UK Personal Insurance Distribution 2006

CHAPTER 1 EXECUTIVE SUMMARY 3
Introduction 3
Corporate partnerships continue to grow, eroding the share of other distribution channels in private motor and household insurance 3
Corporate partnerships continued to increase their share of the private motor market, while the market share of direct players stagnated in 2005 3
The share of bancassurers and direct writers stagnated in the household insurance market in 2005, while corportate partnerships continued to rise 3
The Internet increased its share of the personal insurance distribution pie in 2006 however Internet consumers are promiscuous 4
The Internet continued to dramatically increase its role in insurance distribution in 2006 4
Consumers who buy motor insurance over the Internet are less loyal than those who buy through other channels 4
The direct channel is a major force in the distribution of personal general insurance, but its share of the market stagnated in 2005 5
The direct channel remains the most important distribution channel for private motor insurance, in spite of stagnating at 41 per cent in 2005 5
The direct channel has grown its share of the household market since 2001 but experienced a stagnation in growth in 2005 5
AXA bought Swiftcover in January 2007 in order to re-enter the direct channel 5
Brokers are losing market share of distribution however some brokers are employing interesting new models 6
Brokers are losing market share in the distribution of insurance in personal lines 6
Brokers have stabilized at a much reduced 31 per cent of the market in private motor 6
Brokers have also lost market share in household insurance, and accounted for less than a quarter of the market in 2005 6
Swinton and Equity grew their high street branch networks in 2006 6
Junction holds a number of major deals including partnerships with Marks & Spencer and the Post Office 7
Banks and Building Societies grew their share of motor and household insurance sales in 2005, while employing very different strategies 7
Banks and building societies grew their share of the motor market in 2005 slightly, but lost influence in the household insurance market 7
Banks and building societies have increased their share of the motor insurance market, but progress has been slow 7
Banks and building societies have lost influence in the household insurance market 7
Bancassurers have strengthened their online and telephone sales capabilities with the aim of selling insurance independently of bank-based business 8
Some banks and building societies are looking to sell more motor insurance 8
Affinity groups and retailers continued to grow their share of the personal insurance market in 2005, driven by existing players and new entrants 8
Consumers continued to buy more motor insurance from affinities and retailers in 2005 8
Corporate partnerships also won market share in household insurance 8
A number of brandassurers entered the insurance market in 2005 and 2006 9
Direct insurers and corporate partnerships are forecast to continue to grow in the personal insurance market in the near future 9
The direct channel is predicted to grow its share of private motor insurance GWP between 2006 and 2010, albeit at a much slower rate than was seen between 2001 and 2005 9
Brandassurers are forecast to continue to grow their share of the household insurance market 9
CHAPTER 2 INTRODUCTION 28
What is this report about? 28
Who is the target reader? 29
How to use this report 29
CHAPTER 3 PERSONAL INSURANCE DISTRIBUTION CHANNEL OVERVIEW 30
Introduction 30
Corporate partnerships continue to grow, eroding the share of other distribution channels in private motor and household insurance 30
Corporate partnerships continued to increase their share of the private motor market, while the market share of direct players stagnated in 2005 30
The share of bancassurers and direct writers stagnated in the household insurance market in 2005, while corportate partnerships continued to rise 32
Bancassurers and brokers have lost ground in the household market in recent years, but this decline has slowed 32
The rise of direct writers stagnated in 2005, though corporate partnerships continued to rise 33
The top 10 distributors of household and private motor insurance include seven direct insurers 35
Direct insurers dominate the ranking of private motor and household insurance distributors 35
The top 10 distributors also includes two bancassurers and one brandassurer 35
Only two brokers have made it into the top 10 distributors of personal insurance 35
Traditional players are also losing market share in the smaller personal lines of pet and travel insurance 36
Direct writers are winning market share from travel agents 36
Corporate partnerships are bringing new players into the market and changing the face of pet insurance distribution 37
Spontaneous consumer awareness of providers shows that direct players that have spent heavily on advertising are usually at the forefront of consumers' minds 37
