UK Extended Warranty Insurance 2010

Introduction

UK Extended Warranty Insurance 2010 provides a detailed overview of the extended warranty market. The report is divided into two core segments: private motor and household electricals extended warranty. Both sections examine the total market size, retail sales, profitability, claims, distribution, key competitors and forecasts.

Scope

*Information and data on the attractiveness of the motor and electricals extended warranty market.

*Detailed car parc and electrical retail data.

*An overview of the market structure and competitors that are active in this space.

*An insight into how industry players view this market taken from in-depth interviews.

Highlights

The total private motor extended market grew marginally by 1.6% during 2009. Datamonitor has noticed that some dealers which sell motor EW have been more vigorous in the up-selling of this product, as they have experienced a significant fall in car sales and so need to seek other non-sales related revenue.

The white goods electricals extended warranty market is the largest because penetration rates are highest in this sector, with many providers estimating penetration at around 25%.

Most extended warranty policies are sold at point of sale, although post point of sale sellers are growing in size because customers are researching online for the cheapest coverage.

Reasons to Purchase

*Understand the extended warranty market and which companies sell this product.

*Get to grips with the size of the market and how it is anticipated to grow in the future.

*Make decisions based on detailed statistics taken from a wide array of sources including Datamonitor's sister company Verdict Research.


