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March 10, 2008 14:20 ET

Focus on the UK Private Motor Insurance Market

LONDON, UNITED KINGDOM--(Marketwire - March 10, 2008) - Reportlinker.com announces that a new market research report related to the Financial services industry is available in its catalogue.

UK Private Motor Insurance 2007

The report analyzes the UK private motor insurance market's performance in 2006 and 2007, providing insight into competitor strategies, GWP, market share and profitability. The report also provides forecasts for the size and profitability of the private and total motor markets up to 2012.

Motor insurance distribution trends analyzed by channel and platform Analysis of the major competitive issues shaping the market, supported by interviews with senior industry executives and data from secondary sources Detailed market forecasts based on Datamonitor's in-house model and expertise

Premium income from private non-comprehensive policies decreased due to consumers shifting away from this type of cover, as non-comprehensive premium rates rose on average over the year. Consumers have found it much easier in recent years to obtain comprehensive coverage and so have naturally opted for the better cover. Around two-thirds of consumers arranged their motor insurance over the telephone in 2007, making it the largest distribution platform. However, use of the telephone as a means to arrange a policy has been declining steadily year-on-year since 2003. The market dominance of the largest players is expected to confer a greater control over the setting of premium rates and a greater ability to steer the market. This has been evident in the fact that the current underwriting cycle has turned before the market reached the level of losses seen in previous cycles.

Understand what motivates consumers to buy motor insurance and which consumers are most likely to switch provider at renewal. Benchmark your company against your competitors based on current and past performance in the market. Develop your future business plans from an informed viewpoint with Datamonitor's market forecasts under three different scenarios.

Overview 1

Catalyst 1

Summary 1

Executive summary 2

The household insurance market experienced a reduction in the cost of weather claims in 2006, but an increase in the cost of claims from other perils 2

The cost of domestic property claims fell slightly in 2006, as a result of a fall in weather related costs 2

Face-to-face arrangements of household insurance policies continue to decline in favor of phone and internet 3

Face-to-face distribution of household insurance has been declining for several years 3

The average combined ratio of the top 10 property insurers rose in 2006, with Norwich Union, AXA and NIG seeing the largest increases 3

Among the top 10 UK property insurers, the average combined ratio rose by 1.5 percentage points in 2006 3

A significant increase in claims incurred in 2007 will lead to a significant underwriting loss 4

Table of Contents 5

Table of figures 6

Table of tables 7

Market context 8

The number of UK households reached 24.2 million and is forecast to increase over the next 20 years 8

The number of UK households has been growing steadily since 1971 8

An increase in the UK population has led to an increase in the number of UK households 8

The average household size has been decreasing steadily 8

The number of UK households is expected to grow significantly by 2029 10

The number of privately rented households grew in 2006 12

Household GWP growth slowed in 2006 14

GWP growth for contents insurance has slowed in 2006, while growth in buildings GWP improved 16

Prices for buildings cover and contents cover increased in 2007 17

Adverse weather conditions in 2007 have largely contributed to the rise in household insurance premiums 17

The prices for raw materials and labor costs have also increased 17

Property underwriting profits continued to decline during 2006 but the market remains profitable 18

Household underwriting profits decreased significantly in 2006 as total outgoings rose 20

Commissions and expenses and reinsurance ceded increased in 2007 22

GWP growth outstripped increases in commissions and expenses 22

Reinsurance ceded increased significantly in 2006 23

The household insurance market experienced a reduction in the cost of weather claims in 2006, but an increase in the cost of claims from other perils 26

The cost of domestic property claims fell slightly in 2006, as a result of a fall in weather related costs 26

Storm damage accounted for the largest part of the weather claims bill for household in 2006 28

The cost of domestic fire claims increased in 2006 30

The cost of household theft claims rose by 9.9% in 2006 as both the number of claims and the average cost of claims increased 31

The number of burglaries fell by 3% in 2005/6 32

The risk of burglary is heavily influenced by factors such as tenancy status and security measures 34

Subsidence claims costs grew in 2006 as did the average cost of claims 36

Customer focus 38

Introduction 38

Face-to-face arrangements of household insurance policies continue to decline in favor of phone and internet 38

Face-to-face distribution of household insurance has been declining for several years 38

The number of consumers arranging household insurance online or over the telephone grew in 2007 38

Price remains important to consumers, while those buying online are most likely to switch 40

The majority of consumers are attracted by low premiums when choosing their insurance provider 40

Consumers are more likely to switch if they purchase their household insurance online 42