Direct Line had the highest level of spontaneous consumer awareness in 2006 37
Advertising expenditure increased by 15 per cent among the top 10 highest spenders in 2005 39
Norwich Union Direct remained the top advertiser, having won the position from Direct Line in 2004 39
Seven of the top 10 advertisers were direct players 39
CHAPTER 4 PERSONAL INSURANCE DISTRIBUTION PLATFORM OVERVIEW 42
Introduction 42
The Internet continued to dramatically increase its role in insurance distribution in 2006 42
The proportion of new sales transacted online is rising in private motor and household insurance 42
As a proportion of the entire book, face-to-face and telephone distribution are also losing out to the Internet in the provision of motor insurance 43
The proportion of household insurance arranged by phone and on the Internet continues to increase at the expense of face-to-face sales 44
Consumers' insurance purchasing behavior varies with age and income 46
The proportion of consumers that arrange their motor insurance face-to-face increases with age 46
The propensity to buy motor and household insurance over the telephone increases with age 48
The proportion of people purchasing both household and motor insurance online is rising across all age groups 49
Lower income consumers are more reliant on face-to-face interaction 51
Higher income household insurance customers are more inclined to arrange cover over the telephone than those in lower income brackets 52
Consumers in higher income brackets are more likely to purchase insurance over the Internet 54
Loyalty and reasons for choosing a provider vary according to the platform used to purchase the insurance policy 55
Consumers who buy motor insurance over the Internet are less loyal than those who buy through other channels 55
Online household insurance consumers are more than twice as likely to switch provider than those who purchase face-to-face or by telephone 57
Online consumers of motor insurance are overwhelmingly concerned with price 59
Household insurance consumers that buy over the telephone are more likely to be influenced by reputation and recommendation than consumers who purchase face-to-face or online 61
CHAPTER 5 DIRECT INSURANCE 63
Introduction 63
The direct channel is a major force in the distribution of personal general insurance, but its share of the market stagnated in 2005 63
The direct channel remains the most important distribution channel for private motor insurance, in spite of stagnating at 41 per cent in 2005 63
The direct channel has grown its share of the household market since 2001 but experienced a stagnation in growth in 2005 64
The strong position of direct writers is supported by large advertising budgets focusing on television campaigns 65
Direct insurers spent nearly 60 per cent of their advertising budget on motor insurance in 2005 65
Direct players spent half of their advertising budget on television advertising in 2005 67
Norwich Union had the largest advertising expentiture of the direct players in 2005 68
Having established a strong brand identity, Direct Line can afford to reign in its advertising spend 70
AXA and Norwich Union are looking to grow their presence in the direct channel 72
AXA bought Swiftcover in January 2007 in order to re-enter the direct channel 72
Norwich Union aims to sell 600,000 new policies under the RAC Direct Insurance brand by 2008 73
CHAPTER 6 BROKERS AND INTERMEDIARIES 75
Introduction 75
Brokers are losing market share in the distribution of insurance in personal lines 75
Brokers have stabilized at a much reduced 31 per cent of the market in private motor 75
Brokers have also lost market share in household insurance, and accounted for less than a quarter of the market in 2005 75
Brokers spent most of their budgets advertising motor insurance via direct mail in 2005 77
Among large brokers a few chose to increase their budgets in 2005, while others saw a reduction in expenditure 77
Brokers spent most of their budget advertising motor insurance 79
Direct mail is the preferred advertising medium among brokers, but some have also developed a strong television presence 81
The AA dominates in terms of consumers' awareness of brokers 83
Swinton and Equity grew their high street branch networks in 2006 84
Swinton bought Budget's retail division in 2006 84
Equity Insurance Brokers acquired a number of brokers in 2006 85
Junction, Equity Insurance Brokers, and OutRight target affinity partnerships 85
Junction holds a number of major deals including partnerships with Marks & Spencer and the Post Office 85
Junction also holds a deal with Yesinsurance, in an innovative distribution model 85
Equity Group won a number of new affinity deals in 2005 and 2006 86
OutRight controls business worth �55 million 86
Some brokers have found ways of taking advantage of the rise of aggregators in personal lines insurance 87
Aggregator sites allow brokers without a high brand awareness to write business online 87
Aggregator sites allow consumers to compare a range of prices, however, these sites do suffer from certain limitations 87
