Executive Summary

This report looks at UK insurance companies and the market for insurance in the UK. The market splits into general insurance (motor, property, etc.) and life insurance.

There are around 815 companies registered with the Department of Trade and Industry (DTI), although most of them are small or intermittently active. The top ten companies account for 55% of the industry's combined income from the UK and overseas. The top 20 account for around 70% of worldwide premium income.

In the general insurance sector, which Key Note estimated at around £24.7bn in 1995, there has been severe price cutting, largely caused by the arrival of the cheaper direct insurers. Direct Line, for example, now has approximately one-quarter of the UK motor insurance market, having started from nothing approximately 10 years ago. The UK market in general insurance is, therefore, under intense pressure, with everybody in the industry claiming that profits are suffering as a result. In the life insurance sector, which Key Note estimated at £42bn in 1995, sales have been falling since 1993.

Claims for burglary and car thefts in the UK have eased, but weather-related property claims are rising in the UK. Abroad, claims are increasing, especially those which are environmentally and catastrophe based, or due to employer negligence. Besides this, there is a view that over the long term, investment income will not rise as fast as it has done in the last decade, which has important implications for life insurance payouts.

City analysts predict that there is going to be a massive shakeout of insurance companies in the three key UK markets: life, motor and household insurance. Consulting actuaries Bacon & Woodrow has forecast that around half of the companies in the UK private motor insurance market will have withdrawn from the market by the year 2000.

In the life sector, rationalisation is expected as smaller- and middle-sized companies' profits come under attack. General Accident recently completed the purchase of the life insurance group Provident Mutual, and other companies are said to be looking for acquisitions.

Key Note is predicting only a slight fall in the life market for 1996, to £41.5bn. Meanwhile, the general insurance sector is likely to increase marginally, to £25.4bn.

Many of the most profitable insurance companies in the first half of 1995 were those which were able to exploit growing markets abroad, essentially continental Europe and Asia.

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