Online consumers show greater sensitivity to price than consumers using other platforms 44

Household insurance providers advertise both buildings and content insurance combined and contents insurance as a standalone 47

Insurance providers spent Pounds Sterling 91.8 million advertising building and contents insurance combined in 2006 47

Insurance providers spent just Pounds Sterling 13.9 million advertising contents-only insurance in 2006 47

The majority of advertising spending on household insurance was concentrated on direct mail 48

The top 10 building and contents advertisers split their efforts between cross-selling through direct mail and gaining new customers from television advertising 49

The top 10 contained mainly direct insurers and bancassurers eager to expand their market share 49

Direct mail was the primary means of marketing building and contents insurance, reflecting the large number of banks and brokers in the top 10 49

Television advertising was also important to several of the largest building and contents advertisers 50

Press advertising was undertaken by all in the top 10 in 2006, although this medium played a minor role in advertising strategies 50

Advertisers ranked 11-20 focused their more limited budgets on direct mail advertising 52

Direct mail dominated the advertising strategies of advertisers ranked 11-20 52

Only a few advertisers included television or press campaigns in their building and contents marketing 52

The top 10 contents-only insurance advertisers, which consists mainly of banks and direct insurers, reduced their spend in 2006 54

Direct mail was the primary means of advertising contents-only insurance for all of the top 10, except Norwich Union 55

Direct mail accounted for the bulk of the spending by the top 10 in 2006 55

Norwich Union and Halifax were the only contents-only advertisers in the top 10 to pursue a television campaign in 2006 56

Direct mail was the preferred medium for advertising by advertisers in the 11-20 bracket 57

Limited budgets resulted in targeted direct mail campaigns 57

Press advertising was the only other expense for advertisers ranked 11-20 57

Direct Line and Churchill are the most widely recognized household insurance providers in 2007 59

Competitive dynamics 63

Introduction 63

St Andrew's, AXA, Norwich Union and UKI all recorded strong household GWP growth in 2006 63

Norwich Union remained the leading home insurer in 2006 and recorded strong growth in premium income 63

St Andrew's household book saw significant growth in 2006 63

Royal & SunAlliance saw household insurance GWP decrease in 2006, however on the flipside it recorded a strong combined ratio 64

Churchill moved from third to fourth position in the household market in 2006 64

Lloyds TSB's home insurance book grew marginally benefiting from increased sales through the branch network 64

Zurich saw a decline in premium income in 2006 65

Direct Line household insurance premium income fell marginally in 2006 65

AXA experienced significant growth in its GWP in 2006 and moved into seventh place in the household market 65

Legal & General saw a slowdown in premium income growth in 2006 65

UK Insurance's premium income experienced strong growth in 2006 66

St Andrew's experienced strong growth in GWP during 2006 while Royal & SunAlliance saw its GWP fall in 2006 68

The average loss ratio of the top 10 property insurers increased by 0.1 percentage points in 2006, with Direct Line, Zurich and Norwich Union recording the biggest reductions 70

The average loss ratio of the top 10 property insurers increased by 0.1 percentage points 70

Norwich Union, Direct Line and Zurich recorded strong loss ratio reductions 70

St Andrew's, NIG and Royal & SunAlliance recorded high loss ratio increases 71

The average expense ratio of the top 10 property insurers increased in 2006, with Norwich Union and AXA recording the largest individual increases 73

The average expense ratio of the top 10 property insurers rose by 1.4 percentage points in 2006 73

Norwich Union, AXA and Lloyds TSB saw their expense ratios increase, but they achieved GWP growth 73

Four of the top 10 property insurers achieved expense ratio reductions 74

The average combined ratio of the top 10 property insurers rose in 2006, with Norwich Union, AXA and NIG seeing the largest increases 76

Among the top 10 UK property insurers, the average combined ratio rose by 1.5 percentage points in 2006 76

Norwich Union, AXA and NIG recorded high combined ratio growth 76

Three insurers were able to defy the property market trend and reduce their combined ratios 77

The future decoded 80

Introduction 80

Premiums are estimated to have risen marginally in 2007 80

Household insurance premiums are estimated to have seen marginal increases in 2007 80

Insurers gave a range of estimates for premium rate changes in 2008 80

Under the neutral scenario the household insurance market experiences steady GWP growth between 2007 and 2010 before declines in 2011 and 2012 80

In the medium term competitive pressures will remain in the market exerting a downward pressure on prices 80

The household insurance market is forecast to grow by 2.1% per annum between 2007 and 2012 81

