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Introduction
 
With further premium rate increases and another year of benign weather claims, household insurance was an attractive market in 2004. However, with new entrants and existing players increasing their focus on growing market share, this sector will become more competitive, putting downward pressure on rates. This report looks at these issues, as well as providing a wealth of further information.
 

 
Scope
 
Extensive data on the UK household market, including premium income, profitability and competitor market shares.
 
In depth analysis of the top ten domestic insurers' books, as well as details of their home insurance strategies.
 
Analysis of the changing nature of household insurance distribution, including the role of the Internet.
 
Forecasts for household insurance GWP and profitability based on in-house expertise and primary research.
 
Highlights
 
Churchill's market share growth was the strongest of any of the top ten household competitors in 2003. It has been boosted by its access to the Prudential book of business and a number of important household insurance contracts, including deals with Nationwide Building Society and Standard Life Bank.
 

 
A series of significant developments have dramatically altered the face of the household market in 2004. Corporate partnerships have changed hands and new competitors have entered the market. Royal & SunAlliance has lost several important contracts during the course of the year, causing it to fall down the household insurance rankings.
 

 
The favorable conditions for the household insurance market in 2003 were highlighted as the total combined ratio of the top 20 competitors fell from 100.5 per cent to 95 per cent. Only six of the top 20 had combined ratios above 100 per cent, and seven players moved from red ink territory to profitable ground.
 

 
Reasons to Purchase
 
Benchmark your performance against your competitors in this increasingly competitive market
 
Develop your future home insurance strategy using Datamonitor's unique forecasts and insight into key trends
 
Target your customers more effectively and increase customer acquisition through a better understanding of household insurance consumers

TABLE OF CONTENTS
 
CHAPTER 1 EXECUTIVE SUMMARY 3
 
Market context 3
 
Household GWP grew by 4.5 per cent in 2004 3
 
The market moved closer to an underwriting profit in 2003 3
 
Weather claims costs saw a big drop between H1 2003 and H1 2004 3
 
Theft claims costs decreased in the first half of the year 3
 
Subsidence claims returned to normal 4
 
Fire claims costs remained steady 4
 
Customer focus 4
 
Banks and building societies are facing stiff competition from alternative distribution channels 4
 
Brokers and intermediaries hold on to market share 4
 
The direct channel is showing steady growth 5
 
The market share of brandassurers has grown strongly 5
 
The telephone is the leading distribution platform for household insurance 5
 
Competitive dynamics 6
 
The top ten players held their grip on the market in 2003 6
 
The household insurance landscape changed in 2004 7
 
Insurers are increasing their household focus 7
 
Performance ratios improved in 2004 7
 
The future decoded 7
 
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
 
Drivers in the housing market 24
 
The number of households continues to expand 24
 
Size and growth of UK household insurance market 27
 
Household was the fastest growing personal line in 2004 27
 
Household GWP showed a healthy increase in 2004 28
 
Household insurance market split into buildings and contents premiums 34
 
Household insurance profitability 36
 
The property insurance market reached profitability for the first time since 1996 36
 
The commercial property market outperformed the household insurance sector in 2003 38
 
The household market neared profitability in 2003 39
 
Household insurance claims 42
 
Gross claims incurred fell by 0.4 per cent in 2003 42
 
Claims costs in the household market by major peril 43
 
Weather damage claims 46
 
Theft claims 53
 
Domestic subsidence claims 59
 
Fire claims 61
 
Niche markets 62
 
Holiday homes insurance 62
 
Buy-to-let insurance 63
 
Young professionals’ insurance 66
 
Mid Net Worth Insurance 67
 
CHAPTER 4 CUSTOMER FOCUS 69
 
Introduction 69
 
Distribution channels in the household insurance market 69
 
Banks and building societies are facing stiff competition from alternative distribution channels 69
 
