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The Role of Banks and Building Societies in UK General Insurance

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The Role of Banks and Building Societies in UK General Insurance

Description:    IntroductionOver the last decade the distribution of general insurance has dramatically changed,
                threatening the role of bancassurers in the household insurance sector. This report therefore
                analyses bancassurers current and future roles as insurance distributors and underwriters,
                examining the current changes that are occurring to their strategies and assessing the likely future
                success of this channel.ScopeCurrent and future market shares of the bancassurance channel
                across household, creditor, motor and SME insurance.Insight into the types of consumers that
                purchase insurance from bancassurers and their motivations for doing so.Details of competitor
                market shares and strategies, and an understanding of the ways in which bancassurers insurance
                offerings are changing.Access to our extensive research into this sector, built on a range of primary
                interviews with senior banking and insurance executives.HighlightsLloyds TSB, HBOS and RBS have
                a growing and important influence on the general insurance market. These three players combined
                controlled approximately a third of the private motor and household insurance markets in 2003.
                Underwriting has been the key driver of these banks insurance income growth over the last few
                years.An increasing number of bancassurers are concentrating on motor insurance, either entering
                the market for the first time, or increasing consumer awareness of their existing offerings.
                Bancassurers advertising expenditure on this product line more than doubled in 2003.Bancassurers
                need to improve their direct platform capabilities if they are to be successful at selling stand-alone
                insurance products and at competing with the alternative distribution channels in these sectors.
                They also need to raise awareness of their roles as insurance providers among their
                customers.Reasons to PurchaseDevelop more effective distribution strategies through an
                understanding of the current challenges and opportunities for bancassurersTarget your customers
                more effectively through a greater understanding of bancassurance customer profiles and their
                motivationsUnderstand the critical success factors for your product offering in order to attract
                customers effectively to the bancassurance channel



Contents:       CHAPTER 1 EXECUTIVE SUMMARY 4Introduction 4Market context 4Household and creditor are the
                main insurance products for this channel 4Platforms used by bancassurance customers vary
                5Customer focus 5Direct mail remains the primary advertising medium for bancassurers
                5Bancassurance customers are less likely to be motivated by price than other insurance consumers
                5Competitive dynamics 6Underwriting has been the key driver of bancassurers’ insurance income
                6Lloyds TSB, HBOS and RBS have an important influence on the general insurance market 7Market
                shares in the household and creditor sector depend on lending performance 8Market shares in the
                motor and SME sector are more variable 8The changing role of banks and building societies in
                general insurance 9The insurance product range is changing 9Direct platforms and stand-alone
                offerings have implications in terms of advertising spend 10Major players will increase their roles as
                underwriters 11FSA regulation is not expected to have a major impact on bancassurance offerings
                11The future decoded 11Bancassurers face challenges in each of their key insurance markets
                11Success in current market conditions requires commitment 12CHAPTER 2 INTRODUCTION
                27What is this report about? 27Who is the target reader? 28How to use this report 28CHAPTER 3
                MARKET CONTEXT 29Introduction 29Key findings 29Market share of banks and building societies in
                UK general insurance distribution 30ABI market shares for banks and building societies 30Banks
                and building societies’ share of the household insurance market 32Banks and building societies’
                share of the creditor insurance market 37Banks and building societies’ share of the private motor
                insurance market 38Banks and building societies’ share of other personal lines markets 40Banks
                and building societies’ share of the SME insurance market 42Analysis of platforms used by banks’
