Table of Contents

CHAPTER 1 EXECUTIVE SUMMARY

3

Introduction

3

Market context

3

There are several forms of home emergency cover

3

Home emergency insurance is largely provided in combination with home insurance and two main strategies for the product are evident

3

Many insurers provide home emergency insurance as a standard part of their home insurance, using it as a form of product differentiation

3

Other providers sell the cover as an optional extra on home insurance, using it as a revenue generator

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Home emergency premium rates vary considerably from £2 to £7 a month

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It is estimated that there are over 3 million policies in force, though only between 1.2 and 1.3 million of these policies are paid for

4

Competitive dynamics

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Most of the top 10 home insurers offer home emergency, but cover is less common among mid-sized home insurers

5

There is little to no direct competition in the home emergency market

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Competition to home emergency comes from substitute products, such as home service and single utility emergency cover, supplied by utility companies

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The future decoded

8

Two separate strategies are likely to shape growth in the home emergency market in the near future

8

As competition heats up in the household insurance market, offering home emergency as standard could be increasingly used as a differentiation tool

8

Selling the product as an optional extra will lead to an increase in penetration rate

8

However, factors such as a rise in Internet sales and the threat from substitute products will limit growth in the sale of home emergency insurance

9

CHAPTER 2 INTRODUCTION

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What is this report about?

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Who is the target reader?

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How to use this report

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CHAPTER 3 MARKET CONTEXT

21

Introduction

21

There are several forms of home emergency cover

21

Home emergency insurance is largely provided in combination with home insurance and two main strategies for the product are evident

25

Many insurers provide home emergency insurance as a standard part of their home insurance, using it as a form of product differentiation

25

Other providers sell the cover as an optional extra on home insurance, using it as a revenue generator

25

Stand-alone home emergency insurance is not as successful as cross selling

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Face-to-face or personal contact plays an important role in the sale of home emergency insurance

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Home emergency premium rates vary considerably from £2 to £7 a month

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It is estimated that there are over 3 million policies in force, though only between 1.2 and 1.3 million of these policies are paid for

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Home emergency is a profitable line, due to low claims frequency

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Lack of price-based competition allows providers to price the product profitably

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Profitability is also helped by a low claims frequency, though claims frequency is linked to unpredictable weather conditions

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Only some weather claims are likely to lead to an increase in the number of home emergency claims

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CHAPTER 4 COMPETITIVE DYNAMICS

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Introduction

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The top household insurers, as well as the top banks, are the main providers of home emergency insurance

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Most of the top 10 home insurers offer home emergency, but cover is less common among mid-sized home insurers

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Many banks also offer home emergency insurance, but the product is less common among brandassurers

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There is little to no direct competition in the home emergency market

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The main battlefield and driving force of the home emergency market is the highly competitive household insurance market

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A number of developments in the household insurance market are influencing the home emergency market

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The household insurance market saw increased competition in 2005, which drove down premium rates

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The increased commoditization of household insurance and changing distribution channels raises the intensity of price-based competition

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Direct distribution channels, especially the phone and the Internet, are growing in favor with consumers

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As Homeserve provides home emergency services for insurance providers, there is no room for product differentiation

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Inter Partner Assistance partners with Homeserve and underwrites many insurance providers' home emergency policies

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Competition to home emergency comes from substitute products, such as home service and single utility emergency cover, supplied by utility companies

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British Gas dominates the home service market, while other utility companies offer single utility emergency products

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Advertising is dominated by Homeserve and British Gas, which will impact consumer perception of the product

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British Gas and Homeserve account for 78 per cent of the £19 million spent on advertising in 2005

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Direct mail is the most popular advertising medium due to its cost-efficiency and the role of home emergency as a cross-sold product

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Because of the costs involved it is not feasible for insurance providers to advertize home emergency insurance on television

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Press advertising is a cheaper way of building public awareness than television advertising, and is used by several competitors for this reason

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CHAPTER 5 THE FUTURE DECODED

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Introduction

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The number of households in the UK is increasing, leading to a small increase in the number of potential home emergency customers

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Two separate strategies are likely to shape growth in the home emergency market in the near future

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As competition heats up in the household insurance market, offering home emergency as standard could be increasingly used as a differentiation tool

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Up-selling and cross-selling will lead to an increase in penetration rate, especially for providers that currently have low penetration

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However, factors such as a rise in Internet sales and the threat from substitute products will limit growth in the sale of home emergency insurance

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Changes in distribution trends for home insurance will limit the growth potential of home emergency insurance, as online sales increase at the expense of face-to-face sales

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Low consumer awareness and substitute products will continue to limit growth

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CHAPTER 6 APPENDIX

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Supplementary data

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Definitions

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Definitions of general terms

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Definitions of terms specific to this report

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Research methodology

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Future readings

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Relevant links

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Do you need more information?

