Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The UK motor insurance market made a loss in 2006 however property and liability made profits 2
Underwriting losses grew in the motor market in 2006 as private motor losses exceeded profits in the commercial motor market 2
Property underwriting profits continued to decline during 2006 but the market remains profitable 2
The liability underwriting result improved for a fifth consecutive year in 2006, and the market finally achieved profitability 2
Total claims handling efficiency has declined in 2006 driven by increases in motor claims management costs 3
The motor ratio of claims management costs to net claims incurred rose by 0.1 percentage points 3
The property ratio of claims management costs to net claims incurred fell by 0.1 percentage points 3
The liability ratio of claims management costs to net claims incurred fell by 0.1 percentage points 3
Motor, property and liability net claims costs are expect to rise between 2006 and 2012 3
Personal injury claims will be the main driver of motor claims costs 3
Increases in the cost of rebuilding properties will have an impact on property claims costs 4
Personal injury claims, changes in periodical payments will have an impact on liability claims costs 4
Table of Contents 4
Table of figures 5
Table of tables 5
Introduction 6
What is this report about? 6
Who is the target reader? 6
Market context 7
The UK motor insurance market continued to contract in 2006 with underwriting losses in the private motor market deteriorating 7
Both private and commercial motor markets contributed to the decline in motor premium income in 2006 7
Comprehensive private motor premium led the deterioration in private motor insurance premium income 9
Underwriting losses grew in the motor market in 2006 as private motor losses exceeded profits in the commercial motor market 10
Total underwriting loss in the private motor market reached £448m in 2006 12
Personal injury remains the main driver behind claims inflation 14
The number of road traffic accidents has fallen steadily since 1997 as a result of greater road safety 14
Despite the fact that the total number of licensed vehicles continues to rise, the number of road traffic accidents is falling 16
Road accident casualties fell in 2006 18
Property GWP fell in 2006, led by the soft commercial property sector where underwriting profits dropped 20
Household insurance GWP increased in 2006, while commercial property GWP fell 20
Property underwriting profits continued to decline during 2006 but the market remains profitable 22
The commercial property underwriting result decreased in 2006 for a second consecutive year 23
Commercial property claims were benign in 2006, as a lack of any serious weather incidents kept claims numbers low 25
Commercial property claims costs resulting from fire, business interruption and weather damage all fell in 2006 25
Fire accounted for the majority of costs for commercial property claims in 2006 27
Business interruption claims costs, following fire and weather damage, fell in 2006 29
Weather claims costs for commercial property insurance declined in 2006 30
Theft claims costs increased in 2006 31
The increase in theft claims costs was due to a rise in average claims value in 2006 32
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 34
The cost of domestic property claims fell slightly in 2006, as a result of a fall in weather related costs 34
Storm damage accounted for the largest part of the weather claims bill for households in 2006 36
The cost of domestic fire claims increased in 2006 38
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 39
The number of burglaries fell by 0.8% in 2006-07 41
The risk of burglary is heavily influenced by factors such as tenancy status and security measures 43
Subsidence claims costs grew in 2006 as did the average cost of claims 45
The total general liability market contracted in 2006, but it moved into an underwriting profit 47
Competitive conditions in the liability market resulted in lower premium income 47
The liability underwriting result improved for a fifth consecutive year in 2006, and the market finally achieved profitability 48
The total number of personal injury claims rose by 5.4% in 2006-7 50
The number of accident claims increased by 8.3% in 2006-07 50
The number of disease claims fell in 2006-07, declining by 36.4% 50
Workplace accidents and work-related ill-health dropped again in 2005-06 52
The number of workplace injuries dropped in 2005-06 52
Workplace fatalities increased in 2005-06 mainly due to more fatalities among the public 53
Competitive dynamics 55
Introduction 55
Total claims handling efficiency has declined in 2006 driven by increases in motor claims management costs 55
The motor ratio of claims management costs to net claims incurred rose by 0.1 percentage points 55
The property ratio of claims management costs to net claims incurred fell by 0.1 percentage points 55
The liability ratio of claims management costs to net claims incurred fell by 0.1 percentage points 55
Norwich Union and UKI performed well in terms of motor claims management efficiency 57
Norwich Union and UKI were the most efficient insurers in terms of claims management out of the top five motor insurers in 2006 57
