The way we buy motor insurance has changed significantly over the past few years. Thanks to the advent of price-comparison websites, three-quarters of drivers shop around before renewing their policy, according to research by Ipsos/MORI, and almost half get up to three quotes before making a decision.
The consequence of this is significantly lower levels of loyalty. The proportion of consumers who have been with their existing provider for five years or more has dropped from 31% in 2001 to 23% in 2009. Older drivers tend to be more loyal, while those in the 17- to 34-year-old age group switch more frequently.
Brand identity is also poor in this sector, as differentiation and trust are not easily achieved: frequently, consumer choice comes down to premiums.
Total net written premiums (NWP) were £7.8bn in 2007 and an estimated £8.1bn in 2008, according to Mintel - an upward trend that will continue. Yet the industry continues to suffer from a lack of profitability, recording an underwriting loss of £398m in 2007, though this is estimated to have improved to a £288m loss in 2008.
Average premiums have shot up since 2007 as insurance companies look to get the market back to underwriting profitability. Meanwhile, the number of private car-insurance claims fell to 4m in 2008, a drop of 7% compared with 2007. Yet while the volume of claims fell, their costs have risen: increasing 14% between 2003 and 2007.
The industry is also seeing a bigger number of personal-injury claims. Due to the higher cost of processing as well as legal expenses, this may have a knock-on effect of raising premium costs.
As it is a legal obligation to have car insurance to drive, the sector is relatively recession-proof. The only way it can be hit is if high numbers of drivers give up their cars.
One problem is the number of uninsured drivers on the road: it is estimated there are 1.6m vehicles in the UK being driven without insurance, at a cost to the companies of £500m a year, or an extra £30 per premium. The police have managed to clamp down on uninsured drivers, using automatic number plate-recognition technology, and the government is now considering making it tougher for people to keep an uninsured vehicle.
While car manufacturers are struggling, the number of cars in the UK has increased steadily over the past few years as a result of multiple car ownership and population growth.
Comprehensive insurance is the most common type taken out, accounting for more than 90% of vehicles in 2008, according to the Association of British Insurers.
Insurance brokers used to be the sole route for multiple comparisons but online price-comparison sites have changed this. Direct sales grew from 29% in 2000 to almost 50% in 2007.
RBS is the leading provider of motor insurance in this country, accounting for about a third of the market by gross written premiums (GWP) in 2007. The top five players, which also include Aviva, RSA, Zurich and Fortis, account for 66%, with a total GWP of £5.4bn.
Norwich Union has just rebranded as Aviva with a high-profile ad campaign. One of its points of difference is that named drivers can earn their own no-claims discounts with its comprehensive insurance. Last year it withdrew its products from aggregator sites and launched its own comparison service.
Over the next five years, Mintel predicts there will be a gradual return to underwriting profitability as insurers make a combined effort to improve market conditions, so that by 2014 it will be £67m and NWP will be £9.9bn.
|Top 10 motor insurers by gross written premiums|
|Provider (parent company)||2008||2007||2006|
|3||RSA (Royal Sun Alliance)||628||572||546|
|4||Zurich Financial Services||524||477||430|
|9||LV= (Liverpool Victoria)||259||215||230|
|10||NFU Mutual (Nat Farmers)||203||195||183|
|*Note: 2008 data are incomplete. At the time of writing, S&P had not finished processing all motor insurance providers' 2008 FSA Returns (although these did appear to be complete for the top 10). Nonetheless, total market and rest of market data for 2008 is incomplete and likely to change as more returns are processed. The data supplied by Standard & Poor's has been extracted from the SynThesys Non-Life database, which utilises the FSA annual return regulatory data. The data is as reported and Mintel/Standard & Poor's do not guarantee the accuracy, adequacy, or completeness of any information, and are not responsible for any errors or omissions or the result obtained from the use of such information. Source: Standard & Poor's SynThesys Non-Life/Mintel|
|Private claims by number and frequency|
|Exposure||Total number of claims||Claims frequency|
|(vehicle years*) m||m||%|
|*Note: The vehicle year is the number of vehicles covered multiplied by the duration in years for which the insurer is exposed to risk. Source: ABI|
|Household car ownership by number of vehicles|
|2008||2007||2005||2003||% point change|
|Three or more cars||5||4.8||5.2||4.7||0.3|
|Base: all households Taken from the TGI survey of about 25,000 adults aged 15+|
|Source: GB TGI, BMRB Winter 2002/03, 2004/05, Q1 2006-09 (Oct-Sep)/Mintel|