Aggregator sites allow brokers to generate leads via the online platform 87
The Budget Group launched Comparethemarket.com in August 2006 88
CHAPTER 7 BANKS AND BUILDING SOCIETIES 90
Introduction 90
Banks and building societies grew their share of the motor market in 2005 slightly, but lost influence in the household insurance market 90
Banks and building societies have increased their share of the motor insurance market, but progress has been slow 90
Banks and building societies have lost influence in the household insurance market 90
Banks and building societies focus on advertising household insurance products via direct mail, though the amount spent on motor insurance is growing 92
Bancassurers focus on advertising household insurance products, though the amount spent on motor insurance is growing 92
Banks and building societies mainly advertise via direct mail 94
Lloyds TSB spent more than any other bank on general insurance advertising and was the most recognized bancassurer 95
Lloyds TSB was the top spender on general insurance advertising in 2005 95
Lloyds TSB was the most widely recognized bancassurer in 2006 97
Bancassurers are focusing on selling insurance via the direct platforms and some are looking at growing their motor books 99
Bancassurers have strengthened their online and telephone sales capabilities with the aim of selling insurance independently of bank-based business 99
Some banks and building societies are looking to sell more motor insurance 99
The largest bancassurers follow very different strategies in their insurance businesses 100
Lloyds TSB distributes under its own name, rather than through insurance brands 100
Lloyds has traditionally sold through its branch network, but its direct sales are growing 100
Lloyds TSB has recently entered the corporate partnerships market 101
RBSI pursues a multi-brand strategy in the UK, selling most of its personal lines insurance via insurance brands rather than via its bank brands 102
RBBS Insurance owns several successful insurance brands in the UK, selling both direct, via brokers, and via partnerships 102
HBOS sells insurance under its bank brands and under a number of subsidiaries, and plans to grow its general insurance sales via both channels 103
HBOS General Insurance trades and underwrites through a number of subsidiaries 103
HBOS pursues a multi-brand strategy 103
CHAPTER 8 AFFINITY GROUPS AND RETAILERS 105
Introduction 105
Affinity groups and retailers continued to grow their share of the personal insurance market in 2005 105
Consumers continued to buy more motor insurance from affinities and retailers in 2005 105
Corporate partnerships also won market share in household insurance 105
Affinity groups and retailers support their push into general insurance mainly by advertising motor and household insurance via television and direct mail 107
Affinity groups and retailers grew their total advertising spend by 13.6 per cent in 2005 107
Affinity groups and retailers mainly advertise household and motor insurance 107
Affinities and retailers advertise mainly by television and direct mail 109
British Gas spent more than any other affinity group or retailer on general insurance advertising in 2005, while Tesco is the most widely recognized affinity provider 110
British Gas was the top spender on advertising in 2005, followed by Tesco and the Post Office 110
Tesco was by far the most widely recognized provider of general insurance products among affinity groups and retailers in 2006 112
A number of new affinities entered the market in recent years, and new and existing affinities have embraced new distribution methods 114
A number of brandassurers entered the insurance market in 2005 and 2006 114
Affinities have embraced the online distribution channel and many sell via aggregators 114
CHAPTER 9 THE FUTURE DECODED 117
Introduction 117
Direct insurers and corporate partnerships are forecast to continue to grow in the private motor market in the near future 117
The direct channel is predicted to grow its share of private motor insurance GWP between 2006 and 2010, albeit at a much slower rate than was seen between 2001 and 2005 117
The broker channel is forecast to continue to lose market share in the private motor market between 2006 and 2010 118
Corporate partnerships are expected to continue to grow their share of the private motor market throughout the forecast period 118
Bancassurers are also expected to grow their share of the motor market, though their growth is predicted to continue to be slow 118
Aggregators are expected to grow their share of the private motor market, as Internet distribution becomes more popular 118
Company staff and other agents will continue to lose market shares in the private motor market 119
Direct insurers and brandassurers are expected to win market share in the household market, while brokers and bancassurers will continue to decline 120
Direct insurers are forecast to grow their share of the household market steadily 120
