How LV= has avoided the bodily injury mess

LV=’s general insurance business grew rapidly in the first half of 2010 against a backdrop of rising bodily injury claims in the wider UK motor market, in which the company is now the fourth-biggest player. However, the insurer's general insurance managing director, John O’Roarke, is confident that the growth is profitable.

Premium income at LV=’s general insurance unit increased by 37% to £546.4m in the first half of 2010, while the combined ratio improved to 101.9% from 103.8%. This was despite LV=’s strong bias towards motor business.

O’Roarke says the company employs a number of methods to ensure profitability of the business. One is a focus on pricing. “Our pricing analysts are sifting through the pricing data and making changes on a weekly basis as they see adverse or favourable trends emerging,” he says.

One main way that LV= has been able to avoid pain from rising bodily injury claims is selective underwriting. “One of the key points about the claims farming and credit hire issues is that it is quite regionalised,” O’Rourke says. “You need to be quite analytical about how you address that problem. There are certain parts of the country that are fine to write business in and others where we will simply price ourselves out of the market.”

Another way LV= has avoided rising losses is its focus on claims control. “We have been very happy to spend money on claims people,” O’Roarke says. “We have built up our resources very considerably and continue to do so. We have added around 200 claims people over the past 12 months, and we haven’t been afraid to pay well to attract the best brains in the business. That has helped us to control claims costs better than the market has as a whole.”

The newly written business should be profitable in part because of the price increases LV= put though, argues O’Roarke. He says that rates at the end of June this year were 25% higher than a year ago. He adds that having the right people also gives him confidence about the profitability of the new business.

“I have a huge amount of faith in our technical people, both on the pricing and the claims side,” he says. “We do quarterly actuarial reviews internally to model future profitability, and there is a lot of transparency internally around the underlying profitability of the business, so we are very comfortable with profit levels.”