Overview:

Introduction

UK Private Motor Insurance 2010 contains a comprehensive overview of the market. It provides the total market size, policy numbers, profitability ratios, claims costs, premium rate changes, car registrations, distribution, penetration, competitor analysis and forecast for up to 2014 for both market size and profitability ratios.

Scope

*Detailed information and data about the current state of the market and how insurers are responding to poor profitability.
*The findings of Datamonitor's 2010 consumer survey which assessed the opinions and purchasing trends of over 3,000 individuals.
*An update of the latest developments in the aggregator space.
*Financial results of the top UK, Lloyds of London and non-UK domiciled insurers in the market.

Highlights

In 2009, the non-comprehensive motor sector experienced a further decline and it now accounts for only 8.2% of all private motor policies in force. This share has fallen from 16.3% (2.9 million) in 1999 as private motor insurers have moved away from this sector of the market.

The market made little reserve releases, indicating that the pool of reserveswhich is often used to protect an insurer against prior years' claimshas all but dried up. In fact a few insurers, such as RBS, made a reserve strengthening, thus making its reported year COR higher than its accident year ratio.

Datamonitor's survey showed that over half of all car insurance policyholders surveyed are now visiting price comparison sites at renewal. This comes as no surprise considering that these websites have heavily advertised throughout the past few years and so generated sufficient traffic from consumers.

Reasons to Purchase

*Comprehensively understand most aspects of the market and the views of market players interviewed by Datamonitor.
*See how the industry is responding to poor profitability and rising clams costs.
*Make conclusions based on the current purchasing trends and preferences of UK consumers buying private motor insurance.

Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The private motor market shrunk slightly in 2009 2
The total market declined by 1% to £9.2 billion GWP 2
Over the past decade, the proportion of non-comprehensive policies has fallen 2
Claims costs are continuing to escalate 2
Claims inflation has been driven by personal injury claims and credit hire costs 2
Although claims frequency fell slightly to 16.7% in 2009 2
RBS Group is the largest provider of car insurance in the UK 3
There were a number of exits and sales within the market 4
Lloyds Banking Group is no longer in the market 4
GMAC Financial Services is looking to sell Provident 4
HSBC has placed its motor insurance business into run-off 4
QBE has also exited that market 4
KGM Motor had a difficult 2009 and it is currently up for sale 4
Quinn Direct will write considerably less UK business as a result of being in administration 5
Markerstudy is looking to shed private motor business from Zenith following its acquisition in late 2009 5
Market growth will be stunted in 2010 followed by successive increases from 2011 onwards 5
Rate increases will drive market growth 5
Table of Contents 6
Table of figures 7
Table of tables 8
Market Context 9
Introduction 9
The private motor market shrunk slightly in 2009 9
The total market declined by 1% to £9.2 billion GWP 9
Lloyd's of London insurers have a significant presence in the UK motor market 11
Datamonitor estimate that Lloyd's of London motor GWP increased to £967m in 2009 12
The number of motor insurance policies remained static 12
There were 24.8 million private motor policies in force during 2009 12
Over the past decade, the proportion of non-comprehensive policies has fallen 13
The combined ratio took a turn for the worse in 2009 15
Private motor insurance losses pushed the 2009 accident year combined operating ratio up to 122.9% 15
The rate of increase in the COR was 8.2 percentage points in 2009 16
Reserve releases were considerably lower in 2009 18
The loss ratio increased in 2009, while the expense ratio fell 19
Claims costs are continuing to escalate 21
Claims inflation has been driven by personal injury claims and credit hire costs 21
More recent statistics show that theft related claims costs have increased significantly since 2005 23
On average, motor bodily injury claims are the most expensive to settle 23
Fraudulent claims rose during the recession and are believed to have cost £1.9 billion in 2009 25
Continuous enforcement insurance should help lower the levels of uninsured driving 25
BIBA is calling for brokers to embrace DVLA vehicle registration data to improve data validation 26
Credit hire organizations have come under greater scrutiny over the past year 26
Over the past two years bilateral agreements between insurers have become more popular 26
The new low value personal injury claims process should help lower claims costs 27
The new process applies to road traffic accident personal injury clams of between £1,000 and £10,000 27
The changing cost structure has affected all those in the personal injury market 27
There are three stages for a low value personal injury RTA claim 27
Stage one is focused on providing early notification of claims to defendants and insurers 27
Stage two permits the use of medical evidence and most cases should be settled within this phase 28
Stage three proceeds when both parties cannot agree on quantum (settlement) 28
Electronic motor certificates will also save on postal and administration costs 28
Claims frequency remained at similar levels to 2008 29
Claims frequency fell slightly to 16.7% in 2009 29
A number of insurers have noticed a rise in car part theft related claims 30
RTA casualties are now thought to number 800,000 per annum 31
The number of road traffic accidents reported to the police fell by 4.1% in 2009 31
The number of accidents as a proportion of the total car parc continued to fall in 2009 33
Similarly, casualty rates are dropping in line with falling road traffic accidents 35
Premium rates hardened throughout the second half of the year 37
Insurers are responding to poor profitability by making rate corrections 37
In a bid to price more accurately, insurers are increasingly using point-of-sale validation 37
The AA British Insurance Premium Index recorded a large increase in premiums in Q4 2009 38
Comprehensive average and shoparound prices grew progressively from Q2 2009 onwards 38
Non-comprehensive prices showed an even larger jump in prices during 2009 39
Car drivers in the North West of England pay the highest premiums 41
Rates differ considerably between gender and age 42
The number of new private car registrations increased during 2009 44
The scrappage scheme provided a much needed boosted for the new car market 44
However, fewer individuals had access to motor finance to purchase new or used cars 45
The vast majority of cars on the road are aged between six and 13 years 45
Growth in the total motorcycle parc was stagnant in 2009 47
The number of multicar households has been static since 2005 49
Distribution 51
Introduction 51
Private motor insurance is mostly sold direct 51
The direct channel continues to be the dominant route to market 51
Brokered private motor insurance accounts for 31% of the market 51
Corporate partnerships are an important way to distribute private motor products 51
Banks and building societies have a market share of 6% 51
RBSI brands have a prominent presence in the private motor market 53
Direct Line is the number one private motor insurance brand 53
The top five direct insurers comprise over a quarter of the motor insurance market distribution 55
The AA was the market leader for broker-distributed private motor insurance 55
Bancassurers have a relatively small market presence 56
The top five brandassurers hold a lower market share than in 2008 57
Aggregator-instigated sales have increased 58
Half of new motor business sales are initiated through a price comparison site 58
The OFT is currently investigating aggregators as to whether they are misleading customer 60
Total advertising expenditure in the motor market fell in 2009 61
Direct insurers and aggregators have toned down their advertising spend 61
Brandassurers and bancassurers increased their marketing spends significantly in 2009 61
Of the top 10 advertisers, GoCompare.com, Aviva and CompareTheMarket.com increased their spending 63
Most of the top 10 motor advertisers focus their resources on advertising via television 64