Fortis remained the most efficient motor insurance claims handler in 2006 59
Highway saw the largest improvement in its claims management efficiency while Direct Line recorded the largest decline 60
AXA and Norwich Union performed well in terms of managing property claims 63
AXA and Norwich union achieved relatively low ratios in 2006 63
UKI was the was the most efficient of the top 20 insurers at handling property insurance claims in 2006 64
Allianz achieved the largest reduction it its property claims efficiency ratio in 2006 66
Zurich and Norwich Union both saw their ratios deteriorate in 2006 67
Norwich Union recorded a relatively low ratio of liability claims management costs to net claims incurred in 2006 68
Norwich Union was the most efficient claims handler out of the top five liability insurers 68
Brit replaced Aspen as the most efficient liability insurance claims handler in 2006 70
NIG achieved the largest reduction in its ratio in 2006 71
The future decoded 74
Motor claims cost will increase by a CAGR of 5.2% between 2007 and 2012 primarily driven by increases in the cost of personal injury claims 74
Personal injury claims will continue to have a strong effect on total claims costs 74
The UK motor insurance market will see claims costs increase by 5.2% per annum between 2007 and 2012 76
A number of factors will provoke an increase in property insurance claims costs between 2007 and 2012 77
Increases in the cost of rebuilding properties will have an impact on claims costs 77
Property claims are estimated to have reached £7.5 billion in 2007 80
Liability claims costs are forecast to reach £5 billion driven largely by personal injury claims 81
Personal injury claims will be the main driver of claims costs 81
Liability claims cost are expected to increase by a CAGR of 9% between 2007 and 2012 83
APPENDIX 85
CIS 85
Definitions 85
Market Context 85
Gross Premium 85
Written premiums 85
Competitive Dynamics 85
2005-06 definitions for line of business 85
Motor 85
Total private motor 85
Total commercial motor 86
Private motor comprehensive 86
Private motor non-comprehensive 86
Motorcycle 86
Fleets 87
Commercial vehicles (non-fleet) 87
Property 87
Total commercial property 87
Household and domestic all risks. 87
Consequential loss (i.e. business interruption) 88
Liability business 88
Employers liability (including the employers liability part of mixed liability packages but excluding mixed commercial packages) 88
Professional indemnity (including directors' and officers' liability and errors and omissions liability) 88
Public and products liability 88
Mixed commercial package 89
Further reading 89
Ask the analyst 89
Datamonitor consulting 89
Disclaimer 90
List of Tables
Table 1: Total motor market GWP by private and commercial segment, 2002-06 8
Table 2: Private motor insurance premium income by line of business 2002-06 10
Table 3: Total motor underwriting account, 1996-2006 12
Table 4: Total private motor underwriting account, 1996-2006 14
Table 5: Total number of road accidents in the UK, 1995-2005 16
Table 6: The number of road accidents relative to the number of registered vehicles in the UK, 1995-2006 18
Table 7: Road accident casualties in the UK, split by severity of injury, 2002-06 19
Table 8: Property insurance GWP split between household and commercial business, 2002-06 21
Table 9: Total property underwriting account, 1996-2006 23
Table 10: Commercial property underwriting result, 1996-2006 25
Table 11: Gross incurred commercial property insurance claims by peril, 2002-06 27
Table 12: Proportion of gross incurred commercial property insurance claims by peril, 2002-06 28
Table 13: Cost of business interruption claims by cause, 2002-06 30
Table 14: Commercial property insurance weather claims costs, 2002-06 31
Table 15: Total cost of commercial property insurance theft claims, 2002-06 32
Table 16: Number of commercial property theft claims, 2002-06 33
Table 17: Average value of commercial property theft claims, 2002-06 34
Table 18: Domestic property insurance claims by peril, 2002-06 35
Table 19: Proportion of household claims by peril, 2002-06 36
Table 20: Gross claims incurred for domestic property weather claims, 2002-06 38
Table 21: Claims incurred by fire, domestic and total, 2002-06 39
Table 22: Number of household theft and average theft claims cost 41
Table 23: Number of burglaries in England and Wales, 2001-02 and 2006-07, (000s) 42
Table 24: Unemployment among 18-24 year old males, 1998-2007 43
Table 25: Households most at risk of burglary 2006-07 45
Table 26: Average subsidence claims cost compared to claims costs and number of claims for subsidence, 2002-06 46
Table 27: UK commercial liability market, 2002-06 (£m) 48
Table 28: Total general liability underwriting result, 1996-2006 50
Table 29: Number of personal injury claims made to general insurers, split by accident and disease, 2002-07 52
Table 30: Workplace injuries reportable under RIDDOR, 2001-02 and 2005-06p 53
Table 31: Workplace fatalities reported under RIDDOR, 2000-05 54
Table 32: Claims management costs, net claims incurred and ratio of claims management costs to net claims incurred, 2002-06 57
Table 33: Ratio of motor claims management costs to net motor claims incurred, 2002-06, top five motor insurers by GWP 58
