UK Commercial Motor Insurance 2009

Introduction

The report is an invaluable guide to the UK commercial motor insurance market, providing insight into competitor strategies, profitability and performance as well as overall market growth and trends. It examines trends in distribution and identifies the key drivers behind claims inflation. The report also provides forecasts for the size and profitability of the market up to 2013.

Scope

*Obtain the latest market size and profitability analysis of the UK commercial motor insurance market

*Insight into the effects of the recession on the market, including the major changes to the competitor rankings

*Detailed market growth and profitability forecasts based on Datamonitor's in-house model and expertise

Highlights

When SMEs were asked which commercial products they were most likely to buy using the telephone and internet platforms, employers' liability and public liability were the two most commonly cited answers, whereas only 40.9% of SMEs would do so with their commercial motor insurance.

All of the insurers in the top 10 had at least some exposure to the commercial vehicle market in 2008, although fleet business dominates the books of the majority of these insurers. This is unsurprising given that the fleet market is much larger than that for commercial vehicle cover, allowing insurers to develop substantial books of business.

Reasons to Purchase

*Analysis of the performance of the key sectors of the UK commercial motor insurance market

*Benchmark your company against your competitors based on market share data and profitability ratios

*Develop your future business plans from an informed viewpoint with Datamonitor's market forecast

Report Highlights
Highlights

When SMEs were asked which commercial products they were most likely to buy using the telephone and internet platforms, employers' liability and public liability were the two most commonly cited answers, whereas only 40.9% of SMEs would do so with their commercial motor insurance.

