UK Commercial Motor Insurance 2007

Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The commercial motor market declined in 2006, before growing marginally in 2007 2
Commercial motor GWP contracted to �3.37 billion in 2006 before a modest recovery in 2007 2
GWP was influenced by declines in premium rates and slow growth in vehicle numbers in 2006 and 2007 2
The commercial motor parc grew in 2006, though the number of company cars fell 2
Competitive pressures have forced down premium rates in both segments of the commercial motor market 3
Commercial motor underwriting profits unexpectedly rose in 2006 as outgoings fell 3
Brokers continued to dominate the distribution of commercial insurance 4
National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers 4
The direct channel increased its share of commercial insurance GWP by 1% in 2006 4
Many top 10 commercial motor insurers experienced shrinking books in 2006 4
The market remained highly concentrated despite the top 10 losing market share 4
The average combined ratio of the top 10 motor insurers declined by four percentage points in 2006 5
The commercial motor market is forecast to harden in 2008 and reach �4.1 billion by 2012 5
The commercial motor market is forecast to harden in 2008 and reach �4.1 billion by 2012 5
Commercial motor underwriting profits are forecast to reach a height of �327 million in 2010 6
Table of Contents 7
Table of figures 8
Table of tables 9
Market Context 10
Introduction 10
The commercial motor market declined in 2006, before growing marginally in 2007 10
Commercial motor GWP contracted to �3.37 billion in 2006 before a modest recovery in 2007 10
Commercial motor premium income contracted by 1% in 2006, driven by premium rate decreases 10
The commercial motor insurance market grew slightly in 2007 and was worth an estimated �3.4 billion 10
Fleet premium income contracted in 2006 but rebounded slightly in 2007 11
The commercial vehicle market declined slightly in 2006 before increasing by an estimated 1.3% in 2007 12
GWP was influenced by declines in premium rates and slow growth in vehicle numbers in 2006 and 2007 13
The commercial motor parc grew in 2006, though the number of company cars fell 13
Company cars declined as a proportion of the commercial motor parc 15
Company cars fell as a proportion of the total car parc 17
New registrations were down in 2006 as fewer new goods vehicles, buses and coaches were registered 19
New company car registrations also declined as a proportion of car registrations in 2006 20
Competitive pressures have forced down premium rates in both segments of the commercial motor market 22
Fleet premium rates saw declines in 2006 and 2007 due to competitive pressure 22
Commercial vehicle premium rates have come under pressure from insurers targeting SME business 22
Commercial motor underwriting profits unexpectedly rose in 2006 as outgoings fell 22
Underwriting profits increased to �244 million in 2006, despite the soft market 22
The drop in total outgoing was caused by a decrease in claims incurred, as commissions and expenses grew 25
Claims incurred dropped as a proportion of total outgoings in 2006 25
Growth in commissions and expenses constrained the growth in profits 26
Claims inflation remains dominated by rising personal injury costs, though falling accident rates have given insurers some respite 26
Overall claims inflation increased significantly in 2006 26
Bodily injury claims are more expensive than other claims 28
Falling road traffic accident rates will have given insurers some respite on their claims bills 29
Road traffic accident numbers have declined over the last nine years 29
Road traffic accidents have declined even as car numbers have increased, representing a fall in frequency 31
Casualty rates have fallen steadily, mirroring the decline in road traffic accidents in 2006 33
Theft rates continue to fall, representing a positive trend for private motor insurers 35
Insurers have tried a variety of solutions to limit the cost and volume claims caused by traffic accidents 37
Some early adopters have begun using telematics to control fleet claims costs 37
Smart Drive and online training have also been used to correct bad driving behavior 37
Insurers remain divided over whether rehabilitation offers real savings on claims costs 38
The commercial and private motor market both contracted in 2006 but diverged in terms of profits 38
The private motor market contracted along with the commercial market in 2006 38
The total motor market's underwriting loss increased marginally to �204 million in 2006 40
Despite both being in a soft market, the private and commercial markets record very different underwriting results 42
Distribution Dynamics 44
Introduction 44
Brokers continued to dominate the distribution of commercial insurance 44
National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers 44
The direct channel increased its share of commercial insurance GWP by 1% in 2006 44
Affinity groups remain a small channel for the distribution of commercial insurance 45
Banks and building societies continue to play a small role in the distribution of commercial insurance 45
Commercial motor is the line of business most at risk to the direct channel 47