Report Highlights

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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The market is divided into private motor and household electricals extended warranty 2
The private motor EW market grew slightly in 2009 2
Motor EW sales have held up well against the weak used car market 2
The household electricals EW market is considerably larger at £1.2 billion 2
UK consumer expenditure on electrical goods fell by 7% to £20 billion in 2009 3
Most extended warranty policies are sold at point-of-sale 3
New and used car dealers account for the vast majority of motor EW policies sold 3
Electricals EW is distributed mainly at POS by retailers 3
However, the post-POS market is growing in importance 3
The future of EW sales depend heavily on the state of the car and electricals markets 3
A resurgence in used car sales will drive growth in the private motor extended warranty market 3
The take-up of electricals EW will be low as the electrical retail market will remain weak 4
Table of Contents 5
Table of figures 6
Table of tables 7
Market Context 8
Introduction 8
EW insurance provides protection beyond the manufacturer's base coverage 8
EW insurance offers buyers peace-of-mind 8
Motor warranty policies will pay for the costs associated with replacement parts and labor charges 8
There are a number of similar motor EW products available on the market 9
The private motor EW market was resilient in 2009 9
The total private motor EW market grew by 1.6% in 2009 to reach £534m 9
In some cases the EW is simply included within the price of the car 9
The market is characterized by insurers, administrators and some customer-facing providers 9
Not all of the motor warranty products sold to customers are insurance-backed 10
Captives represent an efficient way for manufacturers and dealers to control insurance-backed schemes 10
Despite the collapse of the car market, used car motor EW sales have not declined 10
Gross advances for motor finance fell by almost 10% in 2009 12
As a result of the fall in car sales, the total car parc for 2009 saw minimal growth compared with 2008 12
Interestingly, the fall in new car sales has helped increase the number of potential EW customers 12
The majority of cars on the road are aged between seven and 10 years 13
Market sentiment is that just over a quarter of all used car sales have an EW policy sold alongside it 14
Improving EW awareness will help providers tap into dormant car owners 14
Customer-facing providers Warranty Direct and Warranty Wise spent a total of £226,233 on advertising in 2009 15
Providers make a good margin on private motor EW products 16
Over the past few years, claims have been static 16
While suspension parts are the most frequent car fault, electrical related faults dominate EW claims 16
Proposals by the Department for Transport to introduce more 20mph zones without traffic calming measures may reduce claims 17
The recession has prompted many to undertake their own vehicle service, which invalidates EW claims 17
Household appliance EW is sold for a variety of different electricals 18
The electricals EW market is characterized mainly by service contracts 18
The total electricals EW market is expected to have been worth £1.2 billion in 2009 18
White goods EWs account for the vast share of the total electricals EW market 18
The majority of electricals EWs are service plans, rather than insurance-backed 20
Just over 70% of all electricals EW policies were service plan-backed in 2009 20
Service-backed schemes are cheaper and more tax efficient for retailers providing electricals EW policies 21
The electricals EW market is very profitable, with many providers able to make at least a 10% margin 22
Price competition in the electricals EW market is not as strong as in the electricals retail market 23
Claims patterns in the electricals EW market are largely predictable 23
UK consumer expenditure on electrical goods fell by 7% to £20 billion in 2009 23
The UK electricals retail market is dominated mainly by brown goods 25
Audiovisual, IT processing and major household appliances are the largest sub-sectors 26
The electricals market is plagued by considerable price deflation 27
Currently, demand for electricals EW is low and this will remain the case throughout 2010 28
The stagnant housing market has shrunk demand for white goods 28
The growth in the number of households should continue to benefit the UK electricals market 29
Some electricals retailers are focusing more on non-electricals sales revenue such as EW to boost profits 29
Distribution 30
Introduction 30
Car dealers are the main sellers of motor EW policies 30
New and used car dealers account for the vast majority of motor EW policies sold 30
Distribution of motor EW is expected to see no real changes over the upcoming years 30
Warranty Wise provides motor warranty protection 31
A greater emphasis on educating and training dealers will improve POS distribution of EW policies 32
Electricals EW is distributed mainly at POS by retailers 33
However, the post-POS market is growing in importance 33
Since 2005, the BIS has stipulated that sellers of electricals EW must follow a set of guidelines 35
Electricals specialists dominate the total electricals retailing market 36
The growth of online retail distribution has reduced retailers' POS advantage 38
Most UK individuals spend between £21 and £50 on electrical goods 39
Insurers should be working more with credit card providers to sell EW insurance 39
Competitive Dynamics 41
Introduction 41
Domestic & General is the largest electrical EW underwriter via its non-POS strategy 42
Allianz Schemes has partnerships with Argos, Amazon and GAME 42
London General Insurance holds the John Lewis contract 43
Car Care Plan is the largest provider of motor EW 43
Cardif Pinnacle distributes car warranties through Warranty Direct 44
Warranty Direct is a customer-facing online provider active in the EW market 44
Mondial Assistance also offers motor manufacturer's warranty services 45
