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Motor Insurance - UK - May 2009

The motor insurance market has been suffering from an underwriting loss for a number of years now. Fuelled by the growth of price comparison sites, the market is highly price sensitive and suffers from a distinct lack of customer loyalty. On the plus side, however, the motor insurance sector is well-insulated against the economic downturn due to the fact that motor insurance is a legal requirement. As the number of cars in the UK continues to grow, the sector should prosper, giving motor insurers time to focus on of the issues of pricing, customer retention and distribution.

Some 19% of motorists used an aggregator to arrange their last car insurance policy (compared to 12% in 2008). Clearly, price comparison sites present a big challenge for providers. Either a new pricing structure is needed in relation to the aggregator model, or a longer-term focus is required in their relationship. In addition, the rising cost of personal injury claims is a big issue for insurers, adding to the need to increase premiums. The problem is that while big premium rises are needed to increase profitability, in such a fiercely competitive and price-led industry, no one wants to be the first mover for fear of the business they will lose as a result.

This report explores the many issues that are at work in the motor insurance sector, its strengths and weaknesses are assessed, and its size defined in terms of gross written premiums and underwriting profit. Distribution channels are explored (in particular the role of intermediaries) before taking a look at the key players in the market, both in terms of their market share and brand perceptions. The report concludes with a detailed analysis of the consumer’s view of the market, compiled from the research Mintel has conducted on the private motor insurance market.

Key report issues:

  • The sector lacks profitability – large premium increases are needed to resolve this

  • A highly competitive and price sensitive market with…

  • …a distinct lack of customer loyalty (ie low retention, high switching)

  • Aggregators are becoming an increasingly dominant force and encourage switching

  • The rising costs of personal injury claims add to the pressure on premium inflation

  • But the sector is recession-resistant as motor insurance is a legal requirement

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
        • Future Opportunities

          • Developing a more sustainable aggregator relationship
            • A shift is occurring in terms of customer ownership
              • Fixing premiums to boost loyalty
                • Increasing the appeal of green car insurance
                • Market in Brief

                  • Underwriting profitability is a major issue…
                    • Figure 1: Size of the UK domestic motor insurance market by NWP, outgoing payments and underwriting result, 2000-09
                  • …which is not helped by rising claims costs…
                    • …but the motor insurance industry is recession-resistant
                      • The number of cars in the UK continues to rise
                        • Figure 2: UK car parc, 2000-08
                      • RBS is the market leader
                        • Figure 3: Top 15 personal motor insurance providers, by GWP, 2006-08
                      • The sector lacks differentiation – price is key
                        • Direct sales are rising, but so too are aggregators
                          • Figure 4: Personal lines motor insurance distribution trends, 2000-07
                        • Car insurance is a high-ownership product
                          • Figure 5: Car insurance ownership, February 2009
                        • Drivers go direct
                        • Internal Market Environment

                          • Key points
                            • The number of cars in the UK continues to grow…
                              • Figure 6: UK car parc, 2000-08
                            • …although new car registrations have fallen
                              • Figure 7: Trends in private, business and fleet new car registrations, 2001-08
                            • Used car sales are also down
                              • Figure 8: Sales of used cars, 2002-07
                            • The number of driving licence holders has increased
                              • Figure 9: Full GB driving licence holders, by gender 1975/76-2007
                            • Multiple car ownership has also increased
                              • Figure 10: Household ownership of cars, 2003-08
                            • The impact of rising personal injury claims
                              • Fraudulent claims are also up…
                                • Figure 11: Percentage of personal motor claims repudiated due to detected fraud and total general insurance fraud savings, 2004-08
                              • …with the recession leading to yet more fraud?
                                • Premiums set to rise in 2009 as a result
                                  • Issues around age discrimination
                                  • Broader Market Environment

                                    • Key points
                                      • Disposable incomes are being squeezed
                                        • Figure 12: Trends in PDI, consumer expenditure and savings, 2002-12
                                      • Changing economic circumstances changing motoring habits?
                                        • Consumer spending falling as a result
                                          • Figure 13: Spending and savings intentions, Mar 2000-Mar 2009
                                        • Internet penetration has increased
                                          • Figure 14: Internet penetration at home/work/place of study or elsewhere in GB, by gender, age, and socio-economic group, 2003-08
                                        • Petrol prices have increased significantly
                                          • Figure 15: UK petrol price growth*, 2002-08
                                        • The average cost of motoring increased in 2008
                                          • Figure 16: Average cost of motoring in the UK, 2003-08
                                        • Low base rate may increase appeal of car finance
                                          • Anti-car policies and public transport improvements
                                            • Car tax changes will hit two thirds of motorists
                                            • Competitive Context

