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UK Extended Warranty Insurance 2010 provides a detailed overview of the extended warranty market. The report is divided into two core segments: private motor and household electricals extended warranty. Both sections examine the total market size, retail sales, profitability, claims, distribution, key competitors and forecasts.
Scope
- Information and data on the attractiveness of the motor and electricals extended warranty market.
- Detailed car parc and electrical retail data.
- An overview of the market structure and competitors that are active in this space.
- An insight into how industry players view this market taken from in-depth interviews.
Highlights
The total private motor extended market grew marginally by 1.6% during 2009. Datamonitor has noticed that some dealers which sell motor EW have been more vigorous in the up-selling of this product, as they have experienced a significant fall in car sales and so need to seek other non-sales related revenue.
The white goods electricals extended warranty market is the largest because penetration rates are highest in this sector, with many providers estimating penetration at around 25%.
Most extended warranty policies are sold at point of sale, although post point of sale sellers are growing in size because customers are researching online for the cheapest coverage.
Reasons to Purchase
- Understand the extended warranty market and which companies sell this product.
- Get to grips with the size of the market and how it is anticipated to grow in the future.
- Make decisions based on detailed statistics taken from a wide array of sources including Datamonitor’s sister company Verdict Research.
Table of Contents
Overview
Catalyst
Summary
Executive Summary
The market is divided into private motor and household electricals extended warranty
The private motor EW market grew slightly in 2009
Motor EW sales have held up well against the weak used car market
The household electricals EW market is considerably larger at £1.2 billion
UK consumer expenditure on electrical goods fell by 7% to £20 billion in 2009
Most extended warranty policies are sold at point-of-sale
New and used car dealers account for the vast majority of motor EW policies sold
Electricals EW is distributed mainly at POS by retailers
However, the post-POS market is growing in importance
The future of EW sales depend heavily on the state of the car and electricals markets
A resurgence in used car sales will drive growth in the private motor extended warranty market
The take-up of electricals EW will be low as the electrical retail market will remain weak
Market Context
Introduction
EW insurance provides protection beyond the manufacturer’s base coverage
EW insurance offers buyers peace-of-mind
Motor warranty policies will pay for the costs associated with replacement parts and labor charges
There are a number of similar motor EW products available on the market
The private motor EW market was resilient in 2009
The total private motor EW market grew by 1.6% in 2009 to reach £534m
In some cases the EW is simply included within the price of the car
The market is characterized by insurers, administrators and some customer-facing providers
Not all of the motor warranty products sold to customers are insurance-backed
Captives represent an efficient way for manufacturers and dealers to control insurance-backed schemes
Despite the collapse of the car market, used car motor EW sales have not declined
Gross advances for motor finance fell by almost 10% in 2009
As a result of the fall in car sales, the total car parc for 2009 saw minimal growth compared with 2008
Interestingly, the fall in new car sales has helped increase the number of potential EW customers
The majority of cars on the road are aged between seven and 10 years
Market sentiment is that just over a quarter of all used car sales have an EW policy sold alongside it
Improving EW awareness will help providers tap into dormant car owners
Customer-facing providers Warranty Direct and Warranty Wise spent a total of £226,233 on advertising in 2009
Providers make a good margin on private motor EW products
Over the past few years, claims have been static
While suspension parts are the most frequent car fault, electrical related faults dominate EW claims
Proposals by the Department for Transport to introduce more 20mph zones without traffic calming measures may reduce claims
The recession has prompted many to undertake their own vehicle service, which invalidates EW claims
Household appliance EW is sold for a variety of different electricals
The electricals EW market is characterized mainly by service contracts
The total electricals EW market is expected to have been worth £1.2 billion in 2009
White goods EWs account for the vast share of the total electricals EW market
The majority of electricals EWs are service plans, rather than insurance-backed
Just over 70% of all electricals EW policies were service plan-backed in 2009
Service-backed schemes are cheaper and more tax efficient for retailers providing electricals EW policies
The electricals EW market is very profitable, with many providers able to make at least a 10% margin
Price competition in the electricals EW market is not as strong as in the electricals retail market
Claims patterns in the electricals EW market are largely predictable
UK consumer expenditure on electrical goods fell by 7% to £20 billion in 2009
The UK electricals retail market is dominated mainly by brown goods
Audiovisual, IT processing and major household appliances are the largest sub-sectors
The electricals market is plagued by considerable price deflation
Currently, demand for electricals EW is low and this will remain the case throughout 2010
The stagnant housing market has shrunk demand for white goods
The growth in the number of households should continue to benefit the UK electricals market
Some electricals retailers are focusing more on non-electricals sales revenue such as EW to boost profits
Distribution
Introduction
Car dealers are the main sellers of motor EW policies
New and used car dealers account for the vast majority of motor EW policies sold
Distribution of motor EW is expected to see no real changes over the upcoming years
Warranty Wise provides motor warranty protection
A greater emphasis on educating and training dealers will improve POS distribution of EW policies
Electricals EW is distributed mainly at POS by retailers
However, the post-POS market is growing in importance
Since 2005, the BIS has stipulated that sellers of electricals EW must follow a set of guidelines
Electricals specialists dominate the total electricals retailing market
The growth of online retail distribution has reduced retailers’ POS advantage
Most UK individuals spend between £21 and £50 on electrical goods
Insurers should be working more with credit card providers to sell EW insurance
Competitive Dynamics
Introduction
Domestic & General is the largest electrical EW underwriter via its non-POS strategy
Allianz Schemes has partnerships with Argos, Amazon and GAME
London General Insurance holds the John Lewis contract
Car Care Plan is the largest provider of motor EW
Cardif Pinnacle distributes car warranties through Warranty Direct
Warranty Direct is a customer-facing online provider active in the EW market
Mondial Assistance also offers motor manufacturer’s warranty services
Insurers are underwriting less EW
The insurance-backed market is shrinking
The insured market is becoming more concentrated
Domestic & General, QBE Europe and London General Insurance all gained market share in 2008
The total insured UK EW market is likely to have returned a COR of 90%
EW providers spent £8.5m on advertising, mainly via direct mail
Both Domestic & General and DSGi focus their advertising on the direct mail channel
The remainder of the market is made up of service providers and administrators
The Warranty Group provides motor and electricals warranty products
British Gas plans to underwrite all of its household and warranty products
DSGi, Argos and Comet are the largest UK electricals retailers
DSGi had a total market share of 17.4% in 2009
Argos is the only remaining catalogue retailer in the market, with a share of 11.2% in 2009
Comet’s new product range helped increase its market share by 0.5 percentage points to 8.2%
Future Decoded
Introduction
The motor EW market will grow gradually
Initial penetration increases followed by a resurgence in used car sales will drive growth
New car registrations are expected to grow by a yearly average of 6.1% over 2010-14
As a percentage of the total car parc, cars aged between four and 10 years will decrease
The electricals EW market will shrink slightly in the short term
The up-take of electricals EW will rely heavily on the state of the electricals retail market
Total consumer expenditure on electrical goods will be lower in 2010 and 2011
APPENDIX
Definition
Captive insurance
Car parc
Extended warranty (EW)
Franchised dealer
Gross premium
Independent dealer
New car registrations
Written premium
Brown, white and grey electricals categories
Methodology
Datamonitor’s European Automotive Markets 2010 Database
Financial Services Consumer Insight Survey 2009
Further reading
Ask the analyst
Datamonitor consulting
Verdict research
Disclaimer
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