Direct mail advertising was a more popular strategy with the top 11-20 motor insurance advertisers 66
The top four price comparison sites accounted for almost half of total TV advertising spend 68
Price comparison sites invest heavily in TV advertisement 68
GoCompare.com was the number one motor insurance TV advertiser in 2009 69
Brokers channel most of their advertising spend through direct mail promotion 70
Brokers tend to favor direct mail as a means to advertise motor insurance 70
Customer Focus 72
Introduction 72
Private motor penetration rates have increased to 80.1% 72
Penetration is lowest among people aged between 18 and 34 72
Penetration rises with income level 73
Social grade of consumers has less influence on penetration rates 74
Internet- and telephone-based sales account for most transactions 75
Private motor insurance is mostly sold via the internet 75
Elder consumers prefer buying their insurance over the telephone 76
Low income households tend to buy cover over the phone 77
Apart from for social grades A and E, the internet is the most used platform for arranging motor insurance 79
Older customers are less likely to switch car insurance provider 81
Retention rates are around 55% in the private motor market 81
Customers aged between 25-34 were most likely to shop around for alternative quotations 82
Retention rates appear to be highest for the lowest and highest earners 82
Price has to be the primary focus in marketing campaigns 84
Price was the most commonly cited reason for selecting a motor insurance provider 84
In contrast to older customers, those aged between 25-34 years of age are the most price-sensitive 85
Over 60% of all consumers visit price comparison websites at renewal 86
Price comparison websites appeal particularly to those aged between 25 and 34 years 86
Low income households are less likely to use aggregators at renewal 87
Only 41.8% actually go on to buy policy via a price comparison website 88
Older customers are less likely to purchase a policy after visiting a price comparison website 88
It is more difficult to differentiate aggregator purchasing behavior among different household incomes 89
Competitive Dynamics 91
Introduction 91
Most of the top 10 private motor insurers grew their market share slightly 91
RBS Insurance increased its GWP and market share in 2009 91
Aviva saw its total GWP contract but remained the second largest private motor insurance group 91
RSA achieved a 5% increase in GWP 92
LV= increased its market share significantly 92
Lloyds Banking Group is no longer in the market 92
Fortis insurance is soon to benefit from its new partnership with Tesco Bank 92
Fortis witnessed its private motor book decrease by 9.7% in GWP in 2009 92
Fortis' new five-year partnership with Tesco Bank will generate considerable new private motor business 93
Munich Re will continue to write the largest share of Admiral's book 93
AXA increased its car insurance proposition to cater for older, more experienced customers 93
AXA achieved significant GWP growth in its private motor insurance book 93
The group launched a direct AXA-branded car insurance product in 2010 94
AXA have partnered with Complectus to launch misfuelling insurance 94
There were a few exits from the market out of the top 11-20 private motor insurers 97
GMAC Financial Services is looking to sell Provident 97
Groupama plans to raise rates by 10% for its private car policies in 2010 97
Allianz also increased its private motor rates 97
Binomial, which underwrites via Sabre Insurance, increased its total motor book 97
Admiral Group had a strong 2009 98
HSBC has placed its motor insurance business into run-off 98
QBE has also exited that market 98
The largest insurers focus mainly on comprehensive car insurance 100
Comprehensive business accounts for the majority of the top insurers' books 100
RBS has the most policies in force 102
RBS, Aviva, RSA and Fortis performed better than the market average COR 103
The accident year COR of the total motor market deteriorated further in 2009 103
Fortis' and RSA's CORs were well below the market average in 2009 103
RBS and Aviva had a more testing year, but both managed to perform better than the market average 104
Most of the top 10 made a slight reserve release to lower their reported year COR 106
The lack of reserves left in the market was evident in 2009 106
The commission ratio increased for most of the top 10 private motor insurance groups 108
Non-UK domiciled insurers such as Zurich and Acromas are significant players 108
Zurich has transferred its UK book to Ireland 108
Zurich is now regulated by the Irish Financial Regulator 108
Zurich intends to increase rates by 20% in personal motor to improve profitability 109
The Acromas Group underwrites all of its private motor policies sold via the Saga brand 109
Quinn Direct will write considerably less UK business as a result of being in administration 109
Markerstudy is looking to shed private motor business from Zenith following its acquisition in late 2009 110
A number of Lloyds of London Syndicates increased their exposure in 2009 110
Lloyd's market insurers have a significant presence in the UK motor market 110
Datamonitor calculates that Lloyd's of London motor GWP increased to £967m in 2009 112
Equity Red Star is the largest UK motor insurer in the Lloyd's of London market 112
Chaucer plans to up its motor rates by 14% throughout 2010 112
Amlin grew its motor fleet business during 2009 112
KGM Motor had a difficult 2009 and it is currently up for sale 113
Future Decoded 114
Introduction 114
Market growth will be stunted in 2010 followed by successive increases from 2011 onwards 114
Rate increases will drive market growth 114
The total UK private motor market will be worth £10.8 billion in GWP in 2014 115
The COR will see some improvements as rate corrections feed into results 117
Premium rate increases will improving underwriting results and help lower the COR 117
APPENDIX 119
Further data 119
Definitions 120
ABI members 120
Bancassurers 120
Brokers 120
Brandassurers 120
Combined ratio 120
Commission expenses 120
Comprehensive motor insurance 120
Channel 120
Direct insurer/writer 120
Earned premiums 121
Gross premium 121
Net premium 121
Non-comprehensive motor insurance 121
Platform 121
Reserve development 121
Written premiums 121
Methodology 121
Datamonitor's Insurance Consumer Survey 121
Further reading 122
Ask the analyst 122
Datamonitor consulting 123
Disclaimer 123

