The Role of Banks and Building Societies in UK General Insurance

A Datamonitor report The Role of Banks and Building Societies in UK General Insurance Current and Future Trends Published: Dec-04 Product Code: Providing you with: Current and future market shares of the bancassurance channel across household, creditor, motor and SME insurance Use this report to Develop more effective distribution strategies through an understanding of the current challenges and opportunities for bancassurers 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 Datamonitor's extensive research into this sector, built on a range of primary interviews with senior banking and insurance executives www.datamonitor.com/financial

The Role of Banks and Building Societies in UK General Insurance An introduction to the report Over the last decade the distribution of general insurance has dramatically changed, threatening the role of bancassurers in the household insurance sector. This report therefore analyzes bancassurers' current and future role as insurance distributors and underwriters, examining the current changes that are occurring to their strategies and assessing the likely future success of this channel. Key findings and highlights This report examines the current and future market share of the bancassurance channel across the main insurance lines. It profiles the typical consumer purchasing insurance through banks and building societies, and looks at the ways in which bancassurers interact with their customers. The individual strategies and market shares of the main bancassurers are also provided, offering real insight into the ways in which this insurance channel is changing. Reasons to buy Lloyds 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. Develop more effective distribution strategies through an understanding of the current challenges and opportunities for bancassurers Target your customers more effectively through a greater understanding of bancassurance customer profiles and their motivations Understand the critical success factors for your product offering in order to attract customers effectively to the bancassurance channel Contact us... From Europe: tel: +44 20 7675 7366 fax: +44 20 7675 7016 email: fsinfo@datamonitor.com From Germany: tel: +49 69 9750 3119 fax: +49 69 9750 3320 email: deinfo@datamonitor.com From the US: tel: +1 212 686 7400 fax: +1 212 686 2626 email: usinfo@datamonitor.com From Asia Pacific: tel: +61 2 9006 1526 fax: +61 2 9006 1559 email: apinfo@datamonitor.com

www.datamonitor.com/financial Sample pages from the report The Changing Role of Banks and Building Societies in General Insurance Banks are currently better positioned to grow direct arms than building societies Some of the major banks have had notable success in improving direct platform usage among consumers. For example, Lloyds TSB s general insurance sales from direct channels increased by 9 per cent in the first half of 2004 compared to the same period in 2003. GWP for policies sold through the Internet increased by 44 per cent. Competitive Dynamics A growing number of customers are becoming comfortable with using the Internet as a means of researching and purchasing insurance. Banks are well-positioned to take advantage of this shift in consumer habits. This is due to the fact that they already have a strong and frequent online customer base as HSBC a result has of performed online banking. well in the mortgage market, with its share of balances outstanding increasing between 2001 and 2003. This has helped to drive However, the manner in which building societies interact with their customers tends to growth in its household insurance market share. be very branch-focused, and although they are moving towards telephone and webbased interactions, they are likely to find it harder than Northern banks due Rock s to their household product mix. insurance book is estimated to have grown in proportion to growth in its mortgage business. Brand and advertising focus While no data is available for Alliance & Leicester in 2001, the company s household insurance business benefited from an increase in mortgage Product launches and stand-alone offerings lending in 2003. require increased Customer Focus advertising spend In order to successfully expand product ranges, improve sales of stand-alone products and increase the volume of customers Figure using 31: direct The platforms big three to banks purchase have Figure made 23: significant A cheap inroads motor into quote the is less important for customers of banks insurance, bancassurers need to raise awareness of their household roles as insurance insurance market in between and 2001 building and 2003 societies compared to those purchasing through providers among their customers. other channels For many players this has meant an increase in Alliance advertising & Leics spend on their insurance 80% 2003 range. Between 2002 and 2003 bancassurers increased Northern Rock the amount they spent on 2001 insurance advertising by 25 per cent. The graphic below shows which players are the 70% HSBC main drivers of this increase in advertising spend. (For the data relating to this graphic Barclays 60% please see the Appendix.) Nationwide Key: 50% Banks & Building Societies Abbey Other Distribution Channels HBOS 40% Lloyds TSB 30% RBS 2.0% 6.0% 20% 10.0% 14.0% 18.0% Household insurance market share Source: Datamonitor estimates based on company report 10% and accounts, ABI D A T A M O N I T O R statistics, MFS data and industry interviews The Role of Banks and Building Societies in UK General Insurance 0% Datamonitor (Published 12/2004) Page 144 Cheaper Easy / Good Previous quote convenient reputation policy This report is a licensed product and is not to be photocopied Reason for purchase Percentage of motor insurance consumers Other Source: Datamonitor analysis of MFS statistics D A T A M O N I T O R The Role of Banks and Building Societies in UK General Insurance Datamonitor (Published 12/2004) Page 96 This report is a licensed product and is not to be photocopied The Role of Banks and Building Societies in UK General Insurance Datamonitor (Published 12/2004) Page 70 This report is a licensed product and is not to be photocopied Request more sample pages...for FREE! From Europe: tel: +44 20 7675 7366 fax: +44 20 7675 7016 email: fsinfo@datamonitor.com From Germany: tel: +49 69 9750 3119 fax: +49 69 9750 3320 email: deinfo@datamonitor.com From the US: tel: +1 212 686 7400 fax: +1 212 686 2626 email: usinfo@datamonitor.com From Asia Pacific: tel: +61 2 9006 1526 fax: +61 2 9006 1559 email: apinfo@datamonitor.com

