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UK Commercial Motor Insurance 2006
Market Report, March 2007, 2236  €


Description

IntroductionIn the face of sustained competitive pressures, the UK motor insurance market has succumbed to the soft cycle.
This report examines the market's performance in terms of GWP and profitability.
It also provides forecasts for GWP and underwriting result to 2011 under three different scenarios, making it essential for those with an interest in the commercial motor insurance market.ScopeExtensive analysis of GWP and underwriting result for the commercial motor market, placed in the context of the performance of the total motor market.
An examination of commercial insurance distribution trends Analysis of the major competitive issues, supported by interviews with senior industry executives and data from a range of secondary sources.
GWP and underwriting result forecasts to 2011, based on Datamonitor's in-house expertise and proprietary modelsHighlightsThe commercial motor insurance market fell by 2.4 per cent in 2005 to a value of £3.4 billion in GWP terms.
The reduction in GWP is a direct result of the competitive environment in evidence for most of 2005, which was most acute in commercial vehicle.
The distribution of commercial insurance is still largely in the hands of brokers, which have seen their share of the market remain relatively stable at 83 per cent.
This dominance is due to the more complex nature of commercial insurance, meaning that most commercial clients require professional advice, necessitating the use of a broker.
In 2005, the top 10 commercial insurers accounted for 77.5 per cent of the total commercial motor insurance market.
The market leader, Royal & SunAlliance, accounted for 18.2 per cent of the market.
The level of consolidation has increased significantly since 1994, when the top 10 held 68.3 per cent of the marketReasons to PurchaseBenchmark your performance against that of your competitors using current and past data.
Understand the trends behind SMEs insurance purchasing behavior, to better target this market segment.
Develop your business strategy with confidence using Datamonitor's exclusive sector forecasts

Sommaire
 
CHAPTER 1 EXECUTIVE SUMMARY 3
Introduction 3
Market context 3
The commercial motor market shrank in both 2005 and 2006, as continued competition resulted in premium rate decline 3
Falling Premium rates have been offset by an increasing commercial vehicle parc 3
Profitability in the commercial motor market declined as outgoings increased faster than NWP 4
Customer focus 5
Brokers dominate the distribution of commercial insurance, but other channels are targeting areas such as commercial vehicle 5
The distribution of commercial insurance has seen little shift away from the face-to-face and telephone platforms, and the Internet is mainly used by brokers to communicate with insurers 5
However, brokers use the Internet in their dealings with insurers 5
Retention rates were high in commercial lines, as satisfaction levels are high 6
Competitor dynamics 6
The market experienced very little merger or acquistion activity in 2006, but saw new entrants expanding into commercial motor 6
Only one acquisition involving a UK motor insurer took place in 2006 6
Brokers have been heavily involved in acquisition activity in 2006 6
The commercial market saw a number of new entrants in 2006 and at the end of 2005 6
The top 10 players in the commercial motor market increased their share of the market in 2005 7
Consolidation increased in 2005, as the top 10 increased their share at the expense of smaller players 7
Six of the top 10 commercial motor insurers increased their market share in 2005 8
Soft market conditions led many insurers with a combined ratio already over 100 per cent to suffer further reductions in profitability 8
The future decoded 9
Commercial motor GWP is expected to recover in the second half of 2007 and reach a value of £4.1 billion by 2011 9
2007 is expected to see the end of the soft market, but commercial motor is not forecast to make a profit until 2010 9
CHAPTER 2 INTRODUCTION 22
What is this report about? 22
Who is the target reader? 23
How to use this report 23
CHAPTER 3 MARKET CONTEXT 24
Introduction 24
The commercial motor market shrank in both 2005 and 2006, as continued competition resulted in premium rate decline 24
The commercial motor insurance market reached a premium income of £3.4 billion in 2005, declining by 2.4 per cent 24
Commercial motor GWP continued to contract in 2006, with premium income falling to 3.3 billion 24
Fleet premium income held up the best in 2005 despite the soft market, but began to fall in 2006 26
Commercial vehicle GWP declined the most in 2005, while 2006 saw a milder contraction 26
The slight increase in GWP in 2005 was caused by falling premium rates offset by an increase in the commercial vehicle parc 28
The commercial motor parc increased in size in 2005 28
Commpany cars and light goods account for over 80 per cent of the commercial vehicle parc, and also saw the quickest growth in 2005 29
Company cars grew as a proportion of both the car and total motor vehicle parc in 2005 31
