UK Household Insurance: Market Dynamics and Opportunities 2018

Table of Contents

1. EXECUTIVE SUMMARY 1

1.1. Market summary 1

1.2. Key findings 1

1.3. Critical success factors 1

2. MARKET CONTEXT 7

2.1. Introduction 7

2.2. Market conditions hardened slightly in 2017 7

2.2.1. UK household insurance GWP grew by

2.0% in 2017 7

2.2.2. Premium rate rises were seen in 2017 for the first time in some years 9

2.2.3. The requirement for insurers to notify customers on previous price are yet to have the expected impact 13

2.2.4. Combined cover is still the dominant product 14

2.3. Industry efforts to stall escape of water have seen profitability rise 15

2.3.1. Claims costs fell in 2017 as insurers benefited from falling escape of water costs 15

2.3.2. Claims inflation is challenging profitability 18

2.3.3. Underwriting profitability has increased to a five-year high 20

2.3.4. Flood Re launched in 2016 and should help insurers manage difficult 2018 conditions 21

2.4. Home insurance demand is up slightly as a result of new-builds 22

2.4.1. New home registrations and completions rose in 2017, but remain significantly below expected levels 22

2.4.2. Mortgage approval rates dipped slightly in 2017 24

2.4.3. Owner-occupied property is on the rise, but ‘Generation Rent’ remains a key theme 25

2.4.4. Penetration rates are high among owner-occupiers, but lower for tenants 26

3. COMPETITOR DYNAMICS 28

3.1. The top 10 insurers account for 67% of GWP 28

3.1.1. Direct Line Group leads the household insurance market 28

3.1.2. Aviva is evolving its proposition using technology 29

3.1.3. AXA’s ‘Give Data Back’ website looks to educate consumers 31

3.1.4. AXA has partnered with Brolly 32

3.1.5. Allianz and LV= link up 32

3.1.6. Amlin leaves household insurance 32

3.1.7. UK insurers are watching US digital insurer Lemonade 33

3.1.8. Bought By Many has partnered with Neos 34

4. 2018 AND BEYOND 35

4.1. Introduction 35

4.2. The market is expected to increase to £6.8bn in GWP by 2023 35

4.2.1. Significant weather events in early 2018 are likely to shift premiums going forward 35

4.2.2. The Generation Rent trend could mark a shift in home insurance 37

4.2.3. The negative economic consequences of Brexit are having an adverse effect 37

4.2.4. The Insurance Distribution Directive is set to clarify products for consumers 39

4.3. Generation Rent will drive a new set of products 40

4.3.1. Demand for propositions aimed at tenants is growing 40

4.3.2. Urban Jungle targets Generation Rent 40

4.3.3. Buzzmove capitalizes on movers’ home data 41

4.3.4. Start-ups are focusing on mobile app-enabled policies 42

4.3.5. Roost targets brokers 43

4.4. The evolution towards smart home insurance is underway 44

4.4.1. Water detection and education are essential to reducing escape of water claims 44

4.4.2. Security a key part of smart homes, as theft costs escalate 45

4.4.3. Cyber security is an emerging market for individuals 45

4.4.4. Other devices could help shape the future of the market 46

4.5. Competition from new startups and retailers is growing 47

4.5.1. Amazon is on the verge of entering the market 47

4.5.2. New startups like Neos will continue to disrupt the market 48

5. APPENDIX 50

5.1. Abbreviations and acronyms 50

5.2. Methodology 50

5.2.1. GlobalData Financial's 2017 UK General Insurance Consumer Survey 50

5.3. Bibliography 51

5.4. Further reading 52

List of Tables

Table 1: Household insurance GWP (£m) and annual growth rate (%), 2013-17 8

Table 2: Quarterly average household insurance premium rate movements, 2013-Q1 2018 11

Table 3: The AA Shoparound average home insurance premiums, Q1 2015-Q1 2018 13

Table 4: Household gross claims incurred (£m) by type, and number of claims notified, 2013-17 18

Table 5: New home registrations and completions, 2013-17 23

Table 6: The number of dwellings in England split by category (000s), 2007-17 26

Table 7: Percentage of respondents holding any form of home insurance, 2015-16 27

Table 8: Top 10 UK household insurers by GWP (£000s), 2017 28

Table 9: Number of policies, total GWP, and average premium forecasts to 2023 37

Table 10: UK household insurance GWP and growth rate, 2013-22f 39

Table 11: Percentage of respondents, by type of smart device in their home, 2017 47

Table 12: Percentage of respondents who would buy home insurance by brand/type of company, 2017 48

List of Figures

Figure 1: Household GWP rose in 2017 after four years of decline 8

Figure 2: Buildings insurance premium rates increased strongly at the start of 2018 10

Figure 3: Rate changes have been limited in the past couple of years 12

Figure 4: Combined insurance remains the dominant home insurance product. 15

Figure 5: Weather claims have declined substantially 16

Figure 6: Claims have fallen in all four categories over the past five years 17

Figure 7: Rebuild costs have fluctuated since mid-July 19

Figure 8: The cost of replacing household items has accelerated since 2015 20

Figure 9: Underwriting profitability has increased to its highest level since 2011 21

Figure 10: New registrations and completions both increased in 2017 23

Figure 11: Mortgage approval is in slender decline since the start of 2017 24

Figure 12: Private tenancy has begun to fall slightly after years of growth 25

Figure 13: Nearly 40% of private tenants do not have any home insurance 27

Figure 14: The leading insurers lost market share in 2017 29

Figure 15: AXA allows customers to view the risk of theft and water damage in their postcode 31

Figure 16: Lemonade’s platforms are easy to use and understand 34

Figure 17: GWP to grow steadily up to 2023 36

Figure 18: Household insurance will see fluctuation up to 2022 38

Figure 19: Urban Jungle caters for young tenants 41

Figure 20: The Buzzvault app stores details and allows video calls with surveyors 42

Figure 21: Homelyfe aims to sell quick and easy home insurance via its app 43