UK Commercial Insurance Distribution 2017

Table of Contents

Table of Contents

1. EXECUTIVE SUMMARY 3

1.1. Brokers dominate as the direct channel increases its share 3

1.2. Key findings 3

1.3. Critical success factors 3

2. COMMERCIAL INSURANCE: CHANNEL ANALYSIS 9

2.1.1. Introduction 9

2.2. Brokers still dominate despite a continuing dip in share 9

2.2.1. The need for specialist advice keeps brokers at the top 9

2.2.2. Brokers continue to see their distribution shares slip for more simple products 10

2.3. SMEs look to channels other than brokers for their insurance 11

2.3.1. The online channel serves SMEs well for commoditized commercial products 11

2.3.2. The direct channel competes against brokers within the SME space 13

2.3.3. Banks and aggregators have grown their channel shares in most business segments 14

2.4. Commercial insurance distribution within the direct channel 15

2.4.1. Insurers continue to grow their direct propositions 15

2.4.2. A select few commercial insurers offer a direct proposition 18

2.4.3. Aviva's Digital First initiative targets customers choosing the online channel 18

2.4.4. Hiscox's continued investment in its online infrastructure is proving a success 19

2.5. Retailers and affinity groups and commercial insurance 20

2.5.1. Affinity providers target SMEs with more commercial insurance products 20

2.5.2. Direct propositions are limiting aggregator usage in the commercial space 22

2.5.3. Comparethemarket.com and Moneysupermarket.com are preferred by SMEs 23

2.6. Banking providers and the distribution of commercial insurance 23

2.6.1. Banks and building societies are used the least to purchase commercial policies 23

3. BROKERS AND COMMERCIAL INSURANCE DISTRIBUTION 26

3.1. The broker landscape is dominated by five global firms 26

3.2. Global brokers retain the largest share of commercial revenues 26

3.2.1. The top five brokers accounted for around 45% of the total market in 2016 26

3.2.2. JLT ranked first for a second year running 27

3.2.3. Marsh is set to continue its aggressive expansion strategy 28

3.2.4. Aon aims to grow its UK national business 28

3.2.5. Arthur J. Gallagher climbs to fourth as its series of acquisitions pays dividends 29

3.2.6. Willis looks to Towers Watson merger to improve financial performance 29

3.3. The growth strategies of brokers are largely similar 30

3.3.1. Brokers are looking to facilitate growth through cross-selling and upselling 30

3.3.2. National brokers have acquisitions high on the agenda 32

3.3.3. Brokers are warming to the use of social media 35

3.3.4. Provincials keep with tradition but are considering developing their online channels 37

3.3.5. The super-regionals are prioritizing social media engagement 38

3.3.6. National brokers are looking to enhance their online propositions 38

4. THE DISTRIBUTION LANDSCAPE GOING FORWARD 40

4.1. Is disruption causing more difficulties than benefits? 40

4.1.1. E-trading disruption tool is set to enhance broker functionalities 40

4.1.2. Commercial lines carriers are set to benefit from the introduction of blockchain 41

4.1.3. The advice gap could be leaving SMEs underinsured 42

4.2. How will the distribution landscape alter in the coming years? 43

4.2.1. Growth in the commercial market will stem from SME insurance 43

4.2.2. Continued growth of the direct channel will cause brokers to lose more share 44

4.2.3. Micro firms account for the most GWP handled in the SME market 46

4.2.4. The future of commercial distribution depends on developments in the SME market 46

5. APPENDIX 48

5.1. Abbreviations and acronyms 48

5.2. Definitions 48

5.2.1. Brokers 48

5.2.2. Direct 48

5.2.3. SME 48

5.3. Methodology 49

5.3.1. Primary sources 49

5.4. Bibliography 49

5.5. Further reading 50

List of Figure

List of Figures

Figure 1: Brokers retain their dominance but continue to lose market share 11

Figure 2: The internet is the most popular method used by SMEs to purchase insurance cover 13

Figure 3: The direct channel is catching up to brokers in the micro enterprise space 14

Figure 4: The direct channel has recovered from a decline in 2014 16

Figure 5: The direct channel is estimated to have reached GBP1.67bn in GWP in 2016 17

Figure 6: Retailers and affinity groups are slowly growing their share of the commercial insurance market 21

Figure 7: 2015 saw the retailer and affinity channel surpass GBP0.5bn in commercial insurance GWP 22

Figure 8: The banking channel accounts for a tiny proportion of commercial insurance distribution 24

Figure 9: 2016 saw commercial insurance GWP marginally decline in the banking channel 25

Figure 10: JLT retained its place as the UK's largest broker in 2016 27

Figure 11: Brokers are looking to grow by cross-selling and upselling 31

Figure 12: National brokers are largely in favor of acquisitions as a strategy for business growth 34

Figure 13: Super-regional brokers are the heaviest users of social media 36

Figure 14: Provincial brokers have adopted features associated with traditional insurance broking 37

Figure 15: Super-regional brokers have the highest adoption of social media use to engage clients 38

Figure 16: National brokers are looking to improve on their use of social media as an engagement tool 39

Figure 17: Payment functions enabled by blockchain technology 42

Figure 18: Continued growth in the commercial market is forecast over the coming years 44

Figure 19: Brokers will lose distribution share of commercial insurance products in the years to come 45

List of Table

List of Tables

Table 1: The top five direct insurers (percentage of SME respondents), 2016 18

Table 2: Broker business growth strategies, 2017 32

Table 3: Broker business growth strategies, percentage point movement, 2016-17 35

Table 4: Share of commercial insurance distribution by channel (%), 2015-21f 45