Add-On Insurance Strategies in UK Personal Insurance 2007

Datamonitor View 1
CATALYST 1
SUMMARY 1
Add-on insurance strategies 2
Insurance providers follow two main strategies for add-on insurance products 2
The main add-on insurance products are motor breakdown, home emergency and legal expenses 2
Add-ons are either used as revenue generators or value adders 2
As value adders add-ons help differentiate an insurers' offering and can be used in advertising 2
Drawing attention to add-ons provided as standard allows companies to avoid focusing on price 2
When sold as optional extras, add-ons generate revenue and improve expense ratios 5
Add-ons also play the role of keeping customers happy by providing them with extra services 6
Add-ons are profitable, but up-sell rates depend on the product and the sales platform 6
Motor breakdown insurance, home emergency insurance and legal expenses insurance are thought to all be profitable lines 6
The three main add-ons have different average up-sell rates 7
Up-sell rates also depend on the sales platform 7
Motor breakdown cover 8
Roadside assistance cover is common among consumers 8
Roadside assistance cover offers help to stranded motorists whose car has broken down 8
Three quarters of car insurance policyholders have some form of roadside assistance cover 8
An estimated 18.1 million cars had breakdown cover in 2006 9
The price of breakdown cover varies greatly relative to cover levels and providers 11
Insurance providers are not seeing strong growth in sales of motor breakdown cover 11
Cover levels increase with the age and income of consumers 11
Older consumers are more likely to have roadside assistance than younger consumers 11
Consumers with high household incomes are most likely to have cover 12
Insurance providers are an important distribution channel for breakdown cover 14
Over half of breakdown cover is sold by insurance providers, which sell it as an add-on to motor policies 14
Many motor insurers offer breakdown cover from their own subsidiaries 15
The AA is the largest breakdown provider followed by RAC and Green Flag 16
Insurance providers mainly sell cover as optional extras to their motor policies 17
Most of the top 10 motor insurers sell breakdown cover as an optional extra 17
Banks, brokers and affinities will also often offer breakdown cover with motor policies 18
Home emergency insurance 20
Home emergency cover is sold by insurance providers with home insurance 20
The cover sold by insurers pays for call out charges and repairs in case of emergency 20
Similar products are sold by utility companies, but these are generally sold on a utility specific basis 21
The home emergency and home services markets are substantial and thought to be profitable 22
Home emergency claims frequency and profitability is linked to weather-related claims 22
Home emergency insurance is believed to be profitable for providers 22
Offering home emergency may improve the claims costs on home insurance policies 22
Claims frequency is linked to weather-related claims, which vary between years 22
Storm damage accounted for the largest part of the weather claims bill for household in 2006 24
Insurance providers are the main providers of home emergency cover 25
Most of the top home insurers sell home emergency policies 25
Brokers and some affinity partners also sell the cover 27
Insurance providers face competition from utilities which sell alternative policies focused on service 28
The service policies offered by utilities provide competition to home emergency policies sold by insurers 28
British Gas Services is a key player in the home emergency insurance market with 7.2 million service policies in force in 2006 29
British Gas Services offer a range of home service policies 29
In 2006, British Gas had 7.2 million service contracts in force 30
Homeserve is a key player in the home service and home emergency insurance marketplace 32
Homeserve is comprised of two divisions: Policy Membership and Emergency Services 32
Homeserve offers a range of products 32
Homeserve's utility branded policies reached 5.8 million in March 2007 34
Homeserve and British Gas's offering are supported by large advertising spends 35
Home emergency providers mainly advertise via direct mail 37
Legal expenses 39
Introduction 39
Legal expenses insurance is sold as an add-on to motor and household insurance 39
Motor legal expenses insurance is sold as an add-on to motor policies 39
Family legal expenses insurance is also sold as an add-on to household products 39
The total UK legal expenses insurance market was estimated to be worth �344 million in 2005 and is thought to be a profitable line overall 39
The legal expenses market was worth �344 million in GWP in 2005 39
Legal expenses is profitable but the market is not believed to be growing 40
The product is profitable as insurers can set their price according to their claims experience 40
Due to high up-sell rates the market is not believed to be growing 40
Most insurers sell legal expenses insurance as an optional extra 41
Most of the top 10 motor insurers sell motor legal expenses as an optional extra 41
Some brokers, affinities and banks also sell motor legal expenses insurance with motor policies 42
Most of the top 10 household insurers sell family legal protection as an optional extra 43
Many brokers, banks and affinities will also offer family legal protection with household insurance policies 45
Specialist providers DAS and Brit are among the top legal expenses underwriters 46
The Future Decoded 49
Modest growth in the add-on insurance sector can be expected as a result of the growth in the number of cars on the road and households and improved up-sell rates 49