Bancassurers will continue to lose market share in the household insurance market, as fewer consumers buy household insurance with their mortgage 120
The broker channel is expected to lose market share in household insurance 121
Brandassurers are forecast to continue to grow their share of the household insurance market, accounting for 20 per cent by 2010 121
Company agents and other company staff will continue to lose importance in household distribution 121
Aggregators are not expected to play a large role in household insurance in the near future 122
The Internet is forecast to continue to grow its share of distribution, both as a proportion of new sales and as a proportion of all sales 123
The Internet's share of new motor insurance sales is forecast to grow by around 5 percentage points a year until 2010 123
The proportion of new household insurance sales conducted online is also forecast to grow steadily until 2010 123
The Internet is also growing as a proportion of all sales of motor and household insurance 125
CHAPTER 10 APPENDIX 127
Supplementary data 127
Definitions 128
Premium income measures 128
Earned premiums 128
Gross Premium 128
Net Premium 128
Written premiums 128
Research methodology 128
Primary and secondary research 128
Top 10 distributor estimates 129
Distribution estimates and forecast methodology 129
Datamonitor's Personal Broker Survey 130
Ipsos MORI methodology and contacts 130
Current readings 132
Future readings 132
Do you need more information? 133
Datamonitor Financial Services Consulting 133
SPP writing team 135
List of Tables
Table 1: Distribution of private motor insurance, 2001-5 32
Table 2: Distribution of household insurance, 2001-5 34
Table 3: Top 10 insurance providers' share of private motor and household insurance market, 2005 estimates 36
Table 4: Spontaneous consumer awareness of insurance providers, 2006 38
Table 5: Top 10 general insurance advertisers, 2003-5 41
Table 6: Datamonitor estimates of proportion of new sales transacted online in private motor and household, 2005-6 43
Table 7: Distribution of private motor insurance, by platform, 2001-6 44
Table 8: Distribution of household insurance, by platform, 2001-6 46
Table 9: Consumers buying motor and household insurance face-to-face, by age group, 2004-6 47
Table 10: Consumers buying motor and household insurance on the telephone, by age group, 2004-6 49
Table 11: Consumers buying motor and household insurance online, by age group, 2004-6 50
Table 12: Percentage of consumers purchasing motor and household insurance face-to-face, by income, 2004-6 52
Table 13: Percentage of customers purchasing motor and household insurance by telephone, by income, 2004-6 53
Table 14: Percentage of customers purchasing motor and household insurance online, by income, 2004-6 55
Table 15: Propensity to switch motor provider and likelihood of getting other quotes, by distribution platform, 2006 57
Table 16: Propensity to switch household provider and likelihood of getting other quotes, by distribution platform, 2006 59
Table 17: Motivations for taking out a new motor insurance policy, by distribution platform, 2006 61
Table 18: Motivations for taking out a new household insurance policy, by distribution platform, 2006 62
Table 19: The direct channel's share of motor and household insurance, 2001-5 65
Table 20: Direct insurers' advertising spend by product, 2003-5 66
Table 21: Direct insurers' advertising spend by medium, 2003-5 68
Table 22: Direct insurers' advertising spend by competitor, 2003-5 70
Table 23: Spontaneous consumer awareness of direct insurance providers, 2006 72
Table 24: Brokers' share of motor and household insurance, 2001-5 77
Table 25: Top broker advertisers, 2003-5 79
Table 26: Brokers' advertising spend by product, 2004-5 80
Table 27: Brokers' advertising spend by medium, 2004-5 82
Table 28: Spontaneous consumer awareness of brokers and intermediaries, 2006 84
Table 29: Banks and building societies' share of motor and household insurance, 2001-5 92
Table 30: Bancassurers' advertising spend by product, 2003-5 93
Table 31: Bancassurers' advertising spend by medium, 2003-5 95
Table 32: Top 10 bancassurance advertisers, 2003-5 96
Table 33: Spontaneous consumer awareness of banks and building societies offering insurance, 2006 98
Table 34: HBOS General Insurance GWP, 2004-5 104
Table 35: Partnerships' share of motor and household insurance, 2001-5 106
Table 36: Affinities and retailers' advertising spend by product, 2003-5 108
Table 37: Affinities and retailers' advertising spend by medium, 2003-5 110
Table 38: General insurance advertising spend by affinity groups and retailers, by competitor, 2003-5 111
Table 39: Spontaneous consumer awareness of partnership insurance providers, 2006 113
Table 40: Private motor insurance distribution forecast by channel, 2006-10 120
Table 41: Household insurance distribution forecast by channel, 2006-10 123
Table 42: New online sales as a proportion of all new sales, 2006-2010 125