The Role of Banks and Building Societies in UK General Insurance Table of contents EXECUTIVE SUMMARY INTRODUCTION MARKET CONTEXT Market share of banks and building societies in UK general insurance distribution - ABI market shares for banks and building societies - Banks and building societies' share of the household insurance market - Banks and building societies' share of the creditor insurance market - Banks and building societies dominate the distribution of this insurance product - Banks and building societies' share of the private motor insurance market - Banks and building societies' share of other personal lines markets - Banks and building societies' share of the SME insurance market Analysis of platforms used by banks' and building societies' insurance customers - Branch distribution dominates in banks' and building societies' distribution of household insurance - Creditor insurance distribution relies predominantly on the platform used to sell the lending product - Direct distribution platforms dominate the provision of motor insurance for banks and building societies - The vast majority of SMEs arrange insurance face-to-face CUSTOMER FOCUS Consumer awareness of leading banks' insurance offerings in comparison to other insurance providers - Unprompted awareness Advertising spend of banks and building societies - Total advertising spend by product - Total advertising spend by media Customer profile typical customers purchasing insurance through banks and building societies - Age profiles of banks' and building societies' insurance customers - Income profiles of banks' and building societies' insurance customers - Motivations for purchasing through banks and building societies - Customer loyalty among bank and building society customers - Conclusion COMPETITIVE DYNAMICS General insurance income by competitor - Underwriting has been the key driver of bancassurers' insurance income growth There is a clear divide between HBOS, Lloyds TSB and RBS and the other players in the non-life bancassurance arena - The 'big three' banks are heavily involved in both underwriting and distributing insurance - GI profits of the 'big three' have steadily increased - HBOS, Lloyds TSB and RBS have a growing and important influence on the general insurance market - Lloyds TSB and HBOS have achieved higher levels of consumer awareness than other bancassurers due to their large advertising spends Banks' general insurance offerings - Product offerings - Partnerships Building societies' general insurance offerings - Building society product offerings - Building society partnerships Market shares of banks and building societies by product - Household - Creditor - Motor - SME Profiles of major banks - Lloyds TSB - HBOS - Royal Bank of Scotland THE CHANGING ROLE OF BANKS AND BUILDING SOCIETIES IN GENERAL INSURANCE Product focus - Expanding the insurance product ranges has been used as a way of countering declining margins - The household insurance product offering is changing - Creditor is likely to come under increasing scrutiny - Motor insurance is a growing area of focus...the stream of business from mortgage-related branch sales is disappearing, bancassurers need to find other ways to make money... Head of General Insurance at a major UK bank

