NIG: A victim of 2008-2009 claims farming

The desperate state of the motor market sunk to a new low this month with the announcement that NIG’s personal lines motor book was being put into run-off.

NIG follows a long line of list of motor books that have been put into run-off or sold off, in the last two years, such as HSBC Insurance, Zenith Insurance and QBE.

Still on course

So why did NIG follow this ignominious path?

Exclusive data from actuarial consultants EMB reveals that NIG’s personal lines motor book posted a loss ratio of 92.9% for claims made in 2009. Not great, but by the rest of the deteriorating motor market’s standards, nothing unduly off course.

But NIG’s claims from prior years was 25.7%. Analysing the data further, nearly all of those claims were coming in from 2008.

There is not any specific data for NIG in 2010 but with RBSI having pumped in the best part of £500m in reserves in the last six months, NIG would have played its part by sucking up millions to repair its badly hit book and will continue to do so during its run-off phase of the £238m premium.

Bodily big business

It’s a story familiar across the rest of the motor market as insurers struggle with claims flooding in from 2008 and 2009.

EMB Consultant Naem Ali says the bodily injury claims phenomenon has only really taken hold over the last two years. It means insurers will have to continue to increase rates aggressively.

He says: “Claims coming from claims management companies has more than doubled between 2008 and 2010. It’s a big business, but it doesn’t serve the public interest.

“It courts claims that should not have happened, and everybody has to pay as a result.”

Ali says insurers will just have to wait until Lord Jackson’s recommendations are enforced – a ban on recovering after-the-event insurance premiums and success fees of conditional fee arrangements from the losing party. “Insurers cannot do anything to stop it, it’s just a society thing."

Time to sell?

Meanwhile, the future of NIG as a commercial lines insurer is secure. Operating ratio is far better in commercial lines and it’s still well regarded by brokers.

Could the motor-personal lines run-off, in effect a clean up of NIG, be a prelude to a sale? It would make sense for RBS to sell of NIG before the rest of the group is divested by 2012.

NIG is a broker-only insurer that is predominantly a commercial lines business, unlike the rest of the RBSI group, which is personal lines and non-broker.

Expect bidders to be watching developments closely, with acquisition-hungry Fortis, which is on a drive to boost its commercial portfolio, a possible contender.

Click here to download pdf of NIG personal lines motor data 2009.