                and building societies’ insurance customers 43Branch distribution dominates in banks’ and building
                societies’ distribution of household insurance 43Creditor insurance distribution relies predominantly
                on the platform used to sell the lending product 45Direct distribution platforms dominate the
                provision of motor insurance for banks and building societies 47The vast majority of SMEs arrange
                insurance face-to-face 49CHAPTER 4 CUSTOMER FOCUS 51Introduction 51Key findings
                51Consumer awareness of leading banks’ insurance offerings in comparison to other insurance
                providers 51Unprompted awareness 52Advertising spend of banks and building societies 54Total
                advertising spend by product 54Total advertising spend by media 56Customer profile – typical
                customers purchasing insurance through banks and building societies 59Age profiles of banks’ and
building societies’ insurance customers 59Income profiles of banks’ and building societies’ insurance
customers 63Motivations for purchasing through banks and building societies 67Customer loyalty
among bank and building society customers 71Conclusion 75CHAPTER 5 COMPETITIVE DYNAMICS
77Introduction 77Key findings 77General insurance income by competitor 78Underwriting has been
the key driver of bancassurers’ insurance income growth 78There is a clear divide between HBOS,
Lloyds TSB and RBS and the other players in the non-life bancassurance arena 79The ‘big three’
banks are heavily involved in both underwriting and distributing insurance 79GI profits of the ‘big
three’ have steadily increased 80HBOS, Lloyds TSB and RBS have a growing and important
influence on the general insurance market 82Lloyds TSB and HBOS have achieved higher levels of
consumer awareness than other bancassurers due to their large advertising spends 84Banks’
general insurance offerings 86Product offerings 86Partnerships 88Building societies’ general
insurance offerings 90Building society product offerings 90Building society partnerships 91Market
shares of banks and building societies by product 94Household 95Creditor 98Motor 99SME
101Profiles of major banks 102Lloyds TSB 103HBOS 110Royal Bank of Scotland 117CHAPTER 6
THE CHANGING ROLE OF BANKS AND BUILDING SOCIETIES IN GENERAL INSURANCE
126Introduction 126Key findings 126Product focus 127Expanding the insurance product ranges has
been used as a way of countering declining margins 127The household insurance product offering is
changing 128Creditor is likely to come under increasing scrutiny 130Motor insurance is a growing
area of focus 134Bancassurers are seeking to improve the cross-selling of insurance to SMEs, yet
they are facing many obstacles 138Other insurance products are also being considered 142Platform
focus 142Bancassurers are focusing on promoting direct platforms in addition to branch-based
offerings 142Brand and advertising focus 144Product launches and stand-alone offerings require
increased advertising spend 144Bancassurers need to ensure they are not overstretching
themselves with their insurance ranges 146Increasing focus on underwriting 147The impact of FSA
regulation 149CHAPTER 7 THE FUTURE DECODED 151Introduction 151Key findings 151Household
insurance forecasts 151Motor insurance forecasts 153Commercial insurance forecasts
155Bancassurers will slowly grow market share 155There are several key success factors that need
to be in place in order for bancassurers to increase insurance cross-selling rates to SMEs
156Summary of the bancassurance channel’s prospects 157The market can be divided into three
key sectors 157Building societies will struggle but there is still potential 158Key success factors
159CHAPTER 8 APPENDIX 160Supplementary data 160Market context 160The changing role of
banks and building societies 160Competitor data 162Advertising spend data 168Definitions
168Research methodology 169MORI data 169SME Survey 170Do you need more information?
171Future/Current readings 172SPP writing team 173 LIST OF TABLESTable 1: Banks’ and building
societies’ market share by product line, 1999-2003 31Table 2: Percentage of consumers arranging
household insurance through banks and building societies, 1999-2003 34Table 3: PPI GWP split
between mortgage, credit card and personal loan cover, 2003 37Table 4: Gross advances by
lending product, 1999-2003 37Table 5: Motor insurance product launch dates of selected banks and
building societies 40Table 6: Percentage of consumers arranging health insurance through banks
and building societies, 1999-2003 41Table 7: Platforms used by consumers when purchasing
household insurance from banks and building societies, 1999-2003 45Table 8: Platforms used by
consumers when purchasing motor insurance from banks and building societies, 1999-2003
49Table 9: Unprompted awareness of leading banks’ insurance offerings compared to selected