List of Tables
Table 1: Private motor GWP by line of business, 2006-09p (£000s) 10
Table 2: UK motor insurance NWP split between ABI members and Lloyd's (£m), 2008 12
Table 3: Motor policies in force, 1999-2009 (000s) 15
Table 4: Accident and reported year COR, private motor market (%), 2005-09 19
Table 5: Average motor claim cost and claims inflation (£), 2003-08 22
Table 6: Number of claims settled, costs and average claim value for private motor theft claims, 2005-09 23
Table 7: Average motor claims payout and percentage of total claims by type (£), 2008 24
Table 8: Comprehensive and non-comprehensive claims and exposure, UK private motor (000s), 2005-09 30
Table 9: Total number of reported road traffic accidents in Great Britain (000s), 1998-2009 33
Table 10: Road traffic accidents relative to registered vehicles in Great Britain (000s), 1998-2009 35
Table 11: Reported deaths, seriously and slightly injured casualties from Great Britain RTAs, 2003-Q3 2009 37
Table 12: Average and shoparound private motor insurance prices (£), Q2 2007-Q1 2010 41
Table 13: Average car insurance premiums split by region (£), Q4 2009-Q1 2010 42
Table 14: Example of average premiums quotes by gender and age (£), Q1 2010 43
Table 15: New private car registrations in Great Britain by body type (000s), 2005-09 45
Table 16: Cars licensed by years since first registration in Great Britain (000s), 2000-09 47
Table 17: Total motorcycle car parc and new registrations in Great Britain (000s), 2004-09 48
Table 18: Great Britain households with a private car (%), 2002-08 50
Table 19: Private motor insurance GWP distribution by channel (all business) (%), 2005-09e 52
Table 20: Top 10 insurance companies distribution share, by age group (%), 2010 54
Table 21: Estimated aggregator-instigated private motor sales (%), 2007e -2009e 59
Table 22: Advertising expenditure, by channel of top insurance providers (£), 2008-09 62
Table 23: Advertising expenditure spent by channel of top motor insurance advertisers (£), 2009 63
Table 24: Top 10 motor insurance advertisers (£), 2008-09 64
Table 25: Top 10 motor insurance advertisers' advertising expenditure by channel (%), 2009 66
Table 26: Top 11-20 motor insurance advertisers' advertising expenditure by channel (%), 2009 67
Table 27: Top 10 motor insurance television advertisers, 2008-09 (£) 69
Table 28: Top 10 motor insurance direct mail advertisers (£), 2008-09 71
Table 29: Distribution of private motor insurance by age group and platform (%), 2010 77
Table 30: Distribution of private motor insurance by household income and platform (%), 2010 79
Table 31: Distribution of private motor insurance by social grade and platform (%), 2010 80
Table 32: Propensity to switch provider and likelihood of getting other quotes by age (%), 2010 82
Table 33: Propensity to switch motor insurance provider by household income (%), 2010 83
Table 34: Commonly cited reasons for selecting a car insurance provider, by age group (%), 2010 86
Table 35: Reasons for visiting a price comparison site, by age and household income (%), 2010 90
Table 36: GWP and market share of the top 10 UK private motor insurance groups, 2008-09 96
Table 37: GWP and market share of the top 11-20 UK private motor insurance groups, 2008-09 100
Table 38: Top 10 private motor insurers' comprehensive and non-comprehensive books (000s), 2008-09 101
Table 39: Private comprehensive and non-comprehensive vehicle years for the top 10 insurers (000s), 2009 103
Table 40: Top 10 motor insurance groups accident year combined ratio and underwriting results, 2009 105
Table 41: Top 10 motor insurance groups reported year combined ratio and underwriting results, 2009 107
Table 42: Commission ratios for the top 10 private motor insurers (%), 2008-09 108
Table 43: UK motor insurance NWP split between ABI members and Lloyd's (£m), 2008 111
Table 44: Motor insurance GWP for selected Lloyd's insurers with large UK motor exposure (£000s), 2008-09 113
Table 45: Key variables affecting private motor insurance GWP, 2010f-14f 115
Table 46: Private motor GWP by line of business (£m), 2006-14f 117
Table 47: Forecast for the accident year combined ratio, UK private motor market (%), 2005-14f 118
Table 48: Advertising expenditure spent by channel of top motor insurance advertisers (£), 2008 119
Table 49: Datamonitor's consumer survey sample size by age and income, 2010 122