The SME market is dominated by brokers but direct players have grown 48
Most SMEs buy insurance via brokers, but direct insurers also distribute a significant part of the market 48
Brokers remain the top choice for SMEs to approach if they had to switch provider 49
Many SMEs are willing to consider alternative channels when prompted 50
Up to 44% of SMEs would consider using a bank as an insurance provider 50
Almost three quarters of SMEs would be willing to consider direct insurers, in the hope of cost savings 51
Buying insurance via the internet and telephone is becoming more popular with SMEs 52
Many SMEs are open to purchasing insurance by telephone 52
Even more SMEs are willing to buy their insurance via the internet, showing the potential of this platform 53
Commercial motor and property insurance are most likely to be purchased through alternative platforms 54
Only a small group of SMEs are willing to switch provider, usually for a lower price 55
Almost 90% of SMEs are not considering a change of provider in the next year 55
Only 16% of SMEs have changed insurance provider in the last two years 56
One in 10 SMEs are considering switching their insurance provider in the next 12 months 57
Competitor Focus 58
Introduction 58
A few new competitors entered the market in 2007 58
Direct Line entered the commercial market with an SME targeted proposition in 2007 58
LV's broker arm ABC Insurance launched its first products in 2007 with commercial motor policies to follow 58
Underwriting agency Arista rolled out multiple products for the commercial motor market in 2007 58
Many top 10 commercial motor insurers experienced shrinking books in 2006 59
The market remained highly concentrated despite the top 10 losing market share 59
The soft market led to a reduction in market share for four of the top 10 commercial motor insurers in 2006 60
Norwich Union continued to lose market share in 2006 60
Zurich experienced a contracting book in 2006, leading to a decline in its commercial motor market share 60
Allianz suffered a decline in its commercial motor market share in 2006 due to the competitive market 60
Brit's market share declined marginally as premium income fell by 3.4% 61
Four top 10 commercial motor insurers increased market share in 2006 61
NFU Mutual expanded its commercial motor book in 2006, leading to an increase of market share to 5.5% 61
QBE increased market share in 2006 by maintaining its premium income despite soft market conditions 61
AXA increased market share in 2006 by rebuilding its commercial motor book 61
NIG grew its market share by 0.4 percentage points in 2006 and achieved growth of 10.9% in GWP 62
Two competitors saw no change in market share in 2006 62
The market leader Royal & SunAlliance maintained its market share in 2006 at 18.2% 62
Highway pursued a more selective commercial motor strategy in 2006 that led to a decline in premium income 62
Mid-sized commercial motor insurers gained market share in 2006 64
The majority of insurers ranked 11-20 gained market share in 2006 64
Tradex and CIS lost market share in 2006, while St Paul and Ecclesiastical saw no changes 65
Tradex declined to 1.5% of the commercial motor market in 2006 65
CIS's market share in commercial motor declined in 2006 65
St Paul and Ecclesiastical's market share was unchanged in 2006 65
A majority of the top 10 have mixed motor insurance portfolios 68
Fleet premium income dominated the commercial motor books of the largest insurers in 2006 68
The top 10 commercial motor insurers are also active in the private motor market 70
Private motor dominates the books of the top 10 motor insurers 72
The average loss ratio among the top 10 UK motor insurance providers declined in 2006 with AXA, Norwich Union and Churchill recording the biggest improvements 73
In 2006, the average loss ratio of the top 10 UK motor insurers fell by 3.3 percentage points to 71.1% 73
AXA, Norwich Union and Churchill recorded the strongest loss ratio reductions 73
Four insurers recorded loss ratio deterioration 74
The average expense ratio of the top 10 UK motor insurers declined by 0.7 percentage points in 2006, with Churchill, AXA, NIG and Royal & SunAlliance recording above-average reductions 76
The average expense ratio of the top 10 UK motor insurers declined by 0.7 percentage points in 2006 76
Churchill, AXA, NIG and Royal & SunAlliance recorded above-average expense ratio decline 76
Norwich Union, Zurich and NFU Mutual recorded the highest increases in their expense ratios 77
The average combined ratio of the top 10 motor insurers fell by four percentage points in 2006, with AXA and Churchill seeing significant declines 79
The average combined ratio of the top 10 motor insurers declined by four percentage points in 2006 79
AXA and Churchill recorded significant reductions in combined ratio in 2006 80
NIG, Direct Line and Zurich recorded combined ratio increases 80
Future Decoded 83
Introduction 83
The commercial motor market is forecast to harden in 2008 and reach �4.1 billion by 2012 83
Premium rate increases are expected to lead to an improvement in the commercial motor market 83
The UK commercial motor insurance market is forecast to reach a value of �4.1 billion in 2012 84