www.datamonitor.com/financial - Bancassurers are seeking to improve the cross-selling of insurance to SMEs, yet they are facing many obstacles - Other insurance products are also being considered Platform focus - Bancassurers are focusing on promoting direct platforms in addition to branch-based offerings Brand and advertising focus - Product launches and stand-alone offerings require increased advertising spend - Bancassurers need to ensure they are not overstretching themselves with their insurance ranges Increasing focus on underwriting - The nature of partnerships are already changing - Some existing manufacturers may look at increasing the scope of their underwriting activities The impact of FSA regulation - Potential impact on free/packaged products - Impact on branch sales - Smaller players may outsource the entire process THE FUTURE DECODED Household insurance forecasts Motor insurance forecasts - Motor insurance is unlikely to take off Commercial insurance forecasts - Bancassurers will slowly grow market share - There are several key success factors that need to be in place in order for bancassurers to increase insurance cross-selling rates to SMEs Summary of the bancassurance channel's prospects - The market can be divided into three key sectors - Building societies will struggle but there is still potential - Key success factors APPENDIX TABLES Table 1: Table 2: Table 3: Banks' and building societies' market share by product line, 1999-2003 Percentage of consumers arranging household insurance through banks and building societies, 1999-2003 PPI GWP split between mortgage, credit card and personal loan cover, 2003 Table 4: Gross advances by lending product, 1999-2003 Table 5: Motor insurance product launch dates of selected banks and building societies Table 6: Percentage of consumers arranging health insurance through banks and building societies, 1999-2003 Table 7: Platforms used by consumers when purchasing household insurance from banks and building societies, 1999-2003 Table 8: Platforms used by consumers when purchasing motor insurance from banks and building societies, 1999-2003 Table 9: Unprompted awareness of leading banks' insurance offerings compared to selected insurance providers, 2003 Table 10: Total advertising spend of banks and building societies by product, 2003 Table 11: Total advertising spend of banks and building societies by medium, 2003 Table 12: Total motor insurance advertising spend of banks and building societies by media, 2003 Table 13: Total household insurance advertising spend of banks and building societies by media, 2003 Table 14: Age profiles of household insurance customers Table 15: Age profiles of motor insurance customers Table 16: Income profiles of household insurance customers Table 17: Income profiles of motor insurance customers Table 18: Reasons for choosing household insurance provider, 2003 Table 19: Reasons for choosing motor insurance provider, 2003 Table 20: Length of customer relationships with banks and building societies compared to other household insurance distributors Table 21: Length of customer relationships with banks and building societies compared to other motor insurance distributors Table 22: General insurance income by competitor, 2001-2003 Table 23: GI profits before tax as a percentage of banks' total profits, 2001-2003 Table 24: Market share of 'big three' banks in motor and household insurance market, 2001-2003 Table 25: Unprompted consumer awareness compared to total general insurance advertising spend of banks and building societies, 2003 Table 26: Banks' general insurance offerings Table 27: Banks' insurance partnerships by product Table 28: Axa and Norwich Union are the most prolific bancassurance partners Table 29: Building societies' general insurance offerings Table 30: Building societies' insurance partnerships, by product Table 31: Building society partnerships of Norwich Union, Royal and SunAlliance and Axa Table 32: Household insurance market share of main bancassurers, 2001-2003 Table 33: Personal lending balances outstanding, top five players, 2003 Table 34: Motor insurance market share of main bancassurers, 2001-2003 Table 35: SME premium income and insurance partners of selected banks...banks and building societies have to change. Doing nothing in the light of current market conditions is foolhardy. Success will depend on the drive and ambition of those in charge of insurance... Head of General Insurance Strategy at a major UK bank