All of the insurers in the top 10 had at least some exposure to the commercial vehicle market in 2008, although fleet business dominates the books of the majority of these insurers. This is unsurprising given that the fleet market is much larger than that for commercial vehicle cover, allowing insurers to develop substantial books of business.
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Table of Contents 7
Table of figures 8
Table of tables 9
Market Issues 10
Introduction 10
The acquisition of Westminster by Tradex has created a new top 10 player 10
The new combined commercial motor insurer is a black cab market powerhouse 10
Tradex is adept at using multiple channels to deliver its specialist commercial motor insurance policies 11
Westminster was a specialist in the competitive London taxi market 11
The recession is likely to have a depressing impact on commercial motor insurance GWP 12
Lower turnover and GDP will mean that few companies will be looking to expand their motor fleets 12
Insurers exposed to the motor trade are likely to suffer, as this sector faces falling sales 13
More company insolvencies will mean premium growth will not be generated by increases in volume 14
An increase in crime brought on by unemployment could increase claims costs for motor insurers 16
The commercial motor parc is likely to experience slower growth due to the recession 17
High claims costs and inflation have been reducing commercial motor insurers' margins 19
Bodily injury claims are typically more expensive than the average claim 19
Legal costs inflation has been identified as a key driver of claims inflation, particularly for smaller personal injury motor claims 20
Medical inflation is a major driver for larger personal injury claims costs 20
Insurers need to speed up the claims settlement process to eliminate unnecessary bills from credit hire companies on third-party non-fault claimants 21
An increase in uninsured driving and fraudulent claims is placing increasing pressure on UK insurers 21
Market Context 23
Introduction 23
The market continued to contract in size in 2008 as GWP declined in both market segments 23
The market is still highly competitive and experiencing soft premium rates 23
The market is estimated to have contracted by approximately 3.1% in 2008 23
Lloyd's market insurers have a significant presence in the UK motor market 25
Fleet insurance policies account for the bulk of the GWP in the commercial motor insurance market 26
Policies in force and premium rates have led to a contraction in GWP in the market 28
Average premium rates across both fleet and commercial vehicle have declined 28
There were a total of 4.4 million commercial motor policies in force in 2008 30
Fleet policies decreased while other commercial motor insurance vehicle years increased in 2008 30
The commercial motor parc grew by 2.7% in 2008 32
The total number of vehicles in the commercial motor parc continued to grow in 2008 32
There has been only a marginal shift in segmentation as the proportion of other vehicles increased 34
The company car parc remained broadly stable as a proportion of both the total car parc and overall vehicles 35
Claims costs continue to increase keeping pressure on margins 37
Gross claims costs for commercial motor insurers were estimated to have increased by 2.7% in 2008 37
Claims inflation continues to plague the market due to escalating bodily injury claims and credit hire costs 37
Claims frequency deteriorated in 2008, although the overall trend in recent years has been positive 39
Insurers are benefiting from improving accident rates 40
Falling road traffic accident rates mean fewer opportunities for expensive personal injury claims to arise 40
Road traffic accident numbers fell in 2008, continuing a trend from previous years 40
Road traffic accidents declined even as car numbers increased, signifying a fall in frequency 42
Casualty rates have fallen steadily, mirroring the continuous decline in road traffic accidents 44
The combined ratio for the commercial motor market peaked in 2007 but has started to improve 46
Commercial motor insurance losses improved in 2008 46
The total motor insurance and commercial motor insurance COR should continue reducing in the coming years 47
The industry made substantial reserve releases in 2008 48
Distribution Dynamics 50
Introduction 50
Large national brokers continue to dominate commercial insurance distribution 50
Independent insurance intermediaries of all types retain their leading market share in 2008 50
Direct players account for a small but growing portion of the commercial general insurance market 50
Corporate partnerships have maintained only a small presence in the commercial insurance market 51
Banks and building societies distribute negligible amounts of commercial general insurance 51
Commercial motor insurance distribution is considered to be most at risk from the direct channel 53
The broker channel continues to dominate the SME market with retention levels high 54
Brokers remained the dominant distribution channel targeting SMEs in 2008 54
The internet is the least common platform for SMEs purchasing commercial insurance 54
The majority of SMEs remain satisfied with their insurance provider 55
Long-standing relationships are important to SMEs purchasing commercial insurance 56
SMEs purchasing their insurance through a bank or a broker value advice from their insurance providers the most 57
Price is important to many SMEs choosing an insurance provider 58
A significant proportion of SMEs are open to purchasing their insurance via the internet or phone 59
The convenience factor of the phone is appealing to many SMEs considering a telephone purchase 59
