Scale of motor insurance market shrinking laid bare

The UK’s comprehensive standard car insurance market (i.e. excluding high net worth products) has seen a marked change over the last 10 years as product numbers have increased.

The number of providers has fallen from 156 in 2014 to 135 today and there are now 14% fewer insurance brands selling comprehensive car insurance than there were 10 years ago.

The reasons for this are competition, changing distribution patterns and compliance (overhead on maintaining separate products in the world of fair value) is possibly seeing providers more reluctant to keep separate products for each partner. 

We have also seen major brands pull out of this market, which appears to be because of issues around profitability and competitive market conditions. 

The number of products though has seen a marked change since 2019, which is as a result of providers introducing different product strategies. 

We have seen a number of aggregator specific, telematic and tiered products enter the market, which has seen product numbers increase. 

Churn

One of the things Defaqto looks at is the number of differently branded providers in the market each year. 

Tracking how the market changes gives some measure of the “brand churn” each year.

In any year providers enter and leave the market, due to mergers and acquisitions, withdrawals and new start-ups, etc.

It is interesting to note though that of the 156 comprehensive car insurance providers 10 years ago only 68 are still selling products in the market under the same brand name.

Looking at our data and comparing this over the last 10 years, it is clear to see that there has been a consistent pattern of ‘churn’ as provider enter and exit this highly competitive market. 

Products per provider

It is also interesting to look at how many products each provider has on offer at any one time.

Over time providers have moved away from a ‘single product’ model.

The reason for this is multiple channel distribution, tiering, bespoke products per aggregator, etc.

Following the introduction of the Financial Conduct Authority’s general insurance pricing practices and fair value initiatives more brands are introducing different product strategies that can appeal to a broad customer base, both from a pricing and cover perspective.

Providers have developed to a point where most now how have multiple products, with a quarter now managing more than three products and those that are ‘multi-channel’ providers appear to have the most products.

Policy Fees

In the past 10 years, we have noted a number of trends within the comprehensive car insurance market. 

More providers are charging ‘Policy Fees’ and we have seen major changes where a set-up and renewal fee is applied.

In this analysis, we have reviewed the market and have excluded telematic products, which by design typically apply higher fees based on the type of device used.

The number of products that apply a set-up fee at the inception of the policy has increased significantly since 2014, with around half of all products doing so today. 

Where this fee is charged, over the last 10 years we have seen the average fee increase by just over 56%.

The number of products charging a renewal fee has also followed a similar pattern, however the increase in the average fee is lower at 40% but is still a significant increase.

The issue here is that these fees are typically non-refundable when the policy is cancelled, for which policyholders may not be fully aware of.

Windscreen cover

Some of the main trends we have noted around policy cover are as a result of the introduction of multi-tiered products. One of the main benefits where we have started to see a change because of this approach is the availability of windscreen cover.

The number of products that exclude cover for this benefit has started to increase, albeit at a small pace. 

However, what we have seen over the last 12 months is a 100% increase in the number of products up from 3% to 6%.

This trend is as a result of a small number of providers introducing lower benefit products which have stripped out certain cover benefits (such as windscreen cover) or offering lower cover limits.

Personal belongings cover

Another example of the multi-tiered product approach is for the personal belongings benefit, where again we have seen a similar trend appearing.

The number of products that do not offer cover has seen a slight increase, however what is noticeable for this benefit is the change where higher cover limits are provided. 

Product numbers offering £500 or more has seen a sizeable increase over the last 10 years and even in the last 12 months we have seen more than a 50% increase.

This again is as a result of a ‘multi- tiered’ product strategy by providers, where we have noted that the overall limit offered increases depending on which product option is purchased. 

Foreign use cover

Products offering the same cover as in the UK when driving abroad, again shows that cover is changing as a result of the multi-tiered product approach.

We have seen the number of products including this as a standard benefit reduce, with more offering cover as an optional upgrade. We have also seen a minor change in the number of products not offering this benefit.

However, where cover is offered most products will provide an overall annual maximum period of 90 days or more.

