The cost of motor insurance
Written evidence from The Credit Hire Organisation (CMI 25a)
At last week's hearing there was confusion as to what had been happening to motor insurance premiums/claims/results over the last few years. I, and others, were trying to emphasise:
(i) Premiums for private car motorists had not increased over the last few years (due to great competition), claims had increased a little and results had deteriorated significantly to a point where very large increases in premiums were required for most motor insurers in order for them to remain in the business. The following table (source ABI statistics) illustrates this:
UK Domestic (excluding commercial vehicles) Motor Insurance Statistics
|
Year
|
Domestic (private) UK Net Written Premiums £m
|
Private Car Number of vehicles (exposure) £m
|
Net Domestic Claims incurred £m
|
Domestic Underwriting Result £m
|
Private Car Number of Claims 000s
|
|
|
|
|
|
|
|
|
2005
|
7,563
|
23.6
|
6,211
|
(232)
|
4,260
|
|
2006
|
7,491
|
24.6
|
6,179
|
(448)
|
4,410
|
|
2007
|
7,813
|
24.5
|
6,245
|
(398)
|
4,298
|
|
2008
|
8,017
|
23.9
|
6,730
|
(601)
|
4,000
|
|
2009
|
7,570
|
24.2
|
7,442
|
(1,500)
|
3,899
|
(ii) Underwriting losses (that is premiums minus claim costs and expenses) had in the past been offset by investment earnings and that is why a motor insurer could make a small overall profit even if they made an underwriting loss (as the industry has done for the last 15 years). In the last few years investment returns have fallen dramatically with lower interest rates, so the investment earnings cannot offset underwriting losses.
(iii) Big increases in premiums had been put into effect by most insurers over the last few months to try and restore profitability.
(iv) The latest AA motor insurance index release states "But all drivers have been affected by fast-rising premiums over the past 12 months. Douglas [Simon Douglas, director of AA Insurance] says that recent years have seen intense competition encouraged by the growth of price comparison sites, which had kept premiums artificially low to the point that many insurance companies were making large losses on car insurance business." It is, however, worth noting that the AA index has been indicating premiums have increased over the last few years (with very large increases in 2010) whereas, as the table above shows, insurance companies have been actually receiving the same or less in premiums (except for 2010 where figures are not yet available). There is a difference with what the AA Index suggests is the cost of insurance and what motorists end up paying as a result of shopping around/changing insurer/no-claim discounts.
January 2011
|