Commercial motor underwriting profits are forecast to reach a height of �327 million in 2010 86
More competitive pricing will depress future commercial motor market performance 88
In the pessimistic scenario, competitive pricing will depress premium income growth 88
The market will reach a value of �3.9 million in 2012 under more competitive conditions 89
The market will make a loss of �17m in 2012, the last year of the forecast period 91
The pessimistic scenario results in �44 million less profit for insurers 93
The total motor market, under neutral conditions, will reach a value of �16.6 billion in 2012 95
The total motor market is forecast to grow at 4.3% a year in the forecast period 95
The total market is forecast to return an underwriting profit in 2008 97
APPENDIX 100
Supplementary data 100
Motor vehicles registered by taxation class 100
Definitions 101
Premium income measures 101
Earned premiums 101
Gross Premium 101
Net Premium 101
Written premiums 101
Definitions of ABI terms 101
Brokers 101
National brokers 102
Other intermediaries & brokers 102
Chain brokers & telebrokers 102
Direct 102
Other company agents 102
Utilities/retailers/affinity groups 102
Company staff 102
Banks/building societies 102
SME 102
2005-06 definitions for line of business 103
Motor 103
Total private motor 103
Total commercial motor 103
Private motor comprehensive 103
Private motor non-comprehensive 103
Motorcycle 104
Fleets 104
Commercial vehicles (non-fleet) 104
Pre-2005 definitions for lines of business 105
Motor 105
Methodology 105
Primary and secondary research 105
Market size 105
Changes in market size information 105
Market size methodology 105
Lloyd's players and underwriting result figures 106
Competitor data 106
CIS 106
Home-foreign, overseas and facultative reinsurance business 106
UK commercial broker survey H2 2007 106
Datamonitor's SME Insurance Survey Q1 2007 107
Further reading 108
Ask the analyst 108
Datamonitor consulting 108
Disclaimer 108
List of Tables
Table 1: Commercial motor GWP, 2002-07e (�m) 11
Table 2: Commercial motor GWP, by line of business, 2002-07e (�m) 13
Table 3: Commercial motor parc in Great Britain by body type, 2002-06 (000s) 15
Table 4: Commercial motor parc in Great Britain by body type, 2005-06 (000s) 17
Table 5: Company car parc's share of total car parc, 2002-06 (000s) 18
Table 6: New commercial vehicle registrations in Great Britain by body type, 2002-06 (000s) 20
Table 7: Company cars new registrations in Great Britain, 2002-06 (000s) 21
Table 8: Commercial motor underwriting account, 1996-2006 (�m) 24
Table 9: Net claims as proportion of total outgoings, 2002-06 (�m) 25
Table 10: Total commercial motor gross claims costs, 2002-06 (�m) 25
Table 11: Detailed commercial motor underwriting account, 2002-06 (�m) 26
Table 12: Average motor claims costs, 2002-06, (�) 27
Table 13: UK average claims cost of bodily injury claims notified two years previous, 2002-06, (�) 29
Table 14: Total number of road accidents in the UK, 1996-2006 (000s) 31
Table 15: Road traffic accidents relative to registered vehicles in Great Britain 1996-2006 (000s) 33
Table 16: Deaths, seriously and slightly injured casualties resulting from road traffic accidents, 2002-06 34
Table 17: Theft of and from motor vehicles, 1996-2006/7 36
Table 18: UK motor insurance GWP, 2002-06 (�m) 39
Table 19: UK motor insurance underwriting account 1996-2006 (�m) 41
Table 20: Private and commercial motor underwriting results, 1996-2006 (�m) 43
Table 21: Market share of distribution channels in the commercial general insurance market, 2003-6 46
Table 22: Market share of the market leader, the rest of the top 10 and the remainder, 1996, 2005, 2006 60
Table 23: Top 10 commercial motor insurers by market share, 2002-06 (%) 63
Table 24: Top 10 commercial motor insurers by premium income, 2002-06 (�000s) 64
Table 25: Commercial motor insurers ranked 11-20 by market share, 2002-06 (%) 67
Table 26: Premium income of commercial motor competitors ranked 11-20, 2002-06 (�000s) 68
Table 27: Top 10 commercial motor insurers' fleet and commercial vehicle shares of total GWP, 2006 (�000s) 70
Table 28: Split between commercial and private markets for the top 10 commercial motor insurers, 2006 (�000s) 71
Table 29: Top 10 motor insurers' GWP split by private and commercial, 2006 (�000s) 73
Table 30: Change in premium income compared to change in loss ratio, top 10 UK motor insurers, 2005-06 76
Table 31: Change in premium income compared to change in expense ratio, top 10 UK motor insurers, 2005-06 79
Table 32: Change in premium income compared to change in combined ratio, top 10 UK motor insurers, 2005-06 82
Table 33: Key variables affecting commercial motor insurance GWP, neutral scenario, 2002-12f 84
Table 34: UK commercial motor insurance GWP forecast, neutral scenario, 2002-12f (�m) 86
Table 35: UK commercial motor insurance underwriting account forecast, neutral scenario, 2002-12f (�m) 88
Table 36: Key variables affecting commercial motor insurance GWP, pessimistic scenario, 2002-12f 89
Table 37: UK commercial motor insurance GWP forecast, pessimistic scenario, 2002-12f (�m) 91
Table 38: UK commercial motor insurance underwriting account forecast, pessimistic scenario, 2002-12f (�m) 93