Accident management benefits

Most policyholders will only truly know how good their insurance policy is when they need to make a claim and accident management benefits are key to a provider’s overall offering. 

For example, what happens when a car is damaged and cannot be driven, what services are available to get the policyholder and their passengers’ home to ensuring that a courtesy car is available.

Car rescue cover looks at the type of service offered when the car is immobilised and needs to be rescued from the scene of the accident. 

For example, some providers will simply pay for the costs of the rescue but the policyholder is required to make the necessary arrangements, while others will take full responsibility and arrange and pay for the rescue of the car.

The good news here is that the market has made great steps in improving the offering provided, with nine in every 10 products including a full service based rescue. 

This also means that providers are able to control claims costs for this benefit as many have agreements in place with companies that rescue an immobilised car.

An accident transportation service will provide a service that take the driver from the scene of the accident. 

Typically, this means that a rescue vehicle will take the driver and passengers to a safe place or in some cases to their intended destination or home address.

Again, we can see that the market has improved its offering over the last 10 years with six in every 10 products now including this service.

If an accident transportation service is not available, a number of providers will include cover for alternative transport costs such as train, bus or coach fare costs which the policyholder incurs to get home or to their intended destination.

We have again seen improvements in the market as over half of all products today offer some level of cover, with four in every 10 products providing £250 or more towards these costs.

Overnight hotel expenses cover is provided where the costs incurred by the policyholder may be covered. 

Typically, where cover is provided this is done on a per person basis with an overall maximum limit being applicable.

In this chart, we look at the overall maximum cover limit provided. Over the last 10 years, we again can see that the market has improved with over two thirds of products today including some level of cover. 

At the higher end, we can see that today a fifth of all products include cover for this benefit for £500 or more.

The availability of a courtesy car shows that the majority of products also include this cover as a standard benefit.

Although, we have started to see a small trend over the last two years in providers offering this benefit as an optional add-on. 

This is again as a result of multi-tiered products appearing to give the policyholder the choice to include cover if this is required.

The courtesy car class within the market offering shows that the majority of products will provide a small hatchback-type car when the policyholder’s own car is being repaired through an approved repairer.

However, we are still seeing that today almost one in every 10 products do not clearly define the type of courtesy car that is given to the policyholder. 

The courtesy car period for which the car is available to the policyholder shows that the majority will do this for the full duration of the repair of the policyholder’s own car.

Although we are still seeing today that almost one in every 20 products will apply a specific daily limitation.

The availability of a total loss courtesy car benefit (when the policyholder’s own car is declared as being a total loss or is stolen and not recovered) shows that almost two thirds of products will only offer cover as an ‘optional’ add-on.

However, almost a quarter of all products today still do not offer any cover for this benefit.

The total loss courtesy car period shows that where cover for this benefit is available the number of days varies between products.

Almost a quarter of all products today will provide the car for between 14 and 20 days, however around four in every 10 products will increase this limit to 28 days or more. 

In conclusion, over the last 10 years the car insurance market has improved its offering for accident management benefits, however things will need to improve and change as the electric car becomes more prominent. 

The market as a whole need to review its current accident management services, as these types of cars will need a different approach going forward.

Monitoring product changes

It is interesting to track the specific changes providers are making to their products and when reviewing data changes within the Defaqto Matrix database, we can see that there have been relatively low levels of changes to cover limits and benefits provided. 

In fact, the most common change that we have seen relates to windscreen excesses and provider fees and charges.

Fees charged for the cancellation of the policy within or after the cooling-off period have seen the most changes over the last 12 months.

While there have been a small number of changes noted, the average fee charged for cancellation within the cooling-off period’ has not increased significantly over the last 12 months.

For cancellation after the cooling-off period we have seen a reversed trend with the average fee actually reducing over the last 12 months.

One of the reasons for this could be as a result of more products applying set-up and renewal fees, which are typically non-refundable, which in turn is a potential reason for providers lowering their cancellation fees.

The average policy adjustment fees has seen a very minor change but almost half of all products charge a fee of between £20 and £34.99.

However, on the positive side we have seen an increase over the last 12 months in the number of products that do not charge a fee. 

