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Insurance Industry Market Review 2005
Key Note Publications Ltd, June 2005
This market review examines the UK insurance market and the industry that provides it with insurance products. The industry is experiencing a challenging period in 2005, with growing regulation, weakening premium rates and uncertainty in the financial markets.
This report estimates that the UK insurance market was worth £126.51bn in 2004. This represents a 2.9% increase on 2003 but is still lower than the market's value in 2002. There are two broad sectors: long-term insurance and general insurance. Long-term insurance accounted for an estimated 73.2% of the market in 2004, but the sector's value has fallen by 1.8% since 2001, whereas sales of general insurance have grown by 20.1%.
The industry is under immense pressure to cut its costs. Regulation by organisations such as the Financial Services Authority (FSA) and the EU is increasing, and this is undoubtedly adding to the industry's cost base. At the same time, premium rates have been softening as insurers have undercut each other's prices in order to win business. How long this situation will continue is debatable, given that many in the industry believe that premium rates need to rise in order to make up for growth in the cost of claims. There is inevitably some concern about profitability in the industry.
Particular attention is being paid to long-term insurance, since this sector accounts for the majority of sales. Changes in the rules governing the sale of insurance (as laid down by the FSA) have opened up new channels of distribution, with the result that insurance companies have increased their number of outlets. However, the big problem for the industry is that people are not saving enough. In October 2005, the Pensions Commission will deliver its recommendations on how to address the so-called pensions gap, i.e. the difference between the amount consumers need to save for their retirement and the amount they are actually saving. The Commission may recommend some element of compulsion in personal pensions.
This report forecasts that the UK insurance market will grow by between 3.3% and 3.7% each year between 2005 and 2009. Unless consumer behaviour changes dramatically or the Government makes personal pensions compulsory, sales of general insurance are likely to continue to grow faster than sales of long-term insurance.
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