  • The credit crunch is having a major impact on the home insurance market
  • Lloyds Banking Group and Santander have gained significant market share from the credit crunch
  • Lloyds Banking Group has become the biggest distributor and the third largest home insurance underwriting group
  • Santander has become one of the top ten distributors of home insurance in the UK
  • The recession will present new opportunities to target consumers with cheaper products
  • Consumers may reduce their level of cover in the recession
  • The recession will present new opportunities to target consumers with cheaper products
  • Insurers are likely to be faced with an increasing number of fraudulent claims
  • Some banks have seen their home insurance sales fall due to lower mortgage volumes
  • Aggregators are presenting opportunities and challenges for market participants
  • Aggregators are becoming a more important route to market
  • Use of aggregators will increase during the recession
  • Some home insurance providers have launched products to be used specifically on aggregators
  • Aggregators went on a huge marketing drive in 2008
  • A number of interviewees feel that aggregators are holding down price movements
  • The Pitt review could see government and insurers work more closely together to combat flood risk
  • The summer floods in 2007 are estimated to have cost the market approximately 3 billion in total
  • The Pitt report recommended a greater level of collaboration between the government and insurers
  • Market Context
  • Introduction
  • Growth in the household insurance market was muted by strong competition in 2008
  • The market is estimated to have grown by 2% to 7.8 billion in 2008
  • Combined insurance policies account for the majority of home insurance GWP
  • There was marginal price growth in 2008 with prices for combined and contents policies coming under particular pressure in H2
  • The price of combined insurance policies came under pressure in the last two quarters of 2008
  • The market for contents insurance policies became much more competitive in the third and fourth quarters of 2008
  • Insurers have been pushing up the price of buildings insurance policies
  • There is a vast potential market for household insurance
  • There is a potential market of 21.4m households in England
  • The number of households in England grew by 1.1% in 2008 providing home insurers with new business opportunities
  • Privately rented households are a growing market for household insurance providers
  • 2008 was a far better year for claims costs
  • Claims costs fell by a quarter in 2008
  • Escape of water claims increased by 13.7% to 662m in 2008
  • Claims relating to flood and storm damage fell significantly in 2008
  • Domestic fire claims costs increased in 2008
  • Accidental damage claims costs declined to 397m in 2008
  • The average value of a theft claim rose by 7.4% to 1,086 in 2008
  • The number of burglaries increased slightly in 2007/8
  • Older and settled homeowners continue to represent the best theft risks for insurers
  • 2008 was a good year for subsidence claims
  • The market returned to a profit in 2008
  • The market returned an underwriting profit in 2008
  • Distribution
  • Introduction
  • Banks and building societies are the largest distribution channel for home insurance
  • The majority of home insurance is distributed via banks and building societies
  • Brokers accounted for an estimated 26% of home insurance premium income in 2008
  • The direct channel accounts for around a quarter of home insurance premium income
  • Around 15% of home insurance premium income is distributed via the partnerships channel
  • The Lloyds TSB, Halifax and Norwich Union brands have the greatest market share
  • The Lloyds TSB brand is the market leader in the distribution of home insurance policies
  • Halifax was the top provider of combined contents and buildings policies while other top five distributors included Direct Line, Lloyds TSB, Norwich Union and More Th>n
  • Lloyds TSB was the top provider of contents only insurance policies and has a particularly strong hold of consumers aged over 60
  • Direct Line spent the most money on marketing home insurance products
  • Direct Line spent the most money on marketing home insurance in 2008
  • On average, the top 10 advertisers spent the largest proportion of their marketing budgets on direct mail, with brokers driving this trend
  • TV was an important medium for the top 10 advertisers, but was generally more important for direct insurers
  • Direct mail remained the preferred medium for buildings and contents advertisers ranked
  • Direct mail campaigns accounted for all of the marketing expenses of three advertisers ranked
  • Advertisers in the 11-20 group were less reliant on television campaigns to promote their building and contents insurance
  • Consumer Data
  • Introduction
  • There is a healthy market for home insurance products with over 60s consumers being the largest target market for combined cover
  • There is a healthy market for home insurance products
  • Consumers over the age of 60 are the largest target market for combined policies
