New reports from independent market analyst Datamonitor indicate that growth in the UK commercial general insurance market will exceed that achieved by the personal general insurance market between 2007 and 2012.
While the commercial general insurance market contracted in 2006 as a result of high competition, conditions deteriorated in the personal general insurance market with gross written premiums (GWP) for the major personal lines, private motor, household property and individual accident and health only rising by 1.4%.
Softer market conditions are now expected to lead the personal general insurance market to record a compound average growth rate (CAGR) of 4.8% each year between 2007 and 2012, while the commercial insurance market is expected to achieve a stronger CAGR of 5.3% during this period.
As income growth slowed in 2006, the UK personal general insurance market saw its GWP rise only 1.4%. Several of the market’s key lines of business were affected by a deterioration of market conditions. For example, the UK’s 9.3 billion private motor sector, which is the largest part of the personal general insurance market, saw a fall in GWP during 2006 as it declined by 0.9%. The market is now at a similar size to that of 2002 and has failed to return a profit in the last 12 years.
The household insurance market fared better than the motor sector in terms of GWP growth, and with the individual accident and health market, it managed to achieve sufficient increases to keep the personal general insurance market from contracting. GWP rose by 3.4%, and as the household sector is the second largest personal line, this had a positive bearing on the market overall.
However, increases in premium income were outstripped by growth in claims costs and other outgoings, which rose by 5.9% in 2006. The result of this was a significant reduction in household insurance underwriting profits, which fell from 300 million in 2005, to 167 million in 2006.
Reflecting these trends and the views of market executives, Datamonitor forecasts that the personal general insurance market will grow at a CAGR of 4.8% between 2007 and 2012, reaching a value of 33.1 billion in 2012. This growth will be driven by the household and pecuniary loss insurance markets, which are forecast to record relatively strong growth during this period. An improvement in the private motor market will also contribute to the growth of the personal general insurance market, particularly between 2008 and 2010. However, weaker growth is forecast for the individual accident and health market.
While the personal general insurance market was able to sustain marginal growth in 2006, the commercial sector saw income decline by 1.1%, caused by falling GWP in the liability, pecuniary loss and commercial motor sectors. Competitive pricing was a major factor in all cases. It was particularly acute in areas such as employers’ liability, which contributed to the decline in the general liability insurance market. Datamonitor’s analysis of market statistics indicates operating conditions in the sector deteriorated significantly during the course of 2006. While in 2005, GWP increased by 2.7%, it fell significantly in 2006 dropping by 6.3%.
Competition also had a noticeable impact on the commercial motor market, where a number of players are engaged in a contest to win business and increase their market share, especially in the SME niche. As motor is the largest business line in the commercial insurance market, this intense price-based competition has been a key growth inhibitor. There was some scope for optimism, however, as the decline in commercial motor GWP improved marginally. Commercial motor GWP fell by 1.5% in 2005, while in 2006 the figure stood at 0.9%.
While premium income in the commercial general insurance market declined, two business lines defied this trend to mitigate the impact of 2006’s disappointing results. In the commercial property and group accident and health sectors the second and third largest in the market respectively GWP rose by 0.5% and 3.0%. In both cases the markets succeeded in reversing GWP decline in 2005 to return to growth.
Despite a poor 2006, conditions in the commercial general insurance sector are expected to improve in the coming years. The market is forecast to record a CAGR of 5.3%, higher than that of the personal general insurance market. This will see the commercial market reach a value of 22.1 billion by 2012. This growth will largely be driven by the liability market.