New registrations of commercial motor vehicles saw strong growth in 2005 32
New registrations of company cars grew below their average annual increase in 2005 34
Competitive pricing resulted in reduced premiums in the commercial motor market in 2005 and in 2006 34
Fleet premium rates declined in 2005 35
Commercial vehicle premium rates continued to decline in 2005 35
Profitability declined as outgoings increased faster than NWP 37
The commercial motor market's underwriting profit declined to £41 million in 2005 37
Total outgoings rose in 2005, as insurers increased their reserves 39
Claims incurred dropped as a proportion of total outgoings in 2005 40
Claims costs in the fleet market moderated in 2005, as accident and theft rates improved 41
Total fleet claims costs fall by 7.8 per cent in 2005, the result of fewer and less costly claims 41
Personal injury remains the main driver behind claims inflation leading insurers to attempt to control such costs, though falling accident rates have a positive effect as well 42
The number of traffic accidents has fallen in recent years, even though the number of vehicles has increased 42
Road accident casualties fell in 2005 46
Rehabilitation is increasingly seen as an important strategy in controlling the cost of personal injury claims 48
Rapid treatment care could save on bodily injury claims costs 48
Theft of vehicles continues to decline bringing some relief to the claims bill 48
Insurers are working to reduce claims costs by working with clients to lower accident rates and repair costs 50
Driving down claims frequency by preventing accidents is a common strategy 50
Keeping repair costs down is a key strategy for lowering claims infaltion 51
Insurers are also using telematics technology to control claims costs and offer new product solutions 51
Overall the motor insurance market declined by 1.5 per cent in 2005, and profitability deteriorated 52
Total motor market GWP declined in 2005, brought down by private motor as well as the declining commercial motor sector 52
Commercial motor accounted for just over a quarter of the total motor market in 2005 53
The total motor vehicle parc increased at a slower rate than the commercial vehicle parc in 2005 54
The total motor market's underwriting loss increased to £191 million in 2005 55
The commercial market outperformed the private motor market in terms of underwriting loss in 2005 56
CHAPTER 4 CUSTOMER FOCUS 59
Introduction 59
Brokers dominate the distribution of commercial insurance, but other channels are targeting areas such as commercial vehicle 59
Brokers account for the overwhelming majority of the commercial insurance market in the UK 59
The direct channel has seen a marginal increase in market share 59
All other distribution channels remain marginal distributors of commercial insurance 60
Brokers also dominate commercial insurance distribution among the SME segment of the market, though some consumers are interested in buying via other channels 61
Brokers form the most important distribution channel for SMEs 61
Brokers would be the first choice for SMEs if they were to switch provider 63
However, when prompted some SMEs would consider alternative distribution channels, if they could get a better deal that way 64
The distribution of commercial insurance has seen little shift away from the face-to-face and telephone platforms, and the Internet is mainly used by brokers to communicate with insurers 66
Many SMEs have face-to-face interaction with their insurance provider at least once a year 66
The Internet is still only used by a small proportion of companies to buy insurance 67
However, brokers use the Internet in their dealings with insurers 68
imarket is an Internet portal for brokers that allows multiple quotes to be generated from one application form 68
imarket added two new carriers in 2005 and 2006 69
Further integration with software houses would benefit imarket 69
SMEs are generally loyal to their provider, and base their decisions on a mixture of price and service 70
Overall retention levels remain high in the SME market 70
The main reason SMEs give for choosing a provider is the price of insurance premiums, though SMEs also value service 71
CHAPTER 5 COMPETITIVE DYNAMICS 73
Introduction 73
The market experienced very little merger or acquistion activity in 2006, but saw new entrants expanding into commercial motor 73
Acquisition activity involving UK motor insurers was muted in 2006 73
Australian insurer IAG purchased the Equity Group in December 2006, strengthening its UK presence following the acquisition of Hastings earlier in the year 73
The sale of Royal & SunAlliance's US legacy business led to possible acquisition rumours 74
Brokers have also been heavily involved in acquisition activity in 2006, and insurers showed interest in buying brokers as well 74
The commercial market saw a number of new entrants in 2006 and at the end of 2005 75
Three new start-up underwriting agencies entered the commercial insurance market in 2006, targeting the SME sector 75
Fortis expanded its motor presence to include commercial vehicle at the end of 2005 76
The top 10 players in the commercial motor market increased their share of the market in 2005 77