insurance providers, 2003 53Table 10: Total advertising spend of banks and building societies by
product, 2003 55Table 11: Total advertising spend of banks and building societies by medium,
2003 57Table 12: Total motor insurance advertising spend of banks and building societies by
media, 2003 58Table 13: Total household insurance advertising spend of banks and building
societies by media, 2003 59Table 14: Age profiles of household insurance customers 61Table 15:
Age profiles of motor insurance customers 63Table 16: Income profiles of household insurance
customers 65Table 17: Income profiles of motor insurance customers 66Table 18: Reasons for
choosing household insurance provider, 2003 68Table 19: Reasons for choosing motor insurance
provider, 2003 71Table 20: Length of customer relationships with banks and building societies
compared to other household insurance distributors 73Table 21: Length of customer relationships
with banks and building societies compared to other motor insurance distributors 75Table 22:
General insurance income by competitor, 2001-3 79Table 23: GI profits before tax as a percentage
of banks’ total profits, 2001-3 82Table 24: Market share of ‘big three’ banks in motor and
household insurance market, 2001-3 84Table 25: Unprompted consumer awareness compared to
total general insurance advertising spend of banks and building societies, 2003 85Table 26: Banks’
general insurance offerings 87Table 27: Banks’ insurance partnerships by product 88Table 28: Axa
and Norwich Union are the most prolific bancassurance partners 89Table 29: Building societies’
general insurance offerings 91Table 30: Building societies’ insurance partnerships, by product
93Table 31: Building society partnerships of Norwich Union, Royal & SunAlliance and Axa 94Table
32: Household insurance market share of main bancassurers, 2001-3 97Table 33: Personal lending
balances outstanding, top five players, 2003 98Table 34: Motor insurance market share of main
bancassurers, 2001-3 101Table 35: SME premium income and insurance partners of selected banks
102Table 36: Lloyds TSB general insurance business split by underwritten and brokered business,
1999-2003 106Table 37: Lloyds TSB advertising spend by product, 2002-3 109Table 38: Lloyds
TSB advertising spend by medium, 2002-3 110Table 39: HBOS’s general insurance business split
by underwritten and brokered business, 2000-3 113Table 40: Number of HBOS general insurance
policies in-force, 2000-3 113Table 41: HBOS advertising spend by product, 2002-3 116Table 42:
HBOS advertising spend by medium, 2002-3 117Table 43: RBS Insurance premium income by line
of business, 1999-2003 121Table 44: Number of RBS general insurance in-force policies, 1999-
2003 122Table 45: RBS advertising spend by product, 2002-3 124Table 46: RBS advertising spend
by medium, 2002-3 125Table 47: Motor insurance advertising spend of selected bancassurers,
2002-3 136Table 48: Total advertising spend by competitor, 2002-3 145Table 49: Bancassurers’
market share of household insurance, 2003-9f 152Table 50: Bancassurers’ market share of
commercial insurance market, 2003-9f 156Table 51: Where do you purchase your commercial
insurance? 160Table 52: Would you consider purchasing commercial insurance from your business
bank rather than through a broker: If so, why? 160Table 53: Would you consider purchasing
commercial insurance from your business bank rather than through a broker: If not, why not?
161Table 54: Abbey general insurance data, 2001-3 162Table 55: Abbey advertising spend by
product, 2002-3 163Table 56: Abbey advertising spend by medium, 2002-3 163Table 57: Barclays
advertising spend by product, 2002-3 164Table 58: Barclays advertising spend by medium, 2002-3
164Table 59: Barclaycard advertising spend by product, 2002-3 165Table 60: Barclaycard
advertising spend by medium, 2002-3 165Table 61: HSBC advertising spend by product, 2002-3
166Table 62: HSBC advertising spend by medium, 2002-3 166Table 63: Nationwide general
insurance data, 2002-3 166Table 64: Nationwide advertising spend by product, 2002-3 167Table
65: Nationwide advertising spend by medium, 2002-3 167Table 66: Total advertising spend of
banks and building societies by product, 2002-3 168Table 67: Total advertising spend of banks and
building societies by medium, 2002-3 168 LIST OF FIGURESFigure 1: A cheap motor quote is less
important for customers of banks and building societies compared to those purchasing through
other channels 6Figure 2: The ‘big three’ banks controlled a third of the motor and household
insurance markets in 2003 7Figure 3: Motor insurance advertising spend has increased dramatically
10Figure 4: Banks and building societies have the greatest market share in household insurance
and other personal lines, such as creditor 31Figure 5: The number of consumers taking out
household insurance with banks and building societies has fallen since 1999 34Figure 6: The main
banks’ share of household insurance has increased since 1999 36Figure 7: The percentage of