  • Higher income households form the core market for combined home insurance cover while contents only cover is most popular with lower income consumers
  • Penetration rates are highest amongst AB and C1 consumers
  • It is essential that providers stress a price based marketing message when selling home insurance
  • Providers need to stress the low price of their policies in order to acquire buyers of combined policies
  • The promise of a cheaper quote will attract buyers of all ages however providers must place more emphasis on the secondary and tertiary buyer needs for middle aged consumers and those over 60
  • Home insurance providers must have a phone and internet sales strategy in order to maximise policy volumes
  • It is essential for home insurance providers to have a phone and internet sales strategy
  • Providers targeting the over 60s should ensure they have a phone based sales strategy when selling combined home insurance
  • A phone based sales strategy is important when targeting the over 60s consumer with combined buildings and contents cover
  • Mid to higher income households are most likely to buy a combined policy over the internet
  • AB and C1 consumers are most likely to purchase a combined policy over the internet
  • An internet sales strategy is key to maximising sales of contents insurance policies among younger buyers
  • An internet sales strategy is key to maximising sales of contents insurance among younger buyers
  • An internet strategy is the core way of reaching mid and higher income consumers when selling contents insurance policies
  • Internet sales of contents insurance policies dominate among AB and C1 consumers
  • There is a large new business market for providers to target
  • Consumers purchasing a combined buildings and contents policy are most likely to switch making them an attractive market segment to target
  • Buyers of combined buildings and contents policies show the same propensity to switch across all demographic groups
  • Switching rates of combined buildings and contents policies are broadly similar across age groups
  • Switching of combined contents and buildings policies stays relatively the same across household income bands
  • Switching of combined contents and buildings policies is fairly uniform across socio-economic groups
  • Consumers between the ages of 18 and 29 are the softest targets for contents insurance providers
  • Consumers aged between 18 and 29 are the softest targets for contents insurance providers
  • Higher income consumers are most likely to switch their contents insurance provider
  • AB and C1 consumers are most likely to move to a new contents insurance provider with between 30% and 32% having switched at last renewal
  • Competitive Dynamics
  • Introduction
  • The merger between Lloyds TSB and HBOS has created a giant home insurance underwriter and distributor
  • The Lloyds Banking Group is the third largest home insurance underwriting group
  • Datamonitor estimates that Lloyds Banking Group is the leading distributor of home insurance
  • Lloyds TSB and HBOS Insurance both launched new home insurance propositions in 2008
  • Sheilas' Wheels began offering home insurance in 2008
  • Lloyds TSB launched a new home insurance product for over 50s
  • Half of the top 10 managed to increase their market share in 2007
  • RSA witnessed the largest increase in market share of the top 10 household insurers
  • Legal & General increased its premium income to 255.7m in 2007
  • Lloyds TSB grew its market share to 5.4% in 2007
  • RBSI insurers, Direct Line, and UKI gained household insurance market share as premium income grew
  • Norwich Union remains the market leader, though its market share has declined
  • Churchill witnessed a significant fall in premium income in 2007
  • St. Andrew's suffered the largest decline in market share of all the top 10 competitors
  • Zurich witnessed a decline in its market share as its premium income decreased by 8.3% in 2007
  • AXA's market share declined as premium income fell to 306.4m in 2007
  • Few insurers in the 11-20 group increased their market share
  • Only three insurers increased market share in the 11-20 group
  • Hiscox increased its market share as a result of a 20% increase in premium income
  • Allianz witnessed its premium income increase significantly in 2007
  • Fortis, the Co-op and NIG lost premium income and market share
  • Fortis's premium income and market share slipped in 2007
  • All top 10 property insurers saw their loss ratios increase in 2007 due to the summer floods
  • The average loss ratio of the top 10 UK property insurers increased by 23.1 percentage points
  • St Andrews, Direct Line, Lloyds TSB and Zurich experienced significant increases in their loss ratios
  • Six insurers returned loss ratios that were below the market average in 2007
  • Allianz and RSA achieved the smallest ratios in 2007, which were significantly below the market average
  • AXA, Churchill, Norwich Union and NIG achieved below average loss ratios, despite seeing large increases
  • The average expense ratio of the top 10 property insurers increased in 2007, with NIG and Direct Line recording the largest individual increases