Many SMEs are unwilling to purchase their insurance over the telephone 60
Over a third of SMEs would consider a purchase online 61
Only 40.9% of SMEs would buy their motor insurance over the telephone or internet 62
Competitor Focus 64
Introduction 64
RSA and Aviva remained the leading commercial motor insurers in 2008 64
Aviva retained its position as the market leader in 2008 64
RSA's market share increased by 0.5 percentage points 64
Zurich, Allianz, NFU, AXA and QBE gained market share in 2008 64
Zurich recorded a large increase in market share in 2008 64
Allianz's market share grew in 2008 64
NFU Mutual grew its market share by 0.4 percentage points in 2008 and achieved growth of 3.3% in GWP 65
AXA continued to grow, increasing its market share by 0.2 percentage points in 2008 65
RBS' market share remained at 4.1% in 2008 65
QBE achieved growth and possesses the largest commercial vehicle book among the top 10 commercial motor insurers 65
Two insurers, Tradex and Liverpool Victoria, gained market share through acquisitions in 2008 66
Liverpool Victoria Group gained a significant presence in the commercial motor market after its acquisition of Highway in 2008 66
Tradex's commercial motor insurance book experienced significant gains in 2008 due to organic and inorganic growth 66
Mid-sized commercial motor insurers gained 2.0 percentage points of market share in 2008 68
Brit, Groupama, HSBC and Fortis all increased their exposure to the commercial motor insurance market in 2008 68
Brit Insurance recorded the largest growth in GWP among the top 20 commercial motor insurers 68
Groupama grew its market share by 0.3 percentage points and achieved growth of 20.0% in GWP 69
HSBC increased the amount of its commercial motor insurance book that it underwrote in 2008 69
Fortis recoded the largest growth in GWP among the top 20 commercial motor insurers in 2008 69
Travelers, commercial motor book increased by 12.29% in 2008 69
AIG, CIS and FIM Holding's market shares were reduced in 2008 69
AIG's commercial market share declined by 0.5 percentage points 69
CIS's market share in commercial motor declined by 0.3 percentage points in 2008 70
FIM Holdings declined by 16.8% resulting in a lower commercial motor market share 70
MMA and Allchurches had relatively stable market shares in 2008 70
All of the top 10 commercial motor insurance groups have mixed motor insurance portfolios 72
Most of the top 10 commercial motor insurers' books were dominated by fleet business in 2008 72
Allianz, RSA and Zurich recorded accident year CORs much lower than the market average 74
All of the leading commercial motor insurance groups had an unprofitable year on an accident year basis 74
Allianz, RSA and Zurich beat the market average COR 74
Allianz, Tradex, Aviva, Zurich, RSA and NFU Mutual achieved an underwriting profit on a reported year basis 76
The top 10 commercial motor insurers have relied on reserve releases in recent years to lower their CORs 76
Allianz, Tradex, Aviva Zurich, RSA, and NFU recorded reported year CORs below 100% in 2008 76
Future Decoded 79
Introduction 79
The commercial motor market is forecast to reach £3.7 billion by 2013 as premium rates rise 79
Premium rate increases will be the primary factor driving growth in the commercial motor insurance market 79
The UK commercial motor insurance market is forecast to reach a value of £3.7 billion in 2013 80
The fleet motor insurance market will be worth £3.1 billion in 2013 82
The commercial motor insurance market is forecast to improve its underwriting performance throughout the forecast period 84
APPENDIX 86
Definitions 86
ABI members 86
Accident year combined ratio 86
Bancassurers 86
Brokers 86
Brandassurers 86
Channel 86
Direct insurer/writer 86
Earned premiums 86
Gross premium 86
Net premium 87
Platform 87
Reported year combined ratio 87
Reserve development 87
Written premiums 87
Methodology 87
Datamonitor's Commercial Broker Survey H1 2009 87
Datamonitor's SME Insurance Survey Q1 2008 87
Further reading 89
Ask the analyst 89
Datamonitor consulting 89
Disclaimer 89
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List of Tables
Table 1: New car registrations in the UK, 2000-09f 14
Table 2: UK company liquidations, 2003-08p 15
Table 3: Commercial motor theft claims cost and number 16
Table 4: UK unemployment, Q4 2004 to Q4 2008 16
Table 5: New commercial vehicle registrations in Great Britain by body type, 2004-08 (000s) 18
Table 6: UK average cost of bodily injury claims notified two years previously, 2003-07 (£) 20
Table 7: Change in average premium rates and total commercial motor market size, 1996-2008e* 24
Table 8: UK motor insurance NWP split between ABI members and Lloyd's, 2007 (£m) 26
Table 9: Commercial motor GWP by line of business, 2005-08e (£m) 28
Table 10: Fleet and commercial vehicle average per vehicle premium rate changes, 2005-08e 29
Table 11: Motor policies in force, 1998-2008 (000s) 32
Table 12: Commercial motor parc in Great Britain by body type, 2004-08 (000s) 33
Table 13: Commercial motor parc in Great Britain by body type, 2007-08 35
Table 14: Company car parc's share of total car parc, 2004-08 (000s) 36
Table 15: Commercial motor gross claims costs, 2002-08e (£000) 37
Table 16: Average motor claim costs, 2003-07 (£) 38
Table 17: Commercial motor claims volume and frequency, 1998-2008 40
Table 18: Total number of road accidents in the UK, 1998-2008* (000s) 42
Table 19: Road traffic accidents relative to registered vehicles in Great Britain, 1998-2008 (000s) 44
Table 20: Deaths, seriously and slightly injured casualties resulting from UK road traffic accidents, 2004-08* 45