Brokers and intermediaries hold on to market share 72
 
The direct channel is showing steady growth 73
 
The market share of brandassurers has grown strongly 74
 
Household insurance distribution splits 75
 
Distribution platforms in the household insurance market 78
 
Use of the telephone has increased 78
 
Household insurance customer profile and expenditure 81
 
Household insurance policy comparison 85
 
CHAPTER 5 COMPETITIVE DYNAMICS 89
 
Introduction 89
 
Top ten players in the household insurance market 89
 
The top ten players held their grip on the market in 2003 89
 
Churchill continued its rise through the household market rankings in 2003 89
 
Churchill has grown its household book the fastest since 1999, while Axa and Norwich Union have fallen away 93
 
Analysis of performance by competitor in 2003 94
 
Competitive context 101
 
The household insurance landscape changed in 2004 101
 
Insurers are increasing their household focus 103
 
Performance ratio analysis 105
 
Loss ratio analysis 105
 
Expense ratio analysis 108
 
Combined ratio analysis 112
 
CHAPTER 6 THE FUTURE DECODED 116
 
Introduction 116
 
The basis for the two scenarios 116
 
Scenario 1 : Strong price-based competition in 2006 and 2007 117
 
The household underwriting result is profitable in 2004 and 2005 before moving back into a loss in 2006 120
 
Scenario 2: Modest price reductions in 2006 and 2007 123
 
The market remains profitable post-2004, although profitability dips following elements of price-based competition 126
 
CHAPTER 7 APPENDIX 129
 
Supplementary data 129
 
Competitor data 129
 
Property insurance performance ratios by competitor 140
 
Market context 150
 
Customer focus 155
 
Advertising in household insurance 157
 
Definitions 164
 
Definitions of general terms 164
 
Research methodology 165
 
MORI data 165
 
Defaqto data 166
 
Explanatory notes to competitor tables 166
 
Research sources 170
 
Current publications 170
 
Future publications 171
 
Datamonitor’s custom research capabilities 171
 
SPP writing team 172
 

 

 
LIST OF TABLES
 
Table 1: The size of UK households by the number of people, 1971-2003 25
 
Table 2: Tenure structure in UK households, 1992-2002p 26
 
Table 3: Personal insurance market GWP by sector, 1999-2004e 28
 
Table 4: Annual growth in household insurance market GWP, 1999-2004e 30
 
Table 5: Penetration levels on buildings and contents insurance, 1999-2003 31
 
Table 6: Change in household insurance premiums, October 1998-October 2004 32
 
Table 7: Domestic reinsurance ceded compared with NWP and GWP, 1999-2003 34
 
Table 8: GWP split in household insurance between buildings and contents cover, 1999-2004e 35
 
Table 9: Total property underwriting account, 1993-2003 37
 
Table 10: Breakdown of property insurance underwriting result, 1999-2003 37
 
Table 11: Household and commercial property underwriting result, 1999-2003 39
 
Table 12: Breakdown of household underwriting result, 1999-2003 40
 
Table 13: Household insurance commissions and expenses compared with GWP and total outgoings, 1999-2003 42
 
Table 14: Reinsurers’ share of claims, 1999-2003 42
 
Table 15: Gross claims incurred in the household insurance market by peril, Q1 2003-Q2 2004 45
 
Table 16: Proportion of household claims by peril, Q1 2003 – Q2 2004 46
 
Table 17: Weather damage claims incurred by cause in domestic property, Q1 2003-Q2 2004 47
 
Table 18: Total cost of household theft claims and average claim cost, Q1 2003–Q2 2004 54
 
Table 19: Number of burglaries in the UK, 1995-2004 56
 
Table 20: Unemployment among 18-24 year old males, 1995-2004 56
 
Table 21: Household types most at risk of burglary, 2002/3-2003/4 58
 
Table 22: Average subsidence claim payout compared to total claims incurred and number of subsidence claims, Q1 2003-Q2 2004 60
 
Table 23: Gross incurred household fire claims, Q1 2003–Q2 2004 61
 
Table 24: Total number of property fires in the UK by type, Q1 2003–Q4 2003 62
 
Table 25: The size of the buy-to-let market in terms of gross advances and balances outstanding, 1999 - 2003 64
 
Table 26: The number of mass affluent individuals in the UK, 1998-2003 67
 
Table 27: Selection of corporate partnerships in the household insurance market 75
 