The number of households in the UK is expected to grow 49
The number of cars in Britain is expected to grow, albeit at a slow rate 49
Growth in up-sell rates could be achieved in some lines 50
The predicted rise of Internet sales and aggregators is likely to have a negative impact on the add-on insurance market 51
The predicted rise in Internet sales will prove a challenge to add-on sales 51
The rise of aggregators and increased price sensitivity will have a negative effect on the penetration of add-on insurance policies 51
More insurers may incorporate add-ons as standard, however, it is likely that the majority will continue to sell add-ons as an optional extra 52
More insurers may incorporate add-ons to appeal to customers who want extensive cover but in a simple policy 52
The majority of insurers are expected to continue to sell add-ons as optional extras to appeal to the price-conscious 52
APPENDIX 53
Definitions 54
Banks/Building societies 54
Brokers 54
Brandassurers 54
Direct writers 54
Gross premiums 55
Written premiums 55
Definitions of terms specific to this report 55
Home emergency insurance 55
Single utility emergency insurance 55
Home service 55
Methodology 55
Ipsos MORI methodology and contacts 56
Sample design 56
Further reading 57
Ask the analyst 57
Datamonitor consulting 57
Disclaimer 58
List of Tables
Table 1: Penetration of roadside assistance, H2 2006 9
Table 2: Insurers are estimated to have sold breakdown cover to around 10 million cars in 2006 10
Table 3: Penetration of roadside assistance by age, 2006 12
Table 4: Penetration of roadside assistance, by household income, 2006 13
Table 5: Distribution of roadside assistance cover by channel, H2 2006 15
Table 6: Partnerships between breakdown companies and top 10 private motor insurers 16
Table 7: Ranking of the top roadside assistance companies, H2 2006 16
Table 8: The top 10 private motor insurers' offering of motor breakdown insurance 18
Table 9: Examples of brokers, bank and affinities that offer breakdown cover motor insurance policies, H1 2007 19
Table 10: Domestic property insurance claims by peril, 2002-6 23
Table 11: Gross claims incurred for domestic property weather claims, 2002-6 25
Table 12: Home emergency insurance offering of the top 10 household insurers 27
Table 13: Examples of brokers, banks and affinities that offer home emergency insurance with home insurance policies, 2007 28
Table 14: British Gas Services turnover and operating profit, 2005-6 30
Table 15: British Gas Services contracts in force, 2005-6 31
Table 16: Homeserve's revenue and operating profit, 2006-7 32
Table 17: Homeserve's UK utility policies-in-force, 2006-7 35
Table 18: Home emergency advertising spend by competitor, 2006 37
Table 19: Home emergency advertising send, by medium, 2006 38
Table 20: Legal expenses insurance offering of the top 10 private motor insurers 42
Table 21: Examples of brokers, banks and affinities that offer motor legal expenses insurance with motor insurance policies, 2007 43
Table 22: Legal expenses insurance offering of the top 10 private motor insurers 45
Table 23: Examples of brokers, banks and affinities that offer family legal expenses insurance with household insurance policies, 2007 46
Table 24: Legal expenses premium income by competitor, 2001-5 48
Table 25: Registered cars by body type in the UK, 2002-6 50
Table 26: Homeserve's utility partners, 2007 53
Table 27: The size of UK households by the number of people, 1971-2005 53
Table 28: Trends in household tenure for England, 1995-2005 54
List of Figures
Figure 1: More Th>n offers free breakdown cover as standard on its motor policies 4
Figure 2: More Th>n draws attention to the fact that home emergency insurance is included as standard when outlining its home insurance offering to potential Internet customers 5
Figure 3: Three quarters of consumers are covered by roadside assistance 9
Figure 4: Insurers are estimated to have sold breakdown cover to around 10 million cars in 2006 10
Figure 5: The proportion of consumers with roadside assistance cover increases with age 12
Figure 6: The proportion of consumers with roadside assistance cover is highest among higher income groups 13
Figure 7: Over half of consumers with roadside assistance cover arranged cover through an insurance provider 14
Figure 8: Most of the top 10 private motor insurers sell breakdown cover as an optional extra 17
Figure 9: Home emergency policies cover a variety of emergencies that can befall house owners 21
Figure 10: The total cost of domestic property claims fell slightly in 2006, as a result of a reduction in weather-related claims 23
Figure 11: The cost of weather insurance claims fell in 2006 for domestic property 24
Figure 12: The top 10 household insurers offer home emergency in different ways 26
Figure 13: Revenue from central heating services products accounted for the majority of British Gas Service's total revenue in 2006 29
Figure 14: The most popular British Gas policy is the Central heating service contract 31
Figure 15: Homeserve offers a range of insurance policies which are sold direct and by utility companies 33
Figure 16: Homeserve had 5.8 million utility branded policies in force in the UK in March 2007 34
Figure 17: Homeserve was the largest advertiser of home emergency insurance in 2006 36
Figure 18: Direct mail is the most popular medium for advertising home emergency insurance 38
Figure 19: Most of the top 10 private motor insurers sell legal expenses insurance as an optional extra on motor policies 41
Figure 20: Most of the top 10 household insurers sell legal expenses insurance as an optional extra on home insurance policies 44
Figure 21: Das, Direct Line and Brit were the largest legal expenses underwriters in 2005 47