Consolidation increased in 2005, as the top 10 increased their share at the expense of smaller players 77
Six of the top 10 commercial motor insurers increased their market share in 2005 78
Royal & SunAlliance increased its premium income by 23.0 per cent, and became the market leader 78
NIG also increased its premium income and market share in 2005 78
Highway increased its market share with a large increase in premium income 79
NFU Mutual maintained its standing with a 0.1 percentage point increase in market share 79
Brit retained its tenth position, growing premium income and market share 79
AXA accounted for 4.4 per cent of the commercial motor market in 2005 79
Decliners were in the minority among the top 10 in 2005, as only three competitors shed market share 80
Norwich Union lost the most market share and premium income in 2005 80
Zurich continued to lose market share and GWP in 2005 80
Allianz saw its commercial motor book decline by 1.2 percentage points in market share 80
QBE was the 6th largest commercial motor insurer in 2005 81
A varied motor book is the norm among the top motor insurers 83
All of the top 10 commercial motor insurers wrote both fleet and commercial vehicle business in 2005 83
Only three of the top 10 motor insurers lacked any commercial presence 85
CHAPTER 6 THE FUTURE DECODED 87
Introduction 87
Commercial motor GWP is expected to recover in the second half of 2007, with stronger growth to come 88
Rate increases are expected to lead to an improvement in commercial motor GWP in 2007 88
The commercial motor market is forecast to reach a value of £4.1 billion by 2011 89
2007 is expected to see the end of the soft market, but commercial motor is not forecast to make a profit until 2010 91
The reduced volitility of the cycle will also hit profits during the hard market 91
The optimistic and pessimistic scenarios for commercial motor reach vastly different levels of profit, highlighting the importance of premium increases in 2007 and 2008 94
GWP is forecast to grow throughout the forecast period, in both scenarios 94
GWP in the optimisitic scenario is forecast to outgrow GWP in the pessimistic scenario by 0.8 per cent on a compound annual average basis 95
The rate increases of the optimistic scenario lead to three years of profits, whereas the lower premium rate increases in the pessimistic scenario lead to continued losses 97
The total motor market's premium income is forecast to rise to £17.2 billion in 2011 99
Total motor insurance GWP growth will pick up in 2007 as the private market gains momentum 99
The total motor market will approach profitability in 2010 but fail to return a profit due to the losses of the private market 101
CHAPTER 7 APPENDIX 103
Supplementary data 103
Definitions 105
SME 105
Definitions of ABI terms 105
Brokers 106
National brokers 106
Other intermediaries & brokers 106
Chain brokers & telebrokers 106
Direct 106
Other company agents 106
Utilities/retailers/affinity groups 106
Company staff 106
Banks/building societies 107
Definitions of general terms 107
Channel 107
Platform 107
Earned premiums 107
Gross premiums 107
Net premiums 107
Written premiums 107
2005 definitions for motor 107
Total private motor 108
Total commercial motor 108
Private motor comprehensive 108
Private motor non-comprehensive 108
Motorcycle 109
Fleets 109
Commercial vehicles (non-fleet) 109
Pre-2005 definitions for motor 110
Methodology 111
Datamonitor's Commercial Broker Survey 111
Datamonitor's SME Survey 111
Datamonitor's SME Insurance Survey Q3 2005 111
Datamonitor's SME Insurance Survey Q1 2006 112
Competitor data 112
GWP versus GEP reporting 113
Ratio analysis by competitor 113
Current readings 114
Future readings 114
Relevant links 115
Do you need more information? 115
Datamonitor Financial Services Consulting 115
SPP writing team 117
List of Tables
Table 1: Total commercial motor GWP, 2001-6e 25
Table 2: Commercial motor GWP, by line of business, 2001-6 27
Table 3: UK commercial vehicle parc by body type, 2001-5 29
Table 4: Commercial motor vehicle parc by body type, 2001-5 31
Table 5: The number of company cars compared to all cars and the total motor parc, 2001-5 32
Table 6: New registrations of selected motor vehicles by taxation class, 2001-5 33
Table 7: New registrations of company cars, 2001-5 34
Table 8: Average premium rates for commercial vehicle and fleet, 1995-2005 37
Table 9: Commercial motor underwriting account, 1995-2005 39
Table 10: Detailed commercial motor underwriting account, 2001-5 40
Table 11: Claims as proportion of total outlay, 2001-5 40
Table 12: Fleet claims, 2001-5 41
Table 13: Total number of road accidents in the UK, 1995-2005 44
Table 14: The number of road accidents relative to the number of registered vehicles in the UK, 1995-2005 46
Table 15: Road accident casualties in the UK, 2001-5 47
Table 16: Theft of and from motor vehicles, 1995-2005/6 50
Table 17: Total motor insurance market GWP by line, 2001-5 53
Table 18: Total motor market by line of business, 2001-5 53
Table 19: Total motor parc by body type, 2001-5 54
Table 20: Total motor market underwriting account, 1995-2005 56
Table 21: Private and commercial underwriting results, 1995-2005 58
Table 22: Market share of distribution channels in the commercial general insurance market, 2002-5 61
