Ernst & Young has predicted a significant improvement in the motor insurance industry’s 2011 results following analysis of the UK market’s Q3 statements.
According to the accountants, the market suffered losses of more than £5bn across 2009 and 2010, but premium rate increases and a stemming of inflation on non-injury claims could lead to the results improving this year by 20%.
Ernst & Young highlighted that in 2010 a market ratio of nearly 121% was the worst set of results for the industry since 1988.
It added that the price increases of that year and early 2011 were the key driver in the expected 20% improvement along with greater control of claim costs.
Catherine Barton, partner and actuary in the financial services division at Ernst & Young, commented: "Insurers were caught in a perfect storm in 2009 and 2010 - referral fees led to more costs creeping into the system, individuals' awareness of the ability to claim - legitimately or otherwise - led to smaller injury claims spiralling upwards, while at the same time price competition continued unabated.
"The losses were unsustainable - by 2009 the market had either run out of reserves to prop up performance or accepted that there were fundamental problems within the market that needed to be addressed. Insurers have now responded with price rises and more focus on claims cost control, which we believe will see the tide being turned."
Bodily injury costs
However the company also noted that whereas a decade ago bodily injury costs were around a third of total claims cost, they are now rapidly approaching two thirds and that the uncertainty this causes for insurers in anticipating their underlying performance is posing increasing challenges to their business model.
"As injury claims stay open for longer, exposed to the ever-present threats of legislative and economic changes, the ability for insurers to understand their true performance and to price appropriately for it becomes ever more difficult," said Ms Barton.
"We suspect that bodily injury inflation will continue to be a problem, but insurers now appear to be more focused on the risks; they have turned to claims transformation programs to help detect fraud and manage claims, they have taken corrective rating action and also turned their attention to using extra external data to improve their current rating and underwriting methods. As their new programmes bed-in, we expect to see much improved performance in 2011 and 2012."
However Ms Barton warned that increased competition from new entrants and current insurers looking to grow their books of business meant there was no guarantee the improvement in the cycle would be sustained.
Read more: http://www.insuranceage.co.uk/insurance-age/news/2130342/motor-market-fights-declare-experts#ixzz1g1nXtbu2
Ernst & Young highlighted that in 2010 a market ratio of nearly 121% was the worst set of results for the industry since 1988.
It added that the price increases of that year and early 2011 were the key driver in the expected 20% improvement along with greater control of claim costs.
Catherine Barton, partner and actuary in the financial services division at Ernst & Young, commented: "Insurers were caught in a perfect storm in 2009 and 2010 - referral fees led to more costs creeping into the system, individuals' awareness of the ability to claim - legitimately or otherwise - led to smaller injury claims spiralling upwards, while at the same time price competition continued unabated.
"The losses were unsustainable - by 2009 the market had either run out of reserves to prop up performance or accepted that there were fundamental problems within the market that needed to be addressed. Insurers have now responded with price rises and more focus on claims cost control, which we believe will see the tide being turned."
Bodily injury costs
However the company also noted that whereas a decade ago bodily injury costs were around a third of total claims cost, they are now rapidly approaching two thirds and that the uncertainty this causes for insurers in anticipating their underlying performance is posing increasing challenges to their business model.
"As injury claims stay open for longer, exposed to the ever-present threats of legislative and economic changes, the ability for insurers to understand their true performance and to price appropriately for it becomes ever more difficult," said Ms Barton.
"We suspect that bodily injury inflation will continue to be a problem, but insurers now appear to be more focused on the risks; they have turned to claims transformation programs to help detect fraud and manage claims, they have taken corrective rating action and also turned their attention to using extra external data to improve their current rating and underwriting methods. As their new programmes bed-in, we expect to see much improved performance in 2011 and 2012."
However Ms Barton warned that increased competition from new entrants and current insurers looking to grow their books of business meant there was no guarantee the improvement in the cycle would be sustained.
Read more: http://www.insuranceage.co.uk/insurance-age/news/2130342/motor-market-fights-declare-experts#ixzz1g1nXtbu2