                                              • Key points
                                                • Motor insurance is compulsory…
                                                  • …but uninsured drivers are a problem…
                                                    • Figure 17: New claims submitted to the MIB for accidents involving uninsured vehicles (by year of reporting), 2005-08
                                                  • …but the police are taking a tougher stance
                                                  • SWOT Analysis

                                                      • Figure 18: Motor insurance market SWOT analysis, 2009
                                                  • Who’s Innovating?

                                                    • Key points
                                                      • MORE TH>N launches green motor insurance policy
                                                        • Rekindling the pay-as-you-drive market
                                                          • Standalone legal cover from Fortis
                                                            • Other significant product launches
                                                              • Expanding the range of added-valuable benefits
                                                              • Trade Perspective

                                                                • Competition continues to grow
                                                                  • Personal injury claims are still a big issue
                                                                    • Aggregators are growing in influence
                                                                      • What about brokers?
                                                                        • Switching still an issue
                                                                          • Innovation in the market
                                                                            • Returning to profitability
                                                                              • The impact of the downturn
                                                                              • Market Size and Forecast

                                                                                • Key points
                                                                                  • The overall market continues to run at a loss
                                                                                    • Figure 19: Size of the UK domestic motor insurance market by NWP, outgoing payments and underwriting result, 2000-09
                                                                                  • GWP increased by 4% in 2007
                                                                                    • Figure 20: Domestic motor insurance exposure, GWP and average premium rates, at current prices, 2000-08
                                                                                  • Premiums are increasing more rapidly now
                                                                                    • Figure 21: Motor insurance market average premium, by type of cover, January 2003-December 2008
                                                                                  • Comprehensive cover continues to dominate
                                                                                    • Figure 22: Proportion of cars with comprehensive and non-comprehensive cover, based on exposure (vehicle years), 2000-08
                                                                                  • Forecast
                                                                                    • A gradual return to underwriting profitability
                                                                                      • Figure 23: Forecast size of the UK domestic motor insurance market by NWP, outgoing payments and underwriting result, 2004-14
                                                                                    • Factors used in the forecast
                                                                                    • Claims Experience

                                                                                      • Key points
                                                                                        • The total number of private motor claims fell by 7% in 2008
                                                                                          • Figure 24: Total number of private motor insurance claims and claims frequency, 2000-08
                                                                                        • The value of claims incurred has steadily increased
                                                                                          • Figure 25: Value of claims in the domestic motor insurance sector, 2000-07
                                                                                        • The number and value of theft claims continues to fall
                                                                                          • Figure 26: Private car theft claims, by volume, cost and average claim, 2000-08
                                                                                        • Personal injury claims are still costing
                                                                                          • Figure 27: Number and average cost of personal injury claims, 2000-07
                                                                                        • A more collaborative approach to claims management
                                                                                        • Market Share

                                                                                          • Key points
                                                                                            • RBS leads the market by a long way
                                                                                              • Figure 28: Top 15 personal motor insurance providers, by GWP, 2006-08
                                                                                            • A highly fragmented marketplace
                                                                                            • Companies and Products

                                                                                                • A diverse range of products and options available
                                                                                                  • Factors that determine the cost of the policy
                                                                                                    • Company profiles
                                                                                                      • The AA
                                                                                                        • Fortis Insurance
                                                                                                          • Norwich Union (Aviva from June 2009)
                                                                                                            • RBS Insurance
                                                                                                              • RSA (formerly Royal Sun Alliance)
                                                                                                                • Zurich Insurance
                                                                                                                • Brand Communication and Promotion

