Aviva’s Spencer: It will take more than rate hikes to fix commercial

Insurers need to look at more than just rate rises to improve commercial profitability, according to Aviva’s UK general insurance chief executive Robin Spencer.

Speaking to Insurance Times after the release of Aviva’s 2012 results, which revealed a UK commercial combined operating ratio of 104%, Spencer said: “It is very easy to say ‘let’s fix everything by increasing rate’. We have got to be far more sophisticated than that.”

However, he acknowledged the need for rate increases in UK commercial business.

He said: “We are going to continue to see price increases in commercial property, motor and liability. Commercial results are not good enough for me and not good enough for anyone else in the industry.”

Spencer wants to see rate rises in commercial motor in particular. Aviva’s UK commercial motor book improved its combined operating  ratio (COR) to 106% in 2012 from 113% in 2011. However, Spencer said: “106% is unacceptable and therefore we are going to need to see price increases certainly at least as high as we saw this year and probably bigger.”

Aviva put through 6% of commercial motor rate rises in 2012.

Deafness claims

Aviva saw deterioration in both its commercial property account, where the COR increased 2 points to 101% (2011: 99%) and in its ‘other commercial’ business, where the COR jumped five points to 107% (2011: 102%).

The COR in the other commercial business, which is mainly liability, was pushed up by £53m of reserve strengthening. This was mainly for deafness claims but included strengthening for asbestos-related claims.

Aviva pushed liability rates up 3% in 2012, but Spencer said it was unclear whether the reserve strengthening would prompt the need for further hikes.

He said: “It is too early to tell what this means for results and pricing going. We are going to have to see what the trend is for actual paid claims and future notifications.”

Spencer declined to put a number on how much he would like to see commercial rates increase in 2013. He said: “We have got to manage the business account by account. There will be some accounts that we don’t want to write going forward. There will be some where we literally do need double-digit increases and there will be some that need single digit increases.”

Motor caution

In personal lines, Aviva’s motor rates fell by 1%. This was driven by decreases market wide as companies anticipated the beneficial effect of the forthcoming legal reforms on claims trends. However, Spencer insists Aviva would not follow the market down on price.

He said: “We saw a number of our competitors pricing quite aggressively on the back of the anticipated tort reform. We didn’t follow which is probably why our reduction of 1% across the year is less than others.

“I will be more cautious until I understand what the impact of the tort reforms are going to be on rates. Therefore you will probably see my gross written premium fall a little bit on private motor, particularly in the first quarter compared with last year.”

Reform benefits

Spencer added, however, that he expected beneficial effects from the reforms. In particular he expects the personal injury referral fee ban to benefit Aviva.

He said: “We don’t have the same reliance as others on the referral fees so we are not having to replace that income the same way that others do.

“My total bodily injury referral fees last year was around £6m. I promise you I was getting a lot in more claims than that. We have never taken an aggressive position on referral feels.”