We have though seen a notable change in the average excesses being applied for windscreen claims, both over the last 10 years and the last 12 months.

For windscreen repair claims, the average excess has increased by more than a quarter since 2014 and has increased by almost 14% in the last 12 months alone.

However, for windscreen replacement claims, this shows a much higher increase. The average excess has increased by over a half since 2014 and has increased by around 15% in the last 12 months.

One of the main reasons for the higher excesses are because of the increase in the cost of windscreen glass. However, another reason is because most modern cars now have advanced driver assistance systems, which need to be recalibrated following a replacement windscreen being fitted, which have added additional claim costs.

For this reason, we expect the average excess for a Windscreen Replacement claim to continue to increase and it could be £150 in the next few years.

Customer appeal 

Defaqto also carries out customer appeal research, which seeks to identify the relative importance that customers place on the features and benefits of different insurance products.

When looking at the top five features from the latest car insurance research and comparing against previous years, it does suggest that customers attitudes may be influenced by what happens following a claim and the protection of any no claims discount that has been earnt.

When comparing the features ranked as top five in 2023 against the availability of cover in the market, this shows that most for products cover is provided as standard or available to add as an optional extra.

Unsurprisingly, most products will only offer no claims discount protection as an optional add-on. 

We can only compare products from 2019 we did not look at how cover was made available in 2014.

The basis on which the policyholder’s no claims discount is protected varies between products, however we have based the analysis on where a product would offer one or more claims in a one-year period or better.

This chart shows that today just over 10% of all products would protect the policyholder’s no claims discount for one or more claims in a one-year period.

Typically, most products will protect the no claims discount either on a two claims in five years or two claims in three years’ basis.

The number of products that would protect the policyholder’s no claims discount irrespective of the number of claims shows that one in every 10 products today include this as its standard protection level. 

There are though, a small number of products that would allow as an optional add-on to increase the protection offered to match this level.

Most products typically include a guarantee on the repair work, materials and workmanship when the policyholder’s own car is repaired, provided that the repair is completed by of the insurance providers own approved repairers.

Around two thirds of products today typically include a repair guarantee for five-years or more, which is an improvement when compared to 2014 where just under 40% of products offered this length of guarantee.

Guaranteed courtesy car

Being provided with a courtesy car is an essential benefit for a policyholder when their own car is being repaired following an insured incident. 

Defaqto's data looks at whether the insurance product documentation states that this car is subject to availability or is effectively guaranteed where it does not state that it is subject to availability.

The data shows just under half of all products will only provide a courtesy car subject to availability, which means that the policyholder may not be immediately provided with a car when they book their car in for repair and may have to wait until one is available.

Uninsured driver benefit

This benefit looks at the cover for the protection of the policyholders no claims discount and/or policy excess, following a ‘non- fault’ accident with an uninsured driver.

Just over three quarter of all products will protect both the policyholders no claims discount or policy excess. We can only compare products from 2019 as we did not look at this benefit in the same way in 2014.

Year on year we are seeing an increase in providers offering a multi-tiered approach to appeal to the differing needs of customers. 

When Defaqto’s refers to a multi-tiered approach we are specifically referring to the bronze, silver and gold-style product structure rather than a provider who has multiple individual products.

The cover across the tiers can differ in many ways with stripped out cover (i.e. windscreen cover), different cover limits for certain benefits, excesses varying, or add-ons (such as legal expenses and motor breakdown cover) included as standard or for an additional cost. 

One way to understand the levels of cover across the differing tiers can be the Defaqto Star Ratings achieved as this considers the cover levels and benefits provided.

Currently, 35 (of 135) standard car insurance providers have a multi-tiered approach and when looking at the Defaqto Star Ratings achieved, we can see that there are 10 providers that have one product achieving a five star rating meaning the other products tiers are rated four or less.

For those providers that have a multi-tiered approach, by comparing these against the Defaqto Star Ratings, it shows that these have been developed to target different customer profiles. 

Products are available for those that just want basic cover, some that are available with a good range of cover levels and features and some that are more comprehensive and include higher cover levels and features.