Table 23: Market share of the market leader, the rest of the top 10 and the remainder, 1994, 2004, 2005 78
Table 24: Market share of top 10 commercial motor competitors, 2001-5 82
Table 25: Top 10 commercial motor competitors, by premium income, 2001-5 83
Table 26: Top 10 commercial motor competitors by premium income split by line of business, 2004-5 85
Table 27: Split between commercial and private markets for the top 10 total motor insurers, 2005 86
Table 28: Commercial motor GWP forecast, neutral scenario, 2001-11f 91
Table 29: Forecasts for commercial motor NWP and underwriting result, neutral scenario, 2001-11f 93
Table 30: Commercial motor GWP forecast, pessimistic and optimistic scenarios, 2001-11f 97
Table 31: Commercial motor underwriting result forecast, optimistic and pessimistic scenarios, 2001-11f 99
Table 32: Total motor GWP forecast by line of business, neutral forecast, 2001-11f 100
Table 33: Total motor underwriting account forecast, 2001-11f 102
Table 34: Total motor vehicle new registrations by taxation class, 2001-5 103
Table 35: Motor vehicles registered by taxation class, 2001-5 104
Table 36: Motoring offences divided by gender and age, 2005 105
Table 37: What business sector are you involved in? 111
List of Figures
Figure 1: Commercial vehicle parc continues growing, 2001-5 4
Figure 2: The commercial motor market has seen significant consolidation since 1994 8
Figure 3: The UK commercial motor market declined again in 2005 25
Figure 4: Commercial vehicle lost premium income faster than fleet in 2005, after having gained GWP at a faster rate in the past 27
Figure 5: The commercial vehicle parc grew between 2001 and 2005 28
Figure 6: All but goods vehicles and buses saw growth in 2005, with company cars increasing their share of the parc 30
Figure 7: Company cars have grown as a proportion of the total car parc since 2003 32
Figure 8: Commercial motor premiums declined in both fleet and commercial vehicle in 2005 36
Figure 9: The commercial underwriting result declined for the second consecutive year in 2005 38
Figure 10: The number of road traffic accidents in the UK has been declining steadily since 1997 43
Figure 11: Although vehicle registrations rose again in 2005, road traffic accidents continued to fall 45
Figure 12: Road accident casualties continued to decline in 2005, following a steep fall in 2004 47
Figure 13: Total UK vehicle thefts continued to decline in 2005 49
Figure 14: The total motor market experienced a decline in GWP in 2005, as both the private and the commercial line contracted 52
Figure 15: The total motor parc grew less than the commercial parc 54
Figure 16: The profitability of the total motor market continued to deteriorate in 2005 55
Figure 17: Past cycles have seen much greater volatility in the private underwriting result than in the commercial underwriting result, with greater losses as a result 57
Figure 18: Brokers dominate the distribution of commercial insurance 60
Figure 19: Most SMEs buy their insurance from a broker 63
Figure 20: Most SMEs would approach another broker if looking to change their provider 64
Figure 21: Many SMEs would consider buying direct if they could get a cheaper and better deal 65
Figure 22: The main reason given by SMEs for considering buying from a bank or building society is price 65
Figure 23: 70 per cent of SMEs see their insurance provider at least once a year 67
Figure 24: Most brokers generate none of their GWP via their websites 68
Figure 25: imarket generates a number of quotes, while the user only has to input the risk details once 69
Figure 26: 43 per cent of SMEs have been with their insurance provider for more than 5 years 71
Figure 27: The price of premiums is the main reason for SMEs' choice of provider 72
Figure 28: The commercial motor market has seen increased consolidation since 1994 77
Figure 29: Royal & SunAlliance was the largest commercial motor insurer in 2005 81
Figure 30: The top four commercial motor insurers are all heavily weighted to the fleet sector 84
Figure 31: Of the top 10, only RBSI subsidiaries Direct Line, UKI and Churchill have no commercial motor offering 86
Figure 32: Key to the relative importance of forecast variables 87
Figure 33: Key variables affecting commercial motor GWP, neutral scenario, 2006e-11f 89
Figure 34: GWP is forecast to begin growing again in 2007 as the motor market recovers 90
Figure 35: The commercial motor market is forecast to be profitable by 2010 93
Figure 36: Key variables affecting commercial motor GWP, optimistic and pessimistic scenarios, 2006e-11f 95
Figure 37: GWP growth is not significantly altered by the change in growth for 2007 96
Figure 38: 2007 can mean the difference between profit and continued loss for the commercial motor market 98
Figure 39: Both private and commercial motor are forecast to experience GWP growth between 2007 and 2011 100
Figure 40: The total motor market mirrors the private market, peaking in 2010 but failing to return a profit in the forecast period 101
Figure 41: The SMEs surveyed in Q1 2006 come from a variety of business sectors, though most are involved in retail 112
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