A significant increase in claims incurred in 2007 will lead to a significant underwriting loss 83

The pessimistic scenario sees competition remaining strong thereby holding back growth in the market 85

Competition remains strong in the household market under the pessimistic scenario 85

The household market reaches a value of Pounds Sterling 9.3 billion in GWP by 2012 86

Limited growth in NWP in 2008 means the household insurance market moves into a loss in 2010 under the pessimistic scenario 88

Under the optimistic scenario the market sees a strong underwriting profit in 2008 90

In the short term the floods enable insurers to put through a strong rate rise in 2008, however competitive forces temper any further strong rate rises between 2009 and 2012 90

Under the optimistic scenario, strong increases in the price of premiums in 2008 stimulate GWP growth in the household insurance market 91

The market achieves better underwriting results between 2008 and 2012 under the optimistic scenario 93

Appendix 96

Definitions 96

Competitor data 96

Household and domestic all risks 96

Premium income measures 96

Earned premiums 96

Gross Premium 96

Net Premium 96

Written premiums 96

Research methodology 97

Ipsos MORI data 97

Sample design 97

Further reading 98

Ask the analyst 98

Datamonitor consulting 98

Disclaimer 98

List of Tables

Table 1: The size of UK households by the number of people, 1971-2006, (millions) 10

Table 2: Household projections in England by household type, 2004-29 12

Table 3: Trends in household tenure for England, 1996-2006 14

Table 4: Annual growth in the UK household insurance market in GWP, 2002-06 15

Table 5: GWP split in household insurance between buildings and contents cover, 2002-06 16

Table 6: Change in UK household insurance premiums 18

Table 7: Total UK property underwriting account, 1996-2006, (Pounds Sterling m) 20

Table 8: Total UK household underwriting account, 1996-2006 (Pounds Sterling m) 22

Table 9: UK household insurance commissions and expenses compared with GWP and total outgoings, 2002-06, (Pounds Sterling m) 23

Table 10: UK domestic reinsurance ceded compared with NWP and GWP, 2002-06, (Pounds Sterling m) 25

Table 11: UK Reinsurers' share of claims, 2002-06 (Pounds Sterling m) 26

Table 12: UK domestic property insurance claims by peril, 2002-06 28

Table 13: Gross claims incurred for domestic property weather claims, 2002-06 (Pounds Sterling m) 29

Table 14: UK claims incurred by fire, domestic and total, 2002-06, (Pounds Sterling m) 30

Table 15: Number of household theft and average theft claims cost in the UK 32

Table 16: Number of burglaries in England and Wales, 1999-2006 33

Table 17: Unemployment among 18-24 year old males in the UK, 1998-2006 (000s) 34

Table 18: Household types most at risk from burglary in the UK, 2005-06-2006-07 36

Table 19: Average subsidence claims cost compared to claims costs and number of claims for subsidence in the UK, 2002-06 37

Table 20: Distribution of household insurance, by platform, 2003-07 40

Table 21: Reasons for choosing household insurance provider, 2007 42

Table 22: Propensity to switch household provider and likelihood of getting other quotes, by distribution platform, 2007 44

Table 23: Motivations for taking out a new household insurance policy, by distribution platform, 2007 47

Table 24: Total UK household advertising spend by media, 2005-06 49

Table 25: Top 10 building and contents insurance advertisers' spend by media, 2006 52

Table 26: The spending of building and contents advertisers ranked 11-20 by media, 2006 54

Table 27: Top 10 UK contents-only insurance advertisers, 2004-06 55

Table 28: Top 10 contents-only insurance advertisers' spend by media, 2006 57

Table 29: UK top 11-20 contents-only insurance advertisers' spend by media, 2006 59

Table 30: Spontaneous consumer awareness of UK household insurers against advertising expenditure, 2007 61

Table 31: Top 10 UK insurance providers by spontaneous recognition, 2007 62

Table 32: UK household insurance GWP and market share, top 10 competitors, 2005-06 (Pounds Sterling 000s) 67

Table 33: Growth of the top 10 household insurers, 2000-6 70

Table 34: Premium income compared to change in loss ratio for the top 10 UK property insurers, 2005-06 73

Table 35: Change in premium income compared to change in expense ratio among the top 10 property insurers, 2005-06 76

Table 36: Change in premium income compared to change in combined ratio for the top 10 UK property insurers, 2005-06 79

Table 37: Key variables affecting household insurance GWP, 2007e-12f (Neutral scenario) 81