  • The average expense ratio of the top 10 property insurers rose by one percentage point in 2007
  • Churchill, Lloyds TSB and St Andrews achieved expense ratio reductions
  • Seven of the top 10 property insurers witnessed their ratios deteriorate in 2007
  • NIG and Direct Line experienced the largest increases in their expense ratios
  • RSA, Zurich, AXA, Allianz and Norwich Union saw moderate increases to their expense ratios
  • All top 10 property insurers saw their combined ratio increase in 2007
  • The average combined ratio of the top 10 property insurers rose by 24.1 percentage points in 2007
  • Four insurers saw their combined ratios increase by more than 30 percentage points
  • Churchill and Allianz recorded moderate increases to their combined ratios
  • Future Decoded
  • Introduction
  • The market continues to grow and returns profits until 2012 under the neutral scenario
  • Premium rate increases are expected to drive growth in household GWP
  • The market will reach a peak of 9 billion in 2013
  • Household insurers make an underwriting profit until 2012 under the neutral scenario
  • Competition restricts premium rate increases in the pessimistic scenario
  • Competitive pressures are forecast to keep rate increases low throughout the forecast period
  • GWP is forecast to rise marginally under the pessimistic scenario due to competitive pressures
  • The market moves into an underwriting loss as early as 2010 under the pessimistic scenario
  • The market sees better margins under the optimistic scenario
  • A stronger focus on restoring margin to the market will lead to strong growth in premium income
  • The market experiences stronger growth in 2009 and 2010, attaining a value of 9.3 billion by 2013
  • Underwriting profits improve substantially in the optimistic scenario, peaking in 2011 at 212m
• APPENDIX
  • Distribution definitions
  • Banks/building societies
  • Broker
  • Company staff
  • Direct
  • 'Other' company agents
• Partnerships
  • Datamonitor Consumer Survey
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
• List of Tables
  • Table 1: UK home lending volume and value, 2004-08
  • Table 2: Estimated aggregator-instigated home insurance sales, 2007e-2008e
  • Table 3: UK household insurance GWP, 2004-08e (m)
  • Table 4: Estimated split of household insurance GWP by type of cover, 2008 (m)
  • Table 5: Average household insurance premium rates, January 2007-09 ()
  • Table 6: The size and tenure of households in England, 2008 (000s)
  • Table 7: The number of households in England, 2005-08 (000)
  • Table 8: Trends in household tenure for England, 1998-2008, (000s)
  • Table 9: UK domestic property insurance claims by peril, 2004-08 (m)
  • Table 10: Escape of water claims cost and number of claims for escape of water in the UK, 2004-08
  • Table 11: Gross claims incurred for domestic property weather claims, 2004-08 (m)
  • Table 12: UK claims incurred by fire, domestic and total, 2004-08, (m)
  • Table 13: Accidental damage claims costs and the number of claims for accidental damage in the UK, 2004-08
  • Table 14: Number of household theft and average theft claims cost in the UK, 2004-08
  • Table 15: Number of burglaries in England and Wales, 2001/02 to 2007/08
  • Table 16: UK unemployment, Q4 2004-Q4 2008
  • Table 17: Household types by risk of burglary in the UK, 2005/6 to 2007/8
  • Table 18: Average subsidence claims cost compared to claims costs and number of claims for subsidence in the UK, 2004-08
  • Table 19: Household insurance GWP distribution by channel (All business), 2004-08e
  • Table 20: With which of these insurance providers are you insured for your home insurance policy/s? Top ten responses split by age (September 2008)
  • Table 21: With which of these insurance providers are you insured for your combined contents and buildings insurance? Top ten responses split by age (September 2008)
  • Table 22: With which of these insurance providers are you insured for your home contents insurance? Top ten responses split by age (September 2008)
  • Table 23: Top 10 building and contents advertisers' spend by media, 2008 ()
  • Table 24: Top 11-20 building and contents advertisers' spend by media, 2008 ()
  • Table 25: Which of the following types of insurance are you covered by? (September 2008)
  • Table 26: Which of the following types of insurance are you covered by? Responses split by age (September 2008)
  • Table 27: Which of the following types of insurance are you covered by? Responses split by household income (September 2008)
  • Table 28: Which of the following types of insurance are you covered by? Responses split by socio-economic group (September 2008)
  • Table 29: Why did you take out your home insurance with your current provider? Top five responses (September 2008)
  • Table 30: Why did you take out your home insurance with your current provider? Top five responses split by age (September 2008)
  • Table 31: How did you arrange the home insurance policy you currently have? (September 2008)
  • Table 32: How did you arrange the combined contents and buildings insurance policy you currently have? Responses split by age (September 2008)