consumers purchasing motor insurance through the main banks has slowly increased since 1999
39Figure 8: Few consumers buy health insurance from banks and building societies 41Figure 9:
The broker remains the favored route for SMEs’ insurance purchase decision 43Figure 10: Most
household insurance is sold at the branch 44Figure 11: Personal loan insurance is best suited to
remote sale, whereas MPPI is generally sold at branch level 46Figure 12: Arranging motor
insurance with a bank or building society over the telephone has decreased as the Internet has
risen in popularity 48Figure 13: The phone is the primary medium for SMEs’ insurance arrangement
50Figure 14: The leading banks score higher than some traditional insurers and brandassurers in
terms of customer awareness 53Figure 15: Household insurance accounted for just under half of
banks’ and building societies’ advertising in 2003 55Figure 16: Direct mail dominates the
advertising spend of banks and building societies 56Figure 17: The advertising of both motor and
household insurance is dominated by direct mail 58Figure 18: The household offerings of banks and
building societies attract younger consumers 60Figure 19: Like other insurers, bancassurers sell
insurance to motorists of all ages 62Figure 20: Banks and building societies attract more middle-
income consumers with their household products 64Figure 21: The incomes of banks’ and building
societies’ motor customers do not vary significantly from those of other distributors 66Figure 22:
Many customers purchase household insurance from banks or building societies along with their
mortgages 68Figure 23: A cheap motor quote is less important for customers of banks and building
societies compared to those purchasing through other channels 70Figure 24: There are no
significant differences in length of household insurance customer relationships between distribution
channels 72Figure 25: Banks and building societies have a newer motor insurance customer base
74Figure 26: Non-life bancassurance models in operation 80Figure 27: Banks’ GI profits have
steadily increased over the last three years, with the exception of Abbey 81Figure 28: The ‘big
three’ banks controlled a third of the motor and household insurance markets in 2003 83Figure 29:
There is a close link between advertising spend and spontaneous consumer awareness 85Figure 30:
Of the major banks, Lloyds TSB’s insurance products have the highest unprompted awareness
86Figure 31: The big three banks have made significant inroads into the household insurance
market in between 2001 and 2003 96Figure 32: Bancassurers’ motor insurance performance has
been mixed 100Figure 33: Lloyds TSB’s non-life bancassurance model 103Figure 34: Underwritten
            home insurance business and ‘other’ brokered business are the key growth areas for Lloyds TSB
            105Figure 35: Lloyds TSB stopped advertising its insurance range in 2003 and focused on individual
            product promotion instead 108Figure 36: Lloyds TSB stopped using television advertising in 2003
            110Figure 37: HBOS’s non-life bancassurance model 111Figure 38: Motor insurance and ‘other’
            insurance lines are the fastest growing sectors for HBOS 112Figure 39: HBOS’s advertising spend
            on motor and household more than doubled in 2003 116Figure 40: RBS’s non-life bancassurance
            model 118Figure 41: Pecuniary loss business has grown dramatically for the Direct Line Group over
            the last five years to overtake its household insurance book, 1999-2003 119Figure 42: Property
            insurance has been a key area of growth for the Churchill Group, 1999-2003 120Figure 43:
            Promoting accident and health insurance took priority for RBS in 2003 124Figure 44: Motor
            insurance advertising spend has increased dramatically 135Figure 45: More than half of SMEs
            would not consider purchasing insurance through their bank 139Figure 46: Banks would appeal to
            SMEs if they are perceived to be a cheaper alternative to brokers 140Figure 47: Broker satisfaction
            is impeding the growth of the banks and building societies channel, though SMEs also have
            concerns over cost 141Figure 48: Bancassurance household insurance consumers are far more
            likely to purchase insurance face-to-face than those buying through other channels 143Figure 49:
            Bancassurers increased their advertising spend by 25 per cent between 2002 and 2003, led mainly
            by a few major players 145Figure 50: Comments from industry interviews on the future market
            share of bancassurers in the household market 152Figure 51: Comments from industry interviews
            on the future market share of bancassurers in the motor market 155Figure 52: Datamonitor’s core
            consulting capabilities 172



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