Table 43: The Internet's share of private motor and household sales, 2006-10 126
Table 44: Major bank and building society personal insurance partnerships, 2006-7 127
List of Figures
Figure 1: Corporate partnerships have continued to win market share of private motor insurance GWP, leading to a decline in the broker channel, while the direct channel stagnated in 2005 31
Figure 2: The corporate partnership channel increased its share of household insurance distribution between 2001 and 2005, taking business away from many other distribution channels 34
Figure 3: Direct players dominate in terms of spontaneous consumer awareness 38
Figure 4: Norwich Union Direct spent the most on general insurance advertising in 2005 40
Figure 5: Most motor insurance is arranged by phone but the Internet is rapidly growing in importance 44
Figure 6: The influence of the phone and the Internet have increased at the expense of face-to-face distribution in the household sector 45
Figure 7: The likelihood of purchasing motor insurance face-to-face increases with age 47
Figure 8: The propensity of personal insurance consumers to buy via the telephone increased with age in 2006 48
Figure 9: Younger consumers were most likely to buy insurance via the Internet in 2006 50
Figure 10: Consumers on lower incomes were most likely to purchase personal insurance face-to-face in 2006 51
Figure 11: The proportion of consumers purchasing insurance by telephone increases with income 53
Figure 12: As earnings rise, the propensity of personal insurance customers to purchase over the Internet increases 54
Figure 13: Consumer loyalty is least prevalent among those who use the Internet to purchase motor insurance 56
Figure 14: Consumer loyalty is least prevalent among those arranging their household insurance online 58
Figure 15: A cheaper quote is the most common motivation for motor insurance consumers when choosing a provider 60
Figure 16: Consumers who use the telephone and the Internet to purchase household insurance are the most price conscious 62
Figure 17: The direct channel increased its share of motor and household insurance between 2001 and 2005 64
Figure 18: Direct writers spent almost 60 per cent of their advertising budget on motor insurance in 2005 66
Figure 19: Direct insurers spent half of their total advertising budget on television advertising in 2005 67
Figure 20: Norwich Union Direct spent more than any other direct insurer on advertising in 2005 69
Figure 21: Direct Line dominated direct providers in terms of consumer awareness in 2006 71
Figure 22: Brokers lost market share in both the private motor and household insurance markets between 2001 and 2005 76
Figure 23: The AA had the largest advertising budget among brokers in 2005 78
Figure 24: Brokers spent nearly three quarters of their budgets advertising motor insurance products in 2005 80
Figure 25: Direct mail is the most important advertising medium for brokers 82
Figure 26: The AA was the most widely recognized broker in 2006 83
Figure 27: Comparethemarket.com searches the following insurance providers, which include several brokers and brandassurers 89
Figure 28: Banks and building societies lost influence in the household insurance market between 2002 and 2005 and have only seen a very small growth in the private motor market 91
Figure 29: Banks spent half of their advertising budgets advertising household insurance in 2005 93
Figure 30: Direct mail was the medium of choice for bancassurers' advertising general insurance in 2005 94
Figure 31: Lloyds TSB was the largest advertiser among bancassurers in 2005 96
Figure 32: Lloyds TSB was the most widely recognized insurance provider in 2006 97
Figure 33: HBOS sells a number of different personal lines insurance products via a variety of brands 104
Figure 34: Partnerships grew their share of the private motor and household insurance markets consistently between 2001 and 2005 106
Figure 35: Affinities and retailers spent almost half of their advertising budgets on motor insurance in 2005 108
Figure 36: Television advertising is popular among affinities and retailers 109
Figure 37: British Gas spent the most on advertising in 2005, followed by Tesco 111
Figure 38: Tesco was the most widely recognized affinity provider of general insurance in 2006 113
Figure 39: Affinities such as Marks & Spencer and British Gas sell insurance via aggregators 116
Figure 40: The broker channel is forecast to continue to lose market share in the distribution of private motor insurance between 2006 and 2010 119
Figure 41: The broker channel will also continue to lose market share in the household market between 2006 and 2010 122
Figure 42: The proportion of new sales transacted online is forecast to grow for both motor and household between 2006 and 2010 124
Figure 43: The Internet is forecast to grow as a distribution platform, in both private motor and household insurance 126
Figure 44: Most of the personal brokers surveyed by Datamonitor have a premium income turnover of less than �10 million 130