  • Table 33: How did you arrange the combined contents and buildings insurance policy you currently have? Responses split by household income (September 2008)
  • Table 34: How did you arrange the combined contents and buildings insurance policy you currently have? Responses split by socio-economic group (September 2008)
  • Table 35: How did you arrange the home contents insurance policy you currently have? Responses split by age (September 2008)
  • Table 36: How did you arrange the home contents insurance policy you currently have? Responses split by household income (September 2008)
  • Table 37: How did you arrange the home contents insurance policy you currently have? Responses split by socio-economic group (September 2008)
  • Table 38: When you last renewed your home insurance did you change company or stay with the same one? (September 2008)
  • Table 39: When you last renewed your combined contents and buildings insurance did you change company or stay with the same one? Responses split by age (September 2008)
  • Table 40: When you last renewed your combined contents and buildings insurance did you change company or stay with the same one? Responses split by household income (September 2008)
  • Table 41: When you last renewed your combined contents and buildings insurance did you change company or stay with the same one? Responses split by socio-economic group (September 2008)
  • Table 42: When you last renewed your home contents insurance did you change company or stay with the same one? Responses split by age (September 2008)
  • Table 43: When you last renewed your home contents insurance did you change company or stay with the same one? Responses split by household income (September 2008)
  • Table 44: When you last renewed your home contents insurance did you change company or stay with the same one? Responses split by socio-economic group (September 2008)
  • Table 45: Impact of Lloyds TSB and HBOS merger on the competitive position of the top 10 home insurance underwriting groups
  • Table 46: Top 10 UK household insurance competitors by GWP and market share, 2006-07
  • Table 47: 11-20 household insurance competitors by GWP and market share, 2006-07
  • Table 48: Premium income compared to change in loss ratio for the top 10 UK property insurers, 2006-07
  • Table 49: Premium income compared to change in expense ratio among the top 10 property insurers, 2006-07
  • Table 50: Premium income compared to change in combined ratio among the top 10 property insurers, 2006-07
  • Table 51: Key variables affecting household insurance GWP, neutral scenario, 2009-13
  • Table 52: Forecast of household insurance GWP, neutral scenario, 2009-13 (m)
  • Table 53: Forecast of UK household insurance underwriting result, neutral scenario, 2009-13 (m)
  • Table 54: Key variables affecting household insurance GWP, pessimistic scenario, 2009-13
  • Table 55: Forecast of UK household insurance GWP, pessimistic scenario, 2009-13 (m)
  • Table 56: Forecast of UK household insurance underwriting result, pessimistic scenario, 2009-13 (m)
  • Table 57: Key variables affecting household insurance GWP, optimistic scenario, 2009-13
  • Table 58: Forecast of UK household insurance GWP, optimistic scenario, 2009-13
  • Table 59: Forecast of UK household insurance underwriting result, optimistic scenario, 2009-2013 (m)
  • Table 60: Breakdown of consumer survey respondents by household income and age
  • Table 61: Breakdown of consumer survey respondents by socio-economic group
• List of Figures
  • Figure 1: Lloyds Banking Group has become the number one distributor of home insurance while Santander has become the ninth biggest distributor
  • Figure 2: Strong competition meant the home insurance market saw marginal growth in 2008
  • Figure 3: There was a strong element of price competition in the last two quarters of 2008
  • Figure 4: A price based message is particularly attractive to consumers buying a combined policy
  • Figure 5: Over 50% of consumers aged between 18 and 29 purchased their contents insurance policy over the internet
  • Figure 6: Household GWP will rise at an average annual rate of 3%, reaching 9 billion in 2013 under the neutral scenario
  • Figure 7: The market is forecast to be profitable for most of the forecast period, under the neutral scenario
  • Figure 8: Lloyds Banking Group has become the number one distributor of home insurance while Santander has become the ninth biggest distributor
  • Figure 9: Tesco Personal Finance launched a "no frills" home insurance package in June 2008
  • Figure 10: Banks saw their opportunity for mortgage related home insurance sales plummet in 2008
  • Figure 11: Aggregator-instigated home insurance sales doubled in 2008
  • Figure 12: Aggregators were focused on building their brand in 2008
  • Figure 13: Strong competition meant the home insurance market saw marginal growth in 2008
  • Figure 14: Combined insurance policies account for the majority of home insurance GWP
  • Figure 15: There was a strong element of price competition in the last two quarters of 2008
  • Figure 16: Contents insurance prices came under real pressure in the last two quarters of 2008
  • Figure 17: The market average price of buildings insurance grew strongly in the fourth quarter of 2008
