Motor insurers lost £2bn in 2010 - Deloitte

Motor insurers lost £2bn last year, while net combined ratio deteriorated to 120%, according to Deloitte.

Insurers were hit hard as prior year reserve releases, which had propped up results in previous years, ran dry. The market loss ratio was 96%, and the market expense ratio was 24%. Premiums increased 10% between 2009 and 2010.

Figures presented at Deloitte’s 21st Annual Motor Insurance Seminar found that the industry is collectively a long way from declaring an underwriting profit.

Results delivered by UK motor insurers in 2010 will act as another spur to keep upward pressure on motor premiums, Deloitte believes. In 2009, net combined ratio was 119%.

Insurance partner James Rakrow said: “At an industry level, the underwriting losses exceed £2 billion in 2010. Investment returns will have done little to alleviate underwriting losses, however, those companies skilled at selling add-ons to the basic motor cover may have seen some value created for shareholders.

“One key reason for the poor results is that at a market level the reserves established by insurers were topped up in 2010, the first significant strengthening since the last recession in the early nineties. This ended a period of unprecedented reserve releases, which had served to prop up the headline market results.”

Deloitte estimates that the motor insurance market increased its premium base by 10% between 2009 and 2010. This growth was not enough to return the market to profitability and consumers will face further increases in 2011 as insurers seek to improve their results.

Among the 360 market participants at the Deloitte seminar there was a lack of consensus on the results that the market will deliver in 2011. The average improvement in the combined ratio for 2011 predicted by delegates was seven percentage points indicating that the earliest the motor insurance market will see a return to profitability is 2012.

In light of challenging market conditions and lack of profits, some insurers are turning to predictive analytics to forecast potential future behaviours in areas such as customer and claims management, fraud detection and underwriting. Many companies are looking at an increased use of geospatial analysis, telematics and external data to enhance their underwriting capabilities.

Gurpreet Johal, Deloitte insurance analytics lead partner,said: “Given the current results delivered by companies in the motor insurance market there is a strategic imperative to adopt predictive analytics at the core of their businesses. It will be game changing for those insurers who are able to embed the insight they gain through predictive analytics in their key decision making and business-as-usual activities.”