UK Commercial Insurance Distribution 2007

This report provides a comprehensive look at the distribution of commercial insurance in the UK. It uses data from two exclusive Datamonitor surveys and a proprietary broker database to provide insight into the purchasing habits of SMEs and the views of brokers. It also looks at broker consolidation activity in the market.



Report Highlights
Brokers will continue to dominate the distribution of commercial insurance over the next few years although national brokers are losing share to other intermediaries. Consolidation is continuing apace as plenty of small brokers were snapped up during 2007. Larger companies are more likely to switch broker than their smaller counterparts.


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Catalyst 1
Summary 1
Executive Summary 2
Total general insurance GWP declined in 2006 2
Brokers continued to dominate the distribution of commercial insurance 2
National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers 2
Larger companies are more likely to have switched brokers between 2006 and 2007 2
Companies with a large turnover are more likely to switch broker 2
The market saw a number of mergers and acquisitions, many involving brokers 2
The broker channel is dominant in UK commercial insurance distribution, however its share of the market is declining 3
Brokers are forecast to see a 1% decline in market share between 2007 and 2011 3

Introduction 7
What is this report about? 7
Who is the target reader? 7
How to use this report? 8
Market Context 9
Introduction 9
Total general insurance GWP declined in 2006 9
The motor insurance market recorded its fourth consecutive year of decline 9
Property insurance GWP rose very slightly in 2006 9
General liability recorded a significant fall in GWP 9
Accident and health was the only business line to record strong growth 9
Pecuniary loss GWP fell by 3.2% 10
The general liability, commercial property, commercial motor and pecuniary loss markets recorded a fall in GWP in 2006 11
The UK business parc is continuing to grow steadily with most of the impetus coming from the smallest firms 13
The majority of UK businesses have no employees 14
Distribution Dynamics 17
Introduction 17
Brokers continued to dominate the distribution of commercial insurance 17
National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers 17
The direct channel increased its share of commercial insurance GWP by 1% in 2006 17
Affinity groups remain a small channel for the distribution of commercial insurance 18
Banks and building societies continue to play a small role in the distribution of commercial insurance 18
Organic growth remains a key strategy for brokers, although broker acquisitions remain popular 20
Brokers are keen to pursue organic growth 20
More than one fifth of the brokers surveyed have acquired a fellow broker 21
More than a third of brokers surveyed are considering planning an acquisition in the next 12 to 18 months 22
Increasing premium turnover and regional growth are the key motivations for planning a broker acquisition 23
The broker network model remains popular as many brokers wish to gain access to a larger panel of insurers 24
Over a third of brokers are part of a broker network 24
Many brokers joined a broker network to gain access to a larger panel of insurers 25
The proportion of brokers considering joining a broker network has decreased since the H1 2007 survey 26
Customer Focus 28
Introduction 28
Larger companies are more likely to have switched brokers between 2006 and 2007 while Jardine Lloyd Thompson performed well in terms of acquisition and retention 28
Companies with a large turnover are more likely to switch broker 28
Commercial clients are more likely to switch from a multinational than any other intermediary but overall those who switch are more likely to move to a smaller broker 30
Jardine Lloyd Thompson leads the pack in successfully acquiring and retaining customers, with Willis a close second, whilst Marsh and Aon in particular suffered negative net retention 31
Aon was the largest net loser of clients between 2006-7, shedding clients to brokers from both within and outside the top four 34
SMEs buy mainly through brokers and long-term relationships are the norm 35
In general SMEs are content with their insurance providers and satisfaction levels remain high 36
Retention levels among SMEs remain high with most staying with their provider for longer than two years 36
Almost 90% of SMEs are not considering a change of provider in the next year 37
A small group of SMEs are willing to switch provider in search of lower prices 38
Only 16 per cent of SMEs have changed insurance provider in the last two years 38
Premium costs are particularly a concern for those that have switched recently 39
One in 10 SMEs are considering switching their insurance provider in the next 12 months 40
Recent switchers show lower loyalty levels than other SMEs 41
Price is the dominant concern for potential switchers 42
Most SMEs would approach a broker if switching but some are open to alternatives 43
Brokers remain the top choice for SMEs to approach if they had to switch provider 43