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Datamonitor Financial Services Consulting

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Datamonitor's custom research capabilities

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SPP writing team

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List of Tables

Table 1: The results of Datamonitor's home emergency mystery shopping exercise, March 2006

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Table 2: Home emergency insurance premium rates, March 2006

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Table 3: Datamonitor estimates of the size of the home emergency market in policy numbers and GWP, 2005

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Table 4: Gross claims incurred in the household market, by peril, 1999-2004

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Table 5: Proportion of household claims by peril, 1999-2004

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Table 6: Weather damage claims incurred by cause in household insurance, 1999-2004

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Table 7: The top 20 household insurers' home emergency insurance offerings, market share as part of group and as part of entire household insurance market

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Table 8: Change in UK household insurance premiums, January 2006 - April 2006

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Table 9: Change in UK household insurance premiums, 1999-2005

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Table 10: Examples of partnership deals in the home emergency market, which is dominated by Inter Partner Assistance, the underwriting partner of Homeserve

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Table 11: Examples of cover offered by utility companies, March 2006

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Table 12: Competitors' advertising spend on home emergency insurance by medium, 2005

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Table 13: Advertising spend on direct mail for home emergency insurance by competitor, 2005

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Table 14: Competitors' advertising spend on TV for home emergency insurance, 2005

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Table 15: Competitors' advertising spend on press for home emergency insurance, 2005

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Table 16: Reasons for choosing household insurance policy, split according to method used to arrange cover (2005)

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Table 17: Platform used to arrange household insurance, 1999-2005

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Table 18: The size of UK households by the number of people, 1971-2004

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Table 19: Tenure structure in UK households, 1994-2004p

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List of Figures

Figure 1: Around 13 per cent of UK households currently have home emergency insurance, though only 5 per cent pay for it

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Figure 2: While most of the top 10 household insurers offer home emergency insurance in some form, almost half of those ranked 11-20 do not offer it

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Figure 3: An example of the way in which home emergency insurance is described by an insurance provider

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Figure 4: British Gas's Homecare range is an example of home service cover

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Figure 5: EDF energy offers electrical emergency cover as a single utility product

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Figure 6: Standalone policies are often more expensive than policies sold as optional extras on household insurance policies

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Figure 7: Around 13 per cent of UK households currently have home emergency insurance, though only 5 per cent pay for it

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Figure 8: The percentage of household insurance claims made up of weather claims varies, depending on weather conditions

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Figure 9: The proportion of weather damage claims made up of burst pipes varies from year to year, depending on how cold the winter has been

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Figure 10: While most of the top 10 household insurers offer home emergency insurance in some form, almost half of those ranked 11-20 do not offer it

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Figure 11: More Th>n uses the fact that home emergency cover is included as standard in its home insurance offering as a product differentiator

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Figure 12: There has been a noticeable drop in buildings premium rates since 2004

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Figure 13: South East Water offers plumbing and gas central heating cover

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Figure 14: Gas supply pipe cover is one of NPower's offerings

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Figure 15: British Gas and Homeserve are the biggest spenders on advertising for home emergency insurance

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Figure 16: Homeserve spent by far the most on direct mail advertising for home emergency insurance in 2005

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Figure 17: Only three companies advertise home emergency insurance on television, and of these British Gas spends by far the most

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Figure 18: British Gas and Direct Line use the press the most for advertising home emergency insurance

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Figure 19: Industry executives have varied expectations for growth

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Figure 20: Home emergency insurance is not a mainstream offering, and many household insurance providers do not offer it

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Figure 21: A cheaper quote is far more important to those purchasing household insurance via direct platforms than those purchasing face-to-face

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Figure 22: The influence of the phone and the Internet have increased at the expense of face-to-face distribution in the household market

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Figure 23: The total number of households continued to grow, while the average household size stayed level in 2004

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Figure 24: Datamonitor's core consulting capabilities

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