The Role of Banks and Building Societies in UK General Insurance Table 36: Lloyds TSB general insurance business split by underwritten and brokered business, 1999-2003 Table 37: Lloyds TSB advertising spend by product, 2002-2003 Table 38: Lloyds TSB advertising spend by medium, 2002-2003 Table 39: HBOS's general insurance business split by underwritten and brokered business, 2000-2003 Table 40: Number of HBOS general insurance policies in-force, 2000-2003 Table 41: HBOS advertising spend by product, 2002-2003 Table 42: HBOS advertising spend by medium, 2002-2003 Table 43: RBS Insurance premium income by line of business, 1999-2003 Table 44: Number of RBS general insurance in-force policies, 1999-2003 Table 45: RBS advertising spend by product, 2002-2003 Table 46: RBS advertising spend by medium, 2002-2003 Table 47: Motor insurance advertising spend of selected bancassurers, 2002-2003 Table 48: Total advertising spend by competitor, 2002-2003 Table 49: Bancassurers' market share of household insurance, 2003-2009f Table 50: Bancassurers' market share of commercial insurance market, 2003-2009f Table 51: Where do you purchase your commercial insurance? Table 52: Would you consider purchasing commercial insurance from your business bank rather than through a broker: if so, why? Table 53: Would you consider purchasing commercial insurance from your business bank rather than through a broker: if not, why not? Table 54: Abbey general insurance data, 2001-2003 Table 55: Abbey advertising spend by product, 2002-2003 Table 56: Abbey advertising spend by medium, 2002-2003 Table 57: Barclays advertising spend by product, 2002-2003 Table 58: Barclays advertising spend by medium, 2002-2003 Table 59: Barclaycard advertising spend by product, 2002-2003 Table 60: Barclaycard advertising spend by medium, 2002-2003 Table 61: HSBC advertising spend by product, 2002-2003 Table 62: HSBC advertising spend by medium, 2002-2003 Table 63: Nationwide general insurance data, 2002-2003 Table 64: Nationwide advertising spend by product, 2002-2003 Table 65: Nationwide advertising spend by medium, 2002-2003 Table 66: Total advertising spend of banks and building societies by product, 2002-2003 Table 67: Total advertising spend of banks and building societies by medium, 2002-2003 FIGURES Figure 1: Figure 2: Figure 3: A cheap motor quote is less important for customers of banks and building societies compared to those purchasing through other channels The 'big three' banks controlled a third of the motor and household insurance markets in 2003 Motor insurance advertising spend has increased dramatically Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12: Figure 13: Figure 14: Figure 15: Figure 16: Figure 17: Figure 18: Figure 19: Figure 20: Figure 21: Figure 22: Figure 23: Figure 24: Figure 25: Banks and building societies have the greatest market share in household insurance and other personal lines, such as creditor The number of consumers taking out household insurance with banks and building societies has fallen since 1999 The main banks' share of household insurance has increased since 1999 The percentage of consumers purchasing motor insurance through the main banks has slowly increased since 1999 Few consumers buy health insurance from banks and building societies The broker remains the favored route for SMEs' insurance purchase decision Most household insurance is sold at the branch Personal loan insurance is best suited to remote sale, whereas MPPI is generally sold at branch level Arranging motor insurance with a bank or building society over the telephone has decreased as the Internet has risen in popularity The phone is the primary medium for SMEs' insurance arrangement The leading banks score higher than some traditional insurers and brandassurers in terms of customer awareness Household insurance accounted for just under half of banks' and building societies' advertising in 2003 Direct mail dominates the advertising spend of banks and building societies The advertising of both motor and household insurance is dominated by direct mail The household offerings of banks and building societies attract younger consumers Like other insurers, bancassurers sell insurance to motorists of all ages Banks and building societies attract more middleincome consumers with their household products The incomes of banks' and building societies' motor customers do not vary significantly from those of other distributors Many customers purchase household insurance from banks or building societies along with their mortgages A cheap motor quote is less important for customers of banks and building societies compared to those purchasing through other channels There are no significant differences in length of household insurance customer relationships between distribution channels Banks and building societies have a newer motor insurance customer base For the full list of figures, email fsinfo@datamonitor.com with TOC in the subject line. 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The Role of Banks and Building Societies in UK General Insurance Datamonitor is the UK's leading provider of information on the general insurance industry across Europe. Interested in this topic? Our portfolio of personal and commercial insurance reports combines all the major data sources on the products, markets and distribution channels in the insurance industry, and the results of consumer research and industry interviews, together with the analysis of our experienced team of insurance experts. Other reports available in this series UK Motor Insurance 2004/5 Coming soon! Analyzes the UK motor insurance market Published: Jan-05 Product code: DMFS1719 UK Household Insurance 2004/5 Coming soon! Examines the UK household insurance market Published: Jan-05 Product code: DMFS1718 UK Personal General Insurance 2004 Provides the definitive guide to personal lines insurance in the UK, covering individual accident and health, private motor and household insurance sectors Published: Nov-04 Product code: DMFS1689 UK Personal Niche Lines 2004/5 Analyzes the creditor, pet, motorcycle and travel insurance markets Published: Nov-04 Product code: DMFS1701 The Future Role of Brandassurers in UK General Insurance Examines the future role of brandassurers in distributing general insurance with particular focus on retailers Published: Jun-04 Product code: BFFS0309 For more information on reports and briefs go to: www.datamonitor.com/financial Subscribe to Monitor A monthly update of Datamonitor's new products, delivered to you by email. Email: monitor@datamonitor.com

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