Table 28: Household insurance distribution by channel, 1999-2003 77
 
Table 29: Online availability of household insurance, May 2004 80
 
Table 30: Household insurance expenditure by age of head of household, 2002/3 82
 
Table 31: Household insurance expenditure by household composition, 2002/3 83
 
Table 32: Household insurance expenditure by gross weekly income, 2002/3 85
 
Table 33: Five-star buildings insurance product ratings, May 2004 86
 
Table 34: Five-star contents insurance product ratings, May 2004 87
 
Table 35: Availability of legal expenses cover, 2003-4 88
 
Table 36: Market share of top ten household insurers, 2002-3 92
 
Table 37: Growth of top ten household insurers, 2002-3 94
 
Table 38: Estimated household GEP and identity of top five household insurers, 2004 102
 
Table 39: Household GEP compared with total property loss ratio, top 20 domestic insurers, 2002-3 108
 
Table 40: Total property expense ratio and annual change, top 20 household insurers, 2002-3 112
 
Table 41: Total property combined ratio compared with household GEP as a proportion of total property GEP, 2002-3 115
 
Table 42: Scenario 1: Household insurance GWP, 1992-2009f 119
 
Table 43: Scenario 1: Forecast underwriting result, 1995-2009f 122
 
Table 44: Scenario 2: Household insurance GWP, 1992-2009f 125
 
Table 45: Scenario 2: Forecast underwriting result, 1995-2009f 128
 
Table 46: Total property insurance GEP by competitor, 1999-2003 129
 
Table 47: Total property insurance GEP by competitor, 1999-2003, cont. 130
 
Table 48: Total property insurance GEP by competitor, 1999-2003, cont. 131
 
Table 49: Total property insurance GEP by competitor, 1999-2003, cont. 132
 
Table 50: Total property insurance market share by competitor, 1999-2003 133
 
Table 51: Total property insurance market share by competitor, 1999-2003, cont. 134
 
Table 52: Total property insurance market share by competitor, 1999-2003, cont. 135
 
Table 53: Domestic property insurance GEP by competitor, 1999-2003 136
 
Table 54: Domestic property insurance GEP by competitor, 1999-2003, cont. 137
 
Table 55: Domestic property insurance market share by competitor, 1999-2003 138
 
Table 56: Domestic property insurance market share by competitor, 1999-2003, cont. 139
 
Table 57: Property loss ratio by competitor, 1999-2003 140
 
Table 58: Property loss ratio by competitor, 1999-2003, cont. 141
 
Table 59: Property expense ratio by competitor, 1999-2003 142
 
Table 60: Property expense ratio by competitor, 1999-2003, cont. 143
 
Table 61: Property combined ratio by competitor, 1999-2003 144
 
Table 62: Property combined ratio by competitor, 1999-2003, cont. 145
 
Table 63: Property commission ratio by competitor, 1999-2003 146
 
Table 64: Property commission ratio by competitor, 1999-2003, cont. 147
 
Table 65: Property management expenses ratio by competitor, 1999-2003 148
 
Table 66: Property management expenses ratio by competitor, 1999-2003, cont. 149
 
Table 67: Change in household insurance premiums, October 1998-October 2004 150
 
Table 68: Gross claims incurred in the household insurance market, by peril, 1998-2003 151
 
Table 69: Proportion of household claims by peril, 1998-2003 151
 
Table 70: Weather damage claims incurred by cause in domestic property, 1998-2003 152
 
Table 71: Household claims by major peril, Q1 2000 – Q2 2004 153
 
Table 72: Total cost of household theft claims and average claim cost, 1998-2003 153
 
Table 73: Average subsidence claim payout compared to total claims incurred and number of subsidence claims, 1998-2003 154
 
Table 74: Gross incurred household fire claims, 1998-2003 154
 
Table 75: Total number of property fires in the UK by type, 1998-2003p 154
 
Table 76: Household insurance distribution platforms, 1999-2003 155
 
Table 77: Why did you take out your home insurance with your provider? By age 156
 
Table 78: Total advertising spend on buildings and contents insurance by company, 2002-3 158
 