Many SMEs are willing to consider alternative channels when prompted 44
Up to 44% of SMEs would consider using a bank as an insurance provider 44
Almost three quarters of SMEs would be willing to consider direct insurers, in the hope of cost savings 45
Many SMEs are open to purchasing insurance by telephone 46
Even more SMEs are willing to buy their insurance via the Internet, showing the potential of this platform 47
Commercial motor and property insurance are most likely to be purchased through alternative platforms 48
Alternative distribution channels face a number of challenges in attracting switchers 49
A core group of SMEs will not buy direct, as they believe that direct insurers are more expensive 49
Brand awareness in the commercial sector remains low, hampering progress for direct insurers 50
Over 50% of SME will not consider buying from bancassurers 51
Direct insurers and bancassurers also have to overcome the unwillingness of some SMEs to buy by telephone or Internet 52
Two thirds of SMEs consider purchasing commercial general insurance too complex for the telephone 52
A majority of SMEs view commercial general insurance as too complex for the Internet 53
Competitive Dynamics 54
Introduction 54
The market saw a number of mergers and acquisitions, many involving brokers 54
AXA acquired numerous commercial brokers in 2007, reinforcing its position in the SME sector 54
Groupama acquired a majority stake in Lark Group in August 2007 54
Direct Line began to offer business insurance in 2007 54
Equity Insurance Group recorded a large number of small-scale acquisitions 55
Towergate continued to acquire numerous brokers in 2007 55
Other brokers acquiring included Jelf, Giles, Broker Network and Oval 55
The top ten brokers have a market share of 96% of client turnover 55
The greater the turnover, the greater the market share of the multinational brokers 57
Of the companies in Datamonitor's Insurance Broker Database, 22 arranged their insurance in-house 59
Aon acquired Footman James in 2007 and is looking to improve its claims process 60
Aon to use InterResolve to revolutionize claims process 60
Aon acquired specialist motor insurance broker Footman James in 2007 60
Willis is planning to grow its SME business and introduced a new commission structure in 2007 61
Willis aims to grow its UK SME business 61
Willis alters remuneration package by introducing 2.5% commission on top of all fees 61
Jardine Lloyd Thompson is to establish a new underwriting division and has said that a transformational deal may happen in future 61
Jardine Lloyd Thompson asserts independence from big 3 61
JLT bought niche personal lines broker Pavilion in 2007 62
JLT to establish an underwriting division 62
The Future Decoded 63
Introduction 63
The broker channel is dominant in UK commercial insurance distribution, however its share of the market is declining 63
Brokers are forecast to see a 1% decline in market share between 2007 and 2011 63
The direct channel will see its commercial insurance distribution share rise to 11% by 2011 63
It is anticipated that insurers will make more affinity deals with retailers and associations to sell commercial insurance 64
Banks are expected to retain a distribution share of around 1% between 2007 and 2011 64
Company staff and agents will see slight reductions in market share 64
APPENDIX 67
Definitions 67
SME 67
Definitions of ABI terms 67
Brokers 67
National brokers 67
Other intermediaries & brokers 67
Chain brokers & telebrokers 67
Direct 67
Other company agents 67
Utilities/retailers/affinity groups 68
Company staff 68
Banks/building societies 68
Written premiums 68
Methodology 68
Datamonitor's UK Commercial Insurance Broker Competitor Database 68
Source of data 68
Industry sectors 69
Further reading 71
Ask the analyst 71
Datamonitor consulting 71
Disclaimer 71

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Table 1: Total general insurance GWP by line of business, 2002-6 11
Table 2: Commercial general insurance market GWP and year-on-year growth, split by sector 2002-6 13
Table 3: Profile of UK enterprise by volume, employee numbers and turnover 16
Table 4: Market share of distribution channels in the commercial general insurance market, 2003-6 20
Table 5: Percentage of companies that changed broker between 2006 and 2007, by turnover band 29
Table 6: Commercial clients switching broker, by broker segment, 2006-07 31
Table 7: Acquisition and attrition performance of top four brokers between 2006 and 2007 32
Table 8: Customer retention within Aon, 2006-7 33
Table 9: Customer retention within Marsh, 2006-7 33
Table 10: Customer retention within Willis, 2006-7 34
Table 11: Customer retention within Jardine Lloyd Thompson, 2006-7 34
Table 12: Top ten brokers by market share of client turnover, 2006-7 57
Table 13: Market share of multinational brokers by client size, 2007 59
Table 14: UK companies arranging insurance in-house, 2007 60
Table 15: Forecast market share of distribution channels in the commercial general insurance market, 2004-11f 66
Table 16: Crawford's Directory industry sectors 70