                                                                                                                  • Key points
                                                                                                                    • Motor insurance adspend remains flat in 2008
                                                                                                                      • Figure 29: Total general and motor insurance adspend, 2004-08
                                                                                                                    • Car insurance makes up the vast majority of advertising
                                                                                                                      • Figure 30: Motor insurance adspend, by sub-category (percentage splits*), 2004-08
                                                                                                                    • Direct Line was the biggest advertiser in 2008
                                                                                                                      • Figure 31: Motor insurance adspend, by company (percentage splits*), 2004-08
                                                                                                                    • When it comes to advertising motor insurance, the TV is king
                                                                                                                      • Figure 32: Motor insurance adspend, by media type (percentage splits*), 2004-08
                                                                                                                  • Brand Elements

                                                                                                                      • Brand map
                                                                                                                        • Figure 33: Attitudes towards and usage of motor insurance brands, January 2009
                                                                                                                      • Brand qualities of motor insurance brands
                                                                                                                        • AA most genuine, but Direct Line seen as reliable
                                                                                                                          • Figure 34: Personalities of various motor insurance brands, January 2009
                                                                                                                        • Direct Line most used, but brand experience is low
                                                                                                                          • Figure 35: Consumer usage of various motor insurance brands, January 2009
                                                                                                                        • Brand loyalty negligible in motor insurance
                                                                                                                          • Figure 36: Consideration of various motor insurance brands, January 2009
                                                                                                                        • A change is as good as the best
                                                                                                                          • Figure 37: Satisfaction with various motor brands, January 2009
                                                                                                                        • Norwich Union most likely to lose custom
                                                                                                                          • Figure 38: Commitment to various motor insurance brands, January 2009
                                                                                                                        • The AA
                                                                                                                          • What the brand is trying to achieve
                                                                                                                            • What the consumer thinks
                                                                                                                              • Figure 39: Attitudes towards the AA brand, January 2009
                                                                                                                            • Norwich Union
                                                                                                                              • What the brand is trying to achieve
                                                                                                                                • What the consumer thinks
                                                                                                                                  • Figure 40: Attitudes towards the Norwich Union brand, January 2009
                                                                                                                                • MORE TH>N
                                                                                                                                  • What the brand is trying to achieve
                                                                                                                                    • What the consumer thinks
                                                                                                                                      • Figure 41: Attitudes towards the MORE TH>N brand, January 2009
                                                                                                                                    • Churchill
                                                                                                                                      • What the brand is trying to achieve
                                                                                                                                        • What the consumer thinks
                                                                                                                                          • Figure 42: Attitudes towards the Churchill brand, January 2009
                                                                                                                                        • Round up
                                                                                                                                        • Channels to Market

                                                                                                                                          • Key points
                                                                                                                                            • Direct sales have grown significantly since 2000
                                                                                                                                              • Figure 43: Personal lines motor insurance distribution trends, 2000-07
                                                                                                                                            • Aggregators have taken a more commanding position…
                                                                                                                                              • Figure 44: Distribution channels used to buy car insurance, 2001-09
                                                                                                                                            • …though this does not necessarily benefit insurers
                                                                                                                                              • The telephone is still crucial
                                                                                                                                                • Figure 45: Methods of arranging car insurance, February 2009
                                                                                                                                            • The Consumer – Product Ownership

                                                                                                                                              • Key points
                                                                                                                                                • Half the population have comprehensive insurance
                                                                                                                                                  • Figure 46: Car insurance ownership, February 2009
                                                                                                                                                • Ownership of comprehensive cover continues to rise
                                                                                                                                                  • Figure 47: Car insurance ownership, 2004-09
                                                                                                                                                • Men are more likely to have a policy in their own name
                                                                                                                                                  • Figure 48: Car insurance ownership, by gender, age, socio-economic group, lifestage, residential status, ACORN group, and car ownership, February 2009
                                                                                                                                                • Younger drivers more likely to be ‘fronted’ or have third party cover
                                                                                                                                                  • ABs are more likely to have comprehensive cover
                                                                                                                                                    • Homeowners and multi-car households valuable targets
                                                                                                                                                    • The Consumer – Distribution Trends