  • Figure 18: Home insurance providers can target a potential market of 6.7m rented households and 14.6m owner occupied households in England
  • Figure 19: The number of households in England continues to grow
  • Figure 20: The private rented sector is a growing market for household insurance providers
  • Figure 21: Weather related claims decreased significantly in 2008 as claims volumes returned closer to normal levels
  • Figure 22: Flood and storm related claims fell significantly in 2008
  • Figure 23: Domestic fires accounted for almost a third of total fire claims costs in 2008
  • Figure 24: The number of theft related household insurance claims fell to 328,000 in 2008
  • Figure 25: The number of burglaries in England and Wales increased marginally in 2007/08
  • Figure 26: Older homeowners are the least likely to be burgled
  • Figure 27: Insurers benefited from low subsidence claims costs in 2008
  • Figure 28: Datamonitor estimates that the household insurance market will have recorded a profit of over 100m in 2008
  • Figure 29: Banks lost market share in the home insurance market as mortgage linked sales declined in 2008
  • Figure 30: The Lloyds TSB insurance brand is the leading provider of home insurance
  • Figure 31: Halifax's strength in the mortgage market makes it a key distributor of combined contents and buildings insurance policies
  • Figure 32: Lloyds TSB is the number one provider of home contents insurance while RIAS clearly scores well with the over 60s
  • Figure 33: The top 10 marketers made heavy use of direct mail in 2008
  • Figure 34: Direct mail is heavily relied upon among the 11-20 advertisers to market to consumers
  • Figure 35: There is a high penetration of home insurance products
  • Figure 36: The over 60s are the largest target market for combined home insurance policies
  • Figure 37: Providers should target their combined contents and buildings insurance offer at consumers in the mid to higher income bands
  • Figure 38: Combined policies are most popular with AB and C1s whereas contents only policies are most popular with consumers in the DE band
  • Figure 39: A price based message is particularly attractive to consumers buying a combined policy
  • Figure 40: A price based message will work well with consumers of all ages however providers should emphasize other factors as well to middle aged consumers and those over 60
  • Figure 41: Home insurance providers should ensure they have a phone and Internet sales strategy
  • Figure 42: The vast majority of consumers aged over 60 will buy their combined policies over the phone
  • Figure 43: Affluent consumers are more likely to buy a combined policy over the internet
  • Figure 44: Internet sales of combined cover dominate amongst AB and C1 consumers whilst phone sales dominate amongst C2 and DE consumers
  • Figure 45: Over 50% of consumers aged between 18 and 29 purchased their contents insurance policy over the internet
  • Figure 46: Internet sales are a key part of acquiring mid to higher income consumers
  • Figure 47: AB and C1 consumers are most likely to buy their contents policy over the internet
  • Figure 48: 40% of consumers with a combined policy changed their provider at the last renewal
  • Figure 49: The proportion of consumers switching their combined home insurance provider varies little by age group
  • Figure 50: A similar proportion of consumers switched their combined home insurance provider across most household income bands
  • Figure 51: Switching combined cover provider is common across all socio-economic groups
  • Figure 52: Consumers aged between 18 and 29 are the softest acquisition targets contents insurance providers
  • Figure 53: Consumers in the higher income bands are the least loyal to their contents insurance provider
  • Figure 54: AB and C1 consumers are most likely to be attracted to a new contents insurance provider
  • Figure 55: The combined Lloyds Banking Group is the third largest home insurance underwriting group
  • Figure 56: Datamonitor estimates that Lloyds Banking Group is the largest distributor of home insurance under its own brands
  • Figure 57: The UK household insurance market remained highly consolidated in 2007 as the top 10 controlled 65.1% of premiums written
  • Figure 58: Few home insurers ranked 11-20 saw their market share grow in 2007
  • Figure 59: All top 10 property insurers saw their loss ratio increase in 2007 due to the summer floods
  • Figure 60: Lloyds TSB was the only insurer to improve its expense ratio and achieve GWP growth at the same time in 2007
  • Figure 61: All top 10 property insurers saw their combined ratio increase in 2007
  • Figure 62: Household GWP will rise at an average annual rate of 3%, reaching 9 billion in 2013 under the neutral scenario
  • Figure 63: The market is forecast to be profitable for most of the forecast period, under the neutral scenario
  • Figure 64: GWP growth will be lower due to smaller premium rate increases under the pessimistic scenario
  • Figure 65: Under the optimistic scenario GWP is predicted to rise to 9.3 billion in 2013
  • Figure 66: The market is predicted to be profitable throughout the forecast period under the optimistic scenario