Table 21: Accident and reported year COR, commercial motor market, 2005-08 (%) 49
Table 22: Market share of distribution channels in the commercial general insurance market, 2004-08e 52
Table 23: Q: ""How important is it to receive advice on an ongoing basis from your insurance provider?"" 58
Table 24: Gross written premium and market share of the top 10 UK commercial motor insurance groups, 2007-08 68
Table 25: Gross written premium and market share of the top 11-20 UK commercial motor insurance groups, 2007-08 72
Table 26: Top 10 commercial motor insurers' fleet and commercial vehicle books, 2007-08 74
Table 27: Accident year combined ratio and underwriting profit/loss for commercial motor business, top 10 motor insurance groups, 2008 76
Table 28: Reported year combined ratio and underwriting profit/loss for commercial motor business, top 10 commercial motor insurance groups, 2008 78
Table 29: Key variables affecting commercial motor insurance GWP, 2008e-13f 80
Table 30: UK commercial motor insurance GWP forecast, 1996-2013f (£m) 82
Table 31: Commercial motor GWP by line of business, 2005-13f (£m) 84
Table 32: Commercial motor accident year profitability ratio, 2005-2013f (%) 85
Table 33: Q: ""What business sector are you involved in?"" 88
Table 34: Q: ""How large is your company in terms of number of employees?"" 88
Table 35: Q: ""How large is your company in terms of turnover?"" 89
List of Figures
Figure 1: The 2007 average UK motor claim cost for bodily injury was notably higher than in previous years 3
Figure 2: SMEs are equally likely to buy motor cover over the internet or telephone 5
Figure 3: The combined commercial motor insurance books of Tradex and Westminster gave them a market share of 2.7% 11
Figure 4: The British economy has been contracting since mid-2008 13
Figure 5: UK company liquidations have already begun increasing 15
Figure 6: New commercial vehicle registrations slowed in 2008 and are expected to contract further in 2009 18
Figure 7: The 2007 average UK motor claim cost for bodily injury was notably higher than in previous years 19
Figure 8: The commercial motor insurance market continued to contract due to lower premium rates 24
Figure 9: Lloyd's syndicates underwrote £1 billion of motor insurance business in 2007 25
Figure 10: Premium income from both commercial motor lines was expected to have contracted in 2008 27
Figure 11: Premium rate growth in the commercial motor insurance market remained negative in 2008 29
Figure 12: Fleet policies make up the majority of the commercial motor market 30
Figure 13: The share of policies for commercial vehicles is much reduced from even five years ago 31
Figure 14: Commercial motor vehicles continued to increase in 2008 although at a lower rate 33
Figure 15: Light goods vehicles and company cars account for most of the commercial motor parc 34
Figure 16: The company car parc remained broadly stable while the total car parc grew gradually 36
Figure 17: The average motor claim cost continued to rise rapidly in 2007 at 14.1% 38
Figure 18: Commercial motor claims volume and frequency increased in 2008 39
Figure 19: The number of UK road accidents has continued to fall since 1998 41
Figure 20: Accidents in the UK have fallen despite a steady increase in the number of vehicles 43
Figure 21: Casualties continued to decline across all categories in 2008 45
Figure 22: The commercial motor insurance accident year COR appears to be recovering 46
Figure 23: The combined ratio for commercial motor has begun to improve 47
Figure 24: Commercial motor insurers continued to make reserve releases in 2008 to improve their reported year COR 48
Figure 25: Brokers are the dominant route to market for commercial insurers in the UK 52
Figure 26: Commercial motor is considered to be at most risk from the direct channel 53
Figure 27: Most SMEs purchase their commercial insurance through the broker channel 54
Figure 28: Most SMEs purchase their insurance through face-to-face contact with their insurance provider 55
Figure 29: Most SMEs are satisfied with the service they have received from their insurance providers 56
Figure 30: A large proportion of SMEs have been with their insurance provider for more than 10 years 57
Figure 31: Receiving ongoing advice from their insurance provider is important to most SMEs 58
Figure 32: Many SMEs consider the price of an insurance premium to be the most important factor when choosing a commercial insurance provider 59
Figure 33: The convenience factor appeals to many SMEs prepared to purchase insurance over the phone 60
Figure 34: A significant proportion of SMEs would not consider a telephone purchase because they simply prefer face-to-face 61
Figure 35: A significant proportion of SMEs who would consider a purchase online think price is an important factor 62
Figure 36: SMEs show only a moderate inclination to purchase motor insurance via the telephone or internet 63
Figure 37: Most top 10 commercial insurers gained market share in 2008 67
Figure 38: Most of the 11-20 commercial motor insurers gained market share in 2008 71
Figure 39: Most of the top 10 commercial motor insurers underwrite primarily in the fleet market 73
Figure 40: Allianz, RSA and Zurich recorded CORs that were lower than the market average 75
Figure 41: Allianz, Tradex, Aviva, Zurich, RSA and NFU Mutual recorded CORs below 100% in 2008 after reserve releases 77
Figure 42: Growth in premium income is forecast to turn around in 2009 81
Figure 43: The market will continue to be based primarily on fleet policy income and will turn to growth 83
Figure 44: Underwriting losses are forecast to decline 85
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