Insurers are underwriting less EW 45
The insurance-backed market is shrinking 45
The insured market is becoming more concentrated 46
Domestic & General, QBE Europe and London General Insurance all gained market share in 2008 48
The total insured UK EW market is likely to have returned a COR of 90% 49
EW providers spent £8.5m on advertising, mainly via direct mail 50
Both Domestic & General and DSGi focus their advertising on the direct mail channel 51
The remainder of the market is made up of service providers and administrators 53
The Warranty Group provides motor and electricals warranty products 53
British Gas plans to underwrite all of its household and warranty products 53
DSGi, Argos and Comet are the largest UK electricals retailers 53
DSGi had a total market share of 17.4% in 2009 53
Argos is the only remaining catalogue retailer in the market, with a share of 11.2% in 2009 53
Comet's new product range helped increase its market share by 0.5 percentage points to 8.2% 54
Future Decoded 56
Introduction 56
The motor EW market will grow gradually 56
Initial penetration increases followed by a resurgence in used car sales will drive growth 56
New car registrations are expected to grow by a yearly average of 6.1% over 2010-14 57
As a percentage of the total car parc, cars aged between four and 10 years will decrease 58
The electricals EW market will shrink slightly in the short term 60
The up-take of electricals EW will rely heavily on the state of the electricals retail market 60
Total consumer expenditure on electrical goods will be lower in 2010 and 2011 61
APPENDIX 63
Definition 63
Captive insurance 63
Car parc 63
Extended warranty (EW) 63
Franchised dealer 63
Gross premium 63
Independent dealer 63
New car registrations 63
Written premium 63
Brown, white and grey electricals categories 64
Methodology 64
Datamonitor's European Automotive Markets 2010 Database 64
Financial Services Consumer Insight Survey 2009 65
Further reading 65
Ask the analyst 65
Datamonitor consulting 65
Verdict research 65
Disclaimer 65
List of Tables
Table 1: New and used car sales, and estimated used car EW sales (000s), 2005-09 11
Table 2: New car registrations in the UK (000s) and as a percentage of the total car parc, 2005-09e 12
Table 3: Composition of total car parc by age (000s), 2009 14
Table 4: Top 10 most common car faults and average cost of repair, 2009 17
Table 5: The total UK electricals EW market by sector (£m), 2009e 20
Table 6: Total consumer expenditure on electrical goods (£m), by sub-sector, 2005-09e 25
Table 7: Number of households and composition in the UK, 1961-Q2 2009 29
Table 8: Examples of car manufacturers and EW partners 31
Table 9: EW sales by provider (%), 2001, 34
Table 10: Sales of electrical EW at POS and non-POS (%), 2001 35
Table 11: Retail electricals sales by channel, 2004 and 2009e 37
Table 12: Warranty insurers and their partners 42
Table 13: List of Car Care Plan's partners 44
Table 14: Key competitors in the UK EW insured market by GWP (£m) and rate of growth (%), 2005-08 48
Table 15: Total advertising spend in the EW market (£000s), 2009 51
Table 16: Advertising spend by channel (%), 2009 52
Table 17: Market share of electricals retailers (%), 2004-09e 55
Table 18: Key variables affecting the motor EW market, 2010-13f 56
Table 19: New car registrations and total car parc (000s), 2010-14 58
Table 20: Forecasted composition of car parc by age, 2010f-14f 59
Table 21: Key variables affecting the electricals EW market, 2010f-14f 60
Table 22: Total consumer expenditure on electrical goods (£m), by sector, 2009e-14f 62
Table 23: Electricals market definition 64
List of Figures
Figure 1: While used car sales have fallen, the number of warranty sales have remained robust 11
Figure 2: There are a large number of potential EW customers 13
Figure 3: Warranty Direct and Warranty Wise focus their advertising budgets on press exposure 15
Figure 4: EW sales alongside white goods are the biggest part of the electrical EW market 19
Figure 5: Approximately £350m (29%) of all electricals EW is insurance-backed 21
Figure 6: An example of a business model whereby the retailer acts as an agent for a service provider 22
Figure 7: Total consumer expenditure on electrical goods has declined since 2007 24
Figure 8: White and grey goods sales make up just under half the total market 26
Figure 9: Sales of major household appliances have declined massively since 2004 27
Figure 10: The price of electricals is in a permanent state of deflation 28
Figure 11: Warranty Wise uses the well known face of motor expert Quentin Wilson in its advertising 32
Figure 12: Retailers sell most EW contracts, particularly at POS 34
Figure 13: Sales of EW at POS make up an even larger proportion of the market when renewals are taken out of the equation 35
Figure 14: Just under two thirds of the total electricals market is accounted for by electricals specialists, 2009 37
Figure 15: Online electricals sales have grown considerably over the past five years 38
Figure 16: Consumers tend to spend under £100 on electricals goods, making EW somewhat unnecessary 39
Figure 17: Consumers tend to avoid using debit cards for electricals purchases 40
Figure 18: The insured EW market has declined since 2006 46
Figure 19: Domestic & General is the largest UK EW insurance underwriter as of 2008 47
Figure 20: The market is shrinking and insurers are competing over smaller shares 49
Figure 21: The claims ratio for the insured segment of the EW market is usually around 38-40% 50
Figure 22: Direct mail dominated advertising spend in 2009 52
Figure 23: The motor EW market will experience strong growth from 2012 onwards 57
Figure 24: The total car parc will see minimal change, while new car registrations will increase, 2010-14 58
Figure 25: The electricals EW market will decline in 2010, followed by weak growth 61
Figure 26: Consumer expenditure on electricals will be weak in 2010 and 2011 62

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