Table 79: Percentage of advertising spend by medium, 2003 159
 
Table 80: Percentage of advertising spend by medium, 2003, cont. 160
 
Table 81: Total advertising spend on domestic contents by company, 2002-3 162
 
Table 82: Percentage of advertising spend by medium for domestic contents, 2003 163
 
Table 83: Methodology for Datamonitor’s property premium income splits 168
 

 

 
LIST OF FIGURES
 
Figure 1: Churchill has been the rising star of the household insurance market between 1999 and 2003 6
 
Figure 2: The total number of UK households increased by 0.3 million in 2003 largely due to growth in two-person households 25
 
Figure 3: The household insurance market has grown steadily since 1999 and was the fastest growing personal line in 2003 27
 
Figure 4: GWP growth slowed in 2004 as the market is expected to return to profit 29
 
Figure 5: Buildings and contents premium rate rises slowed in 2004 32
 
Figure 6: Reinsurance ceded increased by almost a quarter in 2003 33
 
Figure 7: The industry earns more premium income from buildings than contents insurance 35
 
Figure 8: The property market made a return to profitability in 2003 36
 
Figure 9: The commercial property market is outperforming the domestic market 38
 
Figure 10: The household market’s underwriting result improved in 2003 40
 
Figure 11: Commissions and expenses accelerated in 2003 41
 
Figure 12: The first half of 2004 has delivered a mild claims experience to household insurers 44
 
Figure 13: Weather claims dropped in Q2 2004 47
 
Figure 14: Estimates of future costs of weather insurance claims, £m 49
 
Figure 15: The number of theft claims and the average claim value decreased in Q2 2004 53
 
Figure 16: Total burglaries and burglaries with loss have dropped between 1995 and 2004 55
 
Figure 17: Burglaries are most likely where there are no home security measures 57
 
Figure 18: Subsidence claims peaked in Q4 2003 59
 
Figure 19: Domestic fire claims incurred dropped in Q2 2004 61
 
Figure 20: The buy-to-let market has grown strongly both in terms of both advances and balances over the last five years, 1999–2003 64
 
Figure 21: Cover under Letsure’s Landlords Household policy 65
 
Figure 22: Household insurance distribution is led by the direct and bancassurance channels 76
 
Figure 23: The telephone is the leading distribution platform for household insurance 78
 
Figure 24: Around 80 per cent of household insurers offer some kind of online facility 80
 
Figure 25: Contents-only cover is the most frequently held by consumers 81
 
Figure 26: Regardless of household tenure, contents-only insurance is most commonly held 83
 
Figure 27: The likelihood of having household insurance increases in line with income 84
 
Figure 28: An increasing proportion of providers make legal expenses cover available as part of a buildings or contents policy 88
 
Figure 29: Six household competitors gained market share in 2003 90
 
Figure 30: Royal & SunAlliance became the leading household insurer in 2003 91
 
Figure 31: Churchill has been the rising star of the household insurance market between 1999 and 2003 93
 
Figure 32: Norwich Union will displace RBS as the leading household insurer in 2003 102
 
Figure 33: Change in GEP compared with change in loss ratio, top 20 household insurers, 2003 107
 
Figure 34: Change in GEP compared with change in expense ratio, top 20 household insurers, 2003 111
 
Figure 35: Total property combined ratio compared with change in household GEP, 2002-3 114
 
Figure 36: Assumptions under scenario 1 117
 
Figure 37: Scenario 1: Strong price-based competition in 2006 and 2007 118
 
Figure 38: Scenario 1: The market makes an underwriting profit in 2004 121
 
Figure 39: Assumptions under scenario 2 123
 
Figure 40: Scenario 2: Household insurance GWP falls slightly in 2006 and 2007 124
 
Figure 41: Scenario 2: The market is profitable between 2004 and 2009 127
 
Figure 42: Subsidence claims have fallen since the winter of 2003 152
 
Figure 43: Price is the overwhelming consideration for people of all ages 155
 
Figure 44: Saga Group was the leading advertiser of combined buildings and contents insurance in 2003 157
 
Figure 45: Direct Line spent more than any other provider on advertising contents only insurance in 2003 161
 
Figure 46: Datamonitor’s core consulting capabilities 172