Written evidence from Duncan Anderson,
EMB Consultancy LLP (CMI 03)
1. In response to the Transport Select Committee's
invitation to submit written evidence on the factors affecting
the cost of motor insurance, EMB herewith summarises the findings
of its own and industry research into:
Current price
trends in UK private motor insurance
Increases
in the cost of bodily injury claims
UK motor market
profitability.
CURRENT PRICE
TRENDS IN
UK PRIVATE MOTOR
INSURANCE
2. In partnership with leading comparison site
Confused.com, EMB has tracked private motor insurance price movements
since the final quarter of 2006. This shows clear evidence of
significant upwards price movements, particularly since the middle
of 2009. A copy of the latest quarterly summary is attached for
reference.
3. According to the Confused.com/EMB Car Insurance
Price Index, the average cheapest price quoted by insurers on
Confused.com for comprehensive cover increased by 37.5% in the
12 months to September 2010 and by 54.2% for third party, fire
and theft cover (which tends to be taken by more young drivers)
over the same period. Since the third quarter of 2009, the quarterly
price increases for comprehensive cover have been:
| 2009 Q3 - 3.4% |
| 2009 Q4 - 6.3% |
| 2010 Q1 - 4.3% |
| 2010 Q2 - 14.2% |
| 2010 Q3 - 8.6% |
4. The average cheapest quoted comprehensive premium for drivers
of all ages has increased from £457 to £650 over this
time. Within the overall price rises, younger drivers, and particularly
men, have been worst affected. The increase for 17-20 year old
men over the 12 months to September 2010 was 43.5% and 40.9% for
females. The increased practice of middle aged parents adding
their children to their policies has also led to significant increases
in the cost of their cover.
5. The significance of this index is that rather than considering
a small sample of policies it analyses approximately two million
actual quotes per month, and that more than 50% of the UK population
(Source: Datamonitor) now purchases its car insurance through
a comparison site.
INCREASES IN
THE COST
OF BODILY
INJURY CLAIMS
6. In our view, the biggest single factor driving price increases
is the burgeoning cost of bodily injury claims. EMB has recently
provided a representative on the Institute and Faculty of Actuaries
Third Party Working Party which found that overall BI claims inflation
is now running at about 30%. The study, which had unprecedented
access to data supplied by companies making up almost 90% of the
UK motor insurance market, showed that around a third of the increase
is due to the higher number of bodily injury claims while the
remainder can be attributed to the higher average cost of settling
claims (including an increase in the number of claimants per claim).
Notably, the increases come at a time when the overall number
of reported accidents has been falling.
7. We estimate that 20 years ago bodily injury claims accounted
for around 20% of UK motor insurance claims costs. In 2010 we
now estimate that proportion to be 50%.
8. Whilst there are a number of potential causes of the increase
in bodily injury claims, the Working Party identified the increase
in prevalence of accident management companies in England and
Wales as being one of the main drivers of this changing experience.
It also considered experience in other countries and noted that
differences in the legislative environment meant that bodily injury
claims increases of this nature were not found in many other markets
(perhaps most notably Scotland).
9. Another driver of the increase is the increase in claims
fraud. In its most recent annual survey of insurers, the Association
of British Insurers valued the cost of fraudulent insurance claims
at £840 million, up 14% on 2008. Of this figure, it estimated
that motor insurance fraud accounted for £410 million.
UK MOTOR MARKET
PROFITABILITY
10. The effect of prevailing market forces has been to make
private motor insurance increasingly unprofitable. EMB publishes
an annual analysis of the financial returns made by insurers to
the Financial Services Authority. A copy of the report covering
the 2009 returns is attached for reference.
11. This report showed that in 2009 the top 20 private motor
insurers incurred costs of £122 for every £100 of premium
they received. This poor result is exacerbated by the absence
of significant investment income in recent years.
ABOUT EMB
12. EMB is one of the world's leading actuarial and business
consultancies specialising in general insurance. It employs about
200 people in the UK and a further 100 overseas. The company has
twice received a Queen's Award in the last five years - once for
Innovation and once for Export Achievement. The firm has assisted
19 of the top 20 UK motor insurers in the area of general insurance
pricing.
October 2010
| 