List of Figures
Figure 1: The RBS group maintains dominance over the motor market 3
Figure 2: Comprehensive private motor insurance now accounts for 88% of total premiums 10
Figure 3: Lloyd's of London players underwrote £781m of motor business in 2008 11
Figure 4: Almost 90% of all policies in force are for comprehensive cover 13
Figure 5: The private motor market has been moving away from non-comprehensive cover 14
Figure 6: Soaring claims costs forced the private motor COR up to 122.9% in 2009 16
Figure 7: Both the total and private motor market saw the COR jump significantly in 2009 17
Figure 8: There were little reserve releases to bolster the reported year COR in 2009 18
Figure 9: The accident year loss ratio increased by 7.5 points in 2009 20
Figure 10: Meanwhile, the reported year loss ratio increased by a staggering 15.8 points in 2009 21
Figure 11: The average claim cost is just under £2,200 22
Figure 12: Bodily injury claims are the most expensive for insurers to settle 24
Figure 13: The claims frequency for comprehensive policies have fallen over the past 10 years 29
Figure 14: The DfT now estimates that the number of road traffic accident casualties is around 800,000 per annum 31
Figure 15: Fewer road traffic accidents are lowering the frequency of claims 32
Figure 16: The number of road traffic accidents has steadily fallen since 1998 34
Figure 17: 2009 looks to have been another year of declining road casualties 36
Figure 18: Comprehensive rates grew strongly in Q4 2009 39
Figure 19: Rate increases were far more pronounced for non-comprehensive policies during 2009 40
Figure 20: Premium prices fall considerably for buyers older than 22 years of age 43
Figure 21: Private car sales picked up in 2009 44
Figure 22: Over half of the total car parc was older than six years in 2009 46
Figure 23: The total motorcycle car parc stalled in 2009, with historically low levels of new registrations 48
Figure 24: There are on average 1.14 cars per household in Great Britain 49
Figure 25: Direct insurers and brokers account for just under 75% of all private motor sales 52
Figure 26: Direct Line is the market leader for private motor insurance 54
Figure 27: RBSI-owned Direct Line and Churchill are the largest direct private motor insurers 55
Figure 28: The AA is by far the largest private motor insurance broker 56
Figure 29: Lloyds TSB's market dominance among bancassurers is retained, albeit by a reduced margin 57
Figure 30: Tesco shows a formidable lead above brandassurers 58
Figure 31: More than half of new private motor GWP was generated through an aggregator 59
Figure 32: Direct insurers, aggregators and brokers spent less on advertising during 2009 62
Figure 33: TV advertising was most popular among the top 10 largest motor advertisers in 2009 65
Figure 34: Direct mail and TV were popular advertising media for the top 11-20 motor advertisers in 2009 67
Figure 35: GoCompare.com's opera singer, Gio Compario, has significantly raised the profile of the website 70
Figure 36: Private motor penetration is highest among over-65 year olds 73
Figure 37: Penetration rates increase for those households earning £30,000 and above 74
Figure 38: Penetration rates are slightly higher for those in the A and B social economic groups 75
Figure 39: The majority of customers buy their car insurance over the internet or by telephone 76
Figure 40: Internet-based providers should target consumers aged between 25-34 years of age 77
Figure 41: Telephone-based sales are most popular for the lowest and highest household incomes 78
Figure 42: Most social grades preferred to use the internet to arrange a car insurance policy 80
Figure 43: Retention rates improve significantly as age increases 81
Figure 44: Switching car insurance provider is most pronounced for middle income earners 83
Figure 45: Competitive prices will ensure new business and customer retention 84
Figure 46: Non-price factors appeal more to older customers when choosing a car insurance provider 85
Figure 47: Price comparison websites are most popular among those in their 20s and 30s 87
Figure 48: Low earners tend to use price comparison sites the least 88
Figure 49: Conversion rates on aggregators differ across age groups 89
Figure 50: Sales via aggregators are highest for those earning less than £75,000 90
Figure 51: RBS consolidated its position as the number one UK private motor insurance group 95
Figure 52: The top 11-20 insurers found maintaining their market share more difficult in 2009 99
Figure 53: Comprehensive business is the main source of income for most of the top private motor insurers 101
Figure 54: RBS had 7.9 million private motor policies in-force in 2009 102
Figure 55: All of the top 10 private motor insurers were running a loss ratio of above 90% in 2009 104
Figure 56: CORs after reserve releases ranged from 111.7% to 135.5% in 2009 106
Figure 57: Lloyd's of London players underwrote £781m of motor business in 2008 111
Figure 58: The UK private motor market will experience strong growth during 2011 and 2012 116
Figure 59: The COR will drop considerably from 2011 onwards 118