Figure 1: General insurance GWP declined in 2006 10
Figure 2: The general liability, commercial property and commercial motor markets recorded a fall in GWP in 2006 12
Figure 3: The number of UK enterprises increased by more than 100,000 between 2006 and 2007 14
Figure 4: More than 99% of UK companies are small businesses 15
Figure 5: National brokers dominate the distribution of commercial general insurance in the UK in terms of GWP 19
Figure 6: Organic growth remains a key growth strategy for the majority of brokers 21
Figure 7: Just over a fifth of brokers had acquired a fellow broker in the previous 12-18 months 22
Figure 8: Over 13% of survey respondents are planning an acquisition in the following 12-18 months 23
Figure 9: The majority of brokers planning an acquisition are doing so in order to increase their premium turnover or achieve regional growth 24
Figure 10: More than one third of brokers surveyed belong to a network 25
Figure 11: Access to a larger panel of insurers was the most common reason given for joining a broker network 26
Figure 12: The vast majority of survey respondents have no plans to join a broker network in the next 12-18 months 27
Figure 13: Companies with a greater turnover are showing less broker loyalty 29
Figure 14: The commercial clients of a multinational broker are most likely to switch 30
Figure 15: Willis won the highest percentage of clients, but Jardine Lloyd Thompson lost the smallest percentage of clients between 2006 and 2007 32
Figure 16: Marsh acquired five clients from Aon between 2006 and 2007 35
Figure 17: The majority of SMEs remain satisfied with their insurance providers 36
Figure 18: A majority of SMEs have been with their provider for over two years 37
Figure 19: Most SMEs do not consider dropping their current insurance provider 38
Figure 20: The number of SMEs staying with their provider for more than five years has increased since 2005 39
Figure 21: Price was the determining factor for choosing a new provider among SMEs who have been with their current provider for less than two years 40
Figure 22: Most SMEs are planning on retaining their insurance provider for at least the next 12 months 41
Figure 23: SMEs that have switched recently are more likely to do so again than those who have developed a long-term relationship with their provider 42
Figure 24: The price of insurance premiums is the most important reason given by SMEs planning to change insurance provider in the next year 43
Figure 25: SMEs have become more likely to consider direct insurers if they were to change provider 44
Figure 26: The prospect of cheaper premiums is the primary reason given for being willing to consider using a bank as an insurance provider 45
Figure 27: Price is the top reason given by SMEs that would consider switching to a direct insurer 46
Figure 28: Speed of concluding their insurance purchase is the primary reason given by SMEs willing to consider buying via the telephone 47
Figure 29: SMEs are willing to consider buying via the Internet if it is quicker and cheaper than other platforms 48
Figure 30: Over half of SMEs would consider buying commercial motor, property and employers' liability online or via the telephone 49
Figure 31: Fears that direct insurers will be more expensive is the top reason why 26% of SMEs will not consider such providers 50
Figure 32: Norwich Union is the direct insurer with the highest brand awareness in commercial insurance amongst SMEs 51
Figure 33: Half of SMEs which refused to consider banks view them as more expensive 52
Figure 34: The complexity of commercial insurance puts many SMEs off purchasing it over the telephone 53
Figure 35: The belief that commercial insurance is too complex to purchase online is the primary reason SMEs give for declining to consider the Internet as a distribution platform 53
Figure 36: Despite having fewer clients, Marsh had a larger share of client turnover than Aon 56
Figure 37: Multinational brokers have a larger share of client turnover for the bigger turnover bands 58
Figure 38: Although the broker channel is dominant in UK commercial insurance distribution, its share of the market is declining 65


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