UK motor market posts best results since 2006

The UK motor insurance sector has delivered its best underwriting results since 2006, largely as a result of an increase in reserve releases by insurers. But premiums will still increase unless recent legislative changes deliver.

In a report on the UK motor market, Ernst & Young found that an analysis of the 2013 results of the majority of listed UK insurers indicated that the net combined ratio of the group will be around 101 percent, a 2.5 percent improvement on last year.

“However, the strong results are heavily dependent on the referral fees ban delivering as intended. As there are already signs that this may not be the case, there are fears that insurers could face late submission of claims for the next three years,” said the report.

Catherine Barton, head of retail property & casualty actuarial, EMEIA at EY, said: “While referral fees themselves are banned, it looks like there are still ways in which customers can be encouraged to make claims, and that those encouraging them can receive payment in a form other than a referral fee. Genuine claimants do of course need to be compensated, but the continued presence of manufactured claims in the market drives extra costs into the system, as well as increasing the number of claimants, which has a knock-on impact on premiums.”

Motor insurance underwriting has been loss-making for the last 20 years with increasing levels of competition putting pressure on premiums, which fell by 8.8 percent last year, said EY. Barton noted that the industry sees many late reported claims for small injuries, which raises questions about whether they are genuine.

EY said that the introduction of a medical panel in the coming months for small claims in the motor industry should help insurers better understand the high volume of complex injury claims.

It warned that the Financial Conduct Authority’s proposed shake-up of the general insurance add-on markets could lead to reduced take-up of these products because consumers believe they should buy products that have been pre-selected for them.

“To a certain extent add-on products have supported insurers writing core products at lower prices for some time, so in many cases customers should expect to experience price rises on their core motor or home insurance products,” said Barton

EY believes that the ‘gloomy’ outlook for household insurers also adds to pressure. Traditionally household insurance produced more reliable profits than the motor industry and helped to smooth profitability for general insurers, but the inclement weather of 2013 will have had an impact on the profitability on the industry.

Barton said: “With household profitability also under pressure, it is increasingly important that the concerns about the underlying mechanics of the motor insurance market are addressed or consumers could be facing price hikes across the board.”