Table 34: Ratio of motor claims management costs to net motor claims incurred, top 20 motor insurers, 2002-06 60
Table 35: Change in ratio of motor claims management costs to net motor claims incurred, top 20 motor insurers, 2005-06 62
Table 36: Ratio of property claims management costs to net property claims incurred, 2002-06, top five property insurers by GWP 64
Table 37: Ratio of property claims management costs to net property claims incurred, top 20 property insurers, 2005-06 66
Table 38: Change in ratio of property claims management costs to net property claims incurred, top 20 property insurers, 2005-06 68
Table 39: Ratio of claims management costs to net claims incurred, 2002-06, top five liability insurers by GWP 69
Table 40: Ratio of liability claims management costs to net liability claims incurred, top 20 liability insurers, 2002-06 71
Table 41: Change in ratio of liability claims management costs to net property claims incurred, top 20 liability insurers 73
Table 42: Key variables affecting motor claims costs, 2007e-2012f 75
Table 43: Forecast of net motor claims incurred, 2002-12f, (£m) 77
Table 44: Key variables affecting property claims costs, 2007e-2012f 79
Table 45: Forecast of net property claims incurred, 2002-12f, (£m) 81
Table 46: Key variables affecting liability claims costs, 2007e-2012f 82
Table 47: Forecast of net liability claims incurred, 2002-12f, (£m) 84
List of Figures
Figure 1: Both the private and commercial motor markets declined in 2006 7
Figure 2: Both of the main private motor lines declined in 2006 9
Figure 3: The motor insurance market continued to make an underwriting loss in 2006 11
Figure 4: The private motor market made an underwriting loss of £448m in 2006 13
Figure 5: The number of RTAs has fallen every year since 1997-98 15
Figure 6: Although vehicle registrations rose again in 2006, road traffic accidents continued to fall 17
Figure 7: Road accident casualties continued to decline in 2006 19
Figure 8: Household insurance GWP increased in 2006, while commercial property GWP fell 20
Figure 9: Property insurance underwriting profits fell in 2006 to £517m 22
Figure 10: The commercial property underwriting result decreased in 2006 24
Figure 11: Commercial fire, business interruption and weather property insurance claims costs fell in 2006 26
Figure 12: Fire claims continued to account for the largest part of commercial property claims costs in 2006 28
Figure 13: Business interruption claims costs fell in 2006 29
Figure 14: The cost of commercial property weather claims declined in 2006 31
Figure 15: 2006 saw a slight increase in the cost of commercial property insurance theft claims 32
Figure 16: 2006 saw a drop in the number of commercial property theft claims but an increase in the average value of claims 33
Figure 17: The total cost of domestic property claims fell slightly in 2006, as a result of a reduction in weather related claims 35
Figure 18: The cost of weather insurance claims fell in 2006 for domestic property 37
Figure 19: The cost of claims caused by fire grew in 2006 for domestic property 39
Figure 20: Both the number of theft claims and the average theft claims cost grew in 2006 40
Figure 21: Number of burglaries in England and Wales, 2001-02 and 2006-07, (000s) 42
Figure 22: Homes with no security measures were at the highest risk to burglary in 2006-07 44
Figure 23: The cost of subsidence claims rose in 2006, while the average cost of subsidence claims increased only slightly 46
Figure 24: Falling premium rates in most liability lines meant lower GWP across the liability market 47
Figure 25: The total general liability underwriting result increased in 2006 49
Figure 26: The number of disease claims registered with the Compensation Recovery Unit declined in 2006-07, however the number of accident claims rose 51
Figure 27: Workplace fatalities went down in 2005-06p, apart from among members of the public and the self-employed 54
Figure 28: Overall claims handling efficiency decreased slightly in 2006 56
Figure 29: Zurich recorded the highest ratio of claims management costs to net claims incurred of the top five motor insurers in 2006 58
Figure 30: Fortis was the most efficient at handling motor insurance claims in 2006 59
Figure 31: Highway saw the largest decrease in its ratio of motor claims management costs to net motor claims incurred for 2006 61
Figure 32: AXA recorded the lowest ratio of claims management costs to net claims incurred of the top five property insurers in 2006 63
Figure 33: UK Ins was the most efficient at handling property insurance claims in 2006 65
Figure 34: NIG saw the second largest improvement in its ratio which decreased by 3.4% in 2006 67
Figure 35: Norwich Union recorded the lowest ratio of claims management costs to net claims incurred of the top five liability insurers in 2006 69
Figure 36: Brit Insurance was the most efficient liability claims handler in 2006 70
Figure 37: NIG saw the largest improvement in its claims ratio in 2006 72
Figure 38: Total motor claims costs will reach £10.9 billion in 2007 76
Figure 39: Property insurance claims costs peaked to £7.5 billion in 2007 due to the summer floods 80
Figure 40: Liability claims costs will grow to £5 billion in 2012 83