Table 38: UK household insurance GWP, 1998-2012f (Neutral scenario) 83

Table 39: UK household insurance underwriting result, 1998-2012f (Neutral scenario) 85

Table 40: Key variables affecting household insurance GWP, 2007e-12f (Pessimistic scenario) 86

Table 41: UK household insurance GWP, 1998-2012f (Pessimistic scenario) 88

Table 42: UK household insurance underwriting result, 1998-2012f (Pessimistic scenario) 90

Table 43: Key variables affecting household insurance GWP, 2007e-12f (Optimistic scenario) 91

Table 44: Household insurance GWP, 1998-2012f (Optimistic scenario) 93

Table 45: Household insurance underwriting result, 1998-2012f (Optimistic scenario) 95

List of Figures

Figure 1: The total cost of UK domestic property claims fell slightly in 2006, as a result of a reduction in weather related claims 2

Figure 2: Phone remains the largest distribution platform for household insurance in 2007 3

Figure 3: The average household size has decreased since 1971 in the UK 9

Figure 4: The number of UK households is expected to grow over the next 22 years 11

Figure 5: The number of UK privately rented properties increased in 2006 13

Figure 6: Annual growth in GWP in the UK slowed in 2006 to 3.4% 15

Figure 7: Growth in the contents sector GWP slowed considerably in 2006 16

Figure 8: Premiums for building cover and contents cover increased in the UK in 2007 17

Figure 9: UK property insurance underwriting profits fell in 2006 to Pounds Sterling 517m 19

Figure 10: UK household underwriting profits fell dramatically during 2006 21

Figure 11: GWP grew by 4.5% in 2007, outstripping increases seen in commissions and expenses in the UK 23

Figure 12: Reinsurance ceded grew significantly in the UK during 2006 25

Figure 13: The total cost of UK domestic property claims fell slightly in 2006, as a result of a reduction in weather related claims 27

Figure 14: The cost of UK weather insurance claims fell in 2006 for domestic property 29

Figure 15: The cost of claims caused by fire grew in 2006 for domestic property in the UK 30

Figure 16: Both the number of theft claims and the average theft claims cost grew in the UK in 2006 31

Figure 17: Number of burglaries in England and Wales, 1999-2006 33

Figure 18: Homes with no security measures are at a very high risk of burglary; more than one in five was burgled in 2006-07 35

Figure 19: The cost of UK subsidence claims rose in 2006, while the average cost of subsidence claims increased only slightly 37

Figure 20: Phone remains the largest distribution platform for household insurance in 2007 39

Figure 21: Price is the strongest motivation when choosing a household provider 41

Figure 22: Consumers are most likely to switch from an insurance provider when they purchase their household insurance online in 2007 43

Figure 23: There is a greater price awareness among consumers who purchase their household insurance online in 2007 46

Figure 24: Direct mail constituted the bulk of the advertising outlay for UK household insurance products in 2006 48

Figure 25: Direct mail constituted the bulk of advertising outlay for building and contents insurance among the top 10 in 2006 51

Figure 26: Direct mail constitutes the bulk of the marketing outlay for building and contents insurance 53

Figure 27: Halifax far outspent any of its rivals in contents-only insurance via its direct mail campaigns in 2006 56

Figure 28: Most advertisers ranked 11-20 pursued a single medium approach to contents-only insurance in 2006 58

Figure 29: Direct Line was the most recognized home insurance brand in 2007 60

Figure 30: Norwich Union was the largest home insurer in 2006 66

Figure 31: St Andrew's achieved the strongest GWP growth in 2006 69

Figure 32: Direct Line, Zurich and Norwich Union saw the best decreases in loss ratio in 2006 72

Figure 33: St Andrew's was the only insurer to successfully reduce its expense ratio and at the same time increase its property insurance GWP in 2006 75

Figure 34: Direct Line and Churchill saw the biggest reductions in combined ratio in 2006 78

Figure 35: UK household insurance GWP increases between 2008 and 2010 before declining in 2011 and 2012 82

Figure 36: The UK household insurance market made a significant loss in 2007 due to the summer floods 84

Figure 37: Under the pessimistic scenario household insurance GWP increases more slowly between 2007 and 2012 before declining in 2011 and 2012 87

Figure 38: Under the pessimistic scenario the household insurance market moves into an underwriting loss in 2011 89

Figure 39: Under the optimistic scenario GWP spikes in 2008 as insurers raise rates by 10% 92

Figure 40: Under the optimistic scenario the household insurance market achieves a strong profit in 2008 due to a significant rate rise 94

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UK Private Motor Insurance 2007

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