Table 39: UK commercial motor underwriting result forecast, neutral and pessimistic scenarios, 2002-12f (�m) 95
Table 40: Total motor insurance GWP forecast, neutral scenario, 2002-12f (�m) 97
Table 41: UK total motor insurance underwriting account, 2002-12f (�m) 99
Table 42: Motor vehicles registered by taxation class, 2002-06 (000s) 100
Table 43: New motor vehicle registrations by taxation class, 2002-06 (000s) 101
Table 44: Q: "What business sector are you involved in?" 107
Table 45: Q: "How large is your company in terms of number of employees?" 107
Table 46: Q: "How large is your company in terms of turnover?" 108
List of Figures
Figure 1: Commercial motor vehicles continued to increase in number in 2006 3
Figure 2: The top 10 commercial motor insurers have grown their share of the market since 1996 5
Figure 3: Commercial motor premium income grew slightly in 2007 after three years of declines 11
Figure 4: The commercial motor market declined in 2006 but saw a small increase in 2007 12
Figure 5: Commercial motor vehicles continued to increase in number in 2006 14
Figure 6: Light goods vehicles and company cars account for most of the commercial motor parc 16
Figure 7: The company car parc has remained largely stable as a proportion of the overall car parc 18
Figure 8: New registrations of commercial motor vehicles fell in 2006 19
Figure 9: New registrations for company cars declined after a rally in 2005 21
Figure 10: Despite falling NWP, the market attained its highest underwriting profit in 2006 23
Figure 11: Average motor claims costs have risen every year since 2002 in the UK 27
Figure 12: The average UK claims cost for bodily injury claims was higher than for other claim types in 2006 28
Figure 13: Road accidents peaked in 1997 and have fallen ever since 30
Figure 14: Accidents in the UK have fallen despite a steady increase in the number of vehicles 32
Figure 15: Casualties continued to decline across all categories in 2006 34
Figure 16: Theft of and from motor vehicles continued to decline in 2006/7 35
Figure 17: Commercial motor GWP declined slightly more than private motor in 2006 39
Figure 18: The UK motor insurance market reported a loss of �204 million in 2006 40
Figure 19: The private and commercial motor underwriting results diverged after 2001 42
Figure 20: National brokers dominate the distribution of commercial general insurance in the UK in terms of GWP 46
Figure 21: Commercial motor is the line of business most at risk to the direct channel 47
Figure 22: The distribution of insurance to SMEs remained largely under the control of brokers in 2007 48
Figure 23: SMEs have become more likely to consider direct insurers if they were to change provider 49
Figure 24: The prospect of cheaper premiums is the primary reason given for being willing to consider using a bank as an insurance provider 50
Figure 25: Price is the top reason given by SMEs that would consider switching to a direct insurer 51
Figure 26: Speed of concluding their insurance purchase is the primary reason given by SMEs willing to consider buying via the telephone 52
Figure 27: SMEs are willing to consider buying via the internet if it is quicker and cheaper than other platforms 53
Figure 28: Over half of SMEs would consider buying commercial motor online or via the telephone 54
Figure 29: Most SMEs do not consider dropping their current insurance provider 55
Figure 30: The number of SMEs staying with their provider for more than five years has increased since 2005 56
Figure 31: The price of insurance premiums is the most important reason why some SMEs plan to change insurance provider in the next year 57
Figure 32: The top 10 commercial motor insurers have grown their share of the market since 1996 59
Figure 33: The top insurers retained a firm grip on the market in 2006 with a 76.3% market share 63
Figure 34: Mid-tier competitors accounted for 10.5% of the commercial motor market in 2006 66
Figure 35: Most of the top 10 commercial motor insurers' books are dominated by fleet business 69
Figure 36: Most of the top 10 commercial motor insurers also have a large presence in the private market 71
Figure 37: The top private insurers dominate the top motor rankings due to the size of their private books 72
Figure 38: While the average loss ratio of the top 10 UK motor insurers fell in 2006, NIG and Direct Line saw increases in their ratios 75
Figure 39: Norwich Union saw the biggest increase in private motor expense ratio in 2006 78
Figure 40: NIG saw the biggest increase in combined ratio in 2006 81
Figure 41: The commercial motor market is predicted to harden in 2008, resulting in an increase in GWP 85
Figure 42: The market is forecast to return underwriting profits between 2008 and 2012 87
Figure 43: Future market size is constrained by more competitive pricing in the pessimistic scenario 90
Figure 44: Underwriting profits are forecast to decline quickly after 2009 in the pessimistic scenario 92
Figure 45: The forecast underwriting results of the two scenarios diverge after 2009 94
Figure 46: After four years of declines, the total motor market is expected to begin growing again in 2008 96
Figure 47: The motor market is forecast to be profitable for a total of four years starting in 2008 98