                                                                                                                                                      • Key points
                                                                                                                                                        • Most people buy direct from an insurance company…
                                                                                                                                                          • Figure 49: Distribution channels used to buy car insurance, February 2009
                                                                                                                                                        • …but aggregators have become increasingly influential
                                                                                                                                                          • Figure 50: Distribution channels used to buy car insurance, 2001-09
                                                                                                                                                        • Aggregators are used more by younger people…
                                                                                                                                                          • Figure 51: Distribution channels used to buy car insurance, by demographic variables, February 2009
                                                                                                                                                        • …and high earners
                                                                                                                                                          • The type of policy makes no difference
                                                                                                                                                            • Figure 52: Distribution channels used to buy car insurance, by type of cover, February 2009
                                                                                                                                                          • The telephone is still king in motor insurance
                                                                                                                                                            • Figure 53: Methods of arranging car insurance, February 2009
                                                                                                                                                          • Rapid growth in online sales
                                                                                                                                                            • Figure 54: Methods of arranging car insurance, 2001-09
                                                                                                                                                          • Younger people more likely to use the internet
                                                                                                                                                            • Figure 55: Methods of arranging car insurance, by gender, age, socio-economic group, children in household, car ownership and newspaper readership, February 2009
                                                                                                                                                          • Aggregators should target households with children…
                                                                                                                                                            • …and avoid advertising in popular tabloids
                                                                                                                                                              • Most people that arrange direct with an insurer use the telephone
                                                                                                                                                                • Figure 56: Distribution channel used to purchase motor insurance, by method used to arrange policy, February 2009
                                                                                                                                                            • The Consumer – Switching and Customer Retention

                                                                                                                                                              • Key points
                                                                                                                                                                • Just 23% of people don’t bother shopping around
                                                                                                                                                                  • Figure 57: Number of motor insurance quotes obtained on last renewal, February 2009
                                                                                                                                                                • The number renewing with their existing provider has fallen
                                                                                                                                                                  • Figure 58: Number of motor insurance quotes obtained on last renewal, 2001-09
                                                                                                                                                                • Younger people shop around more…
                                                                                                                                                                  • Figure 59: Number of motor insurance quotes obtained on last renewal, by gender, age, socio-economic group, household size, residential status, and car ownership, February 2009
                                                                                                                                                                • …as do larger households
                                                                                                                                                                  • Customer retention is a big issue…
                                                                                                                                                                    • Figure 60: Length of time with current car insurance provider, February 2009
                                                                                                                                                                  • …and seems to be getting more difficult
                                                                                                                                                                    • Figure 61: Length of time with current car insurance provider, 2001-09
                                                                                                                                                                  • Older drivers are a lot more loyal
                                                                                                                                                                    • Figure 62: Length of time with current car insurance provider, by gender, age, socio-economic group, lifestage, household tenure and newspaper readership, February 2009
                                                                                                                                                                  • Little difference in switching between the social classes
                                                                                                                                                                    • Broadsheet readers may be more loyal
                                                                                                                                                                      • Non-comprehensive policyholders are less loyal…
                                                                                                                                                                        • Figure 63: Length of time with current car insurance provider, by type of cover held, February 2009
                                                                                                                                                                      • …and more price sensitive
                                                                                                                                                                        • Figure 64: Number of motor insurance quotes obtained on last renewal, by type of cover held, February 2009
                                                                                                                                                                      • Aggregators are fuelling the switching mentality
                                                                                                                                                                        • Figure 65: Distribution channel used to purchase motor insurance, by length of time with current car insurance provider, February 2009
                                                                                                                                                                      • Telephone arrangers do less shopping around
                                                                                                                                                                        • Figure 66: Method of arranging last car insurance policy, by number of quotes obtained, February 2009
                                                                                                                                                                    • Appendix – Product Ownership

                                                                                                                                                                        • Figure 67: Car insurance ownership, by demographic variables, February 2009
                                                                                                                                                                    • Appendix – Distribution Trends

                                                                                                                                                                        • Figure 68: Distribution channels used to buy car insurance, by demographic variables, February 2009
                                                                                                                                                                        • Figure 69: Methods of arranging car insurance, by type of cover held, February 2009
                                                                                                                                                                        • Figure 70: Methods of arranging car insurance, by demographic variables, February 2009
                                                                                                                                                                    • Appendix – Switching and Customer Retention

                                                                                                                                                                        • Figure 71: Number of motor insurance quotes obtained on last renewal, by demographic variables, February 2009
                                                                                                                                                                        • Figure 72: Length of time with current car insurance provider, by demographic variables, February 2009

                                                                                                                                                                    Motor Insurance - UK - May 2009

                                                                                                                                                                    US $2,648.76 (Excl.Tax)