Return to profitability in 2011 possible
UK motor insurers could follow their £1.6bn underwriting loss in 2009 with a further £1bn loss in 2010, according to consulting firm Deloitte.
However, the firm added that if motor insurers are successful at increasing premiums while maintaining their customer base, they could return to profitability as early as 2011.
According to Deloitte, the UK motor insurance industry continues to make significant underwriting losses because of falling premium income triggered by insurers' efforts to raise prices. The effect is being worsened by declining support from prior-year reserves and increasing bodily injury and replacement vehicle costs, the consultancy said.
“2009 saw the largest loss on record made by the motor insurance industry. Without the support from prior year reserve releases, the only way the industry will return to profit is with sustained rate increases through to 2011," said James Rakow, insurance associate partner at Deloitte, in a statement. "The challenge for motor insurers will be to do this and at the same time retain their customers.”
Ian Clark, insurance partner at Deloitte, added: "Many motor insurers have been surprised by the increase in claims farming activity which has driven the growth in bodily injury claims. As an industry, the motor market needs to get the issue of personal injury claims under control, which could be helped by new legislation aimed at reducing the burden of these claims."
Increasing use of price comparison sites to buy motor insurance is also putting downward pressure on profits, according to Clark. "Personal lines brokers operating through aggregators are often selling motor policies at a loss in order to generate revenue from ancillary products, cross-selling other types of insurance and claims referrals," he said. "While good news for consumers in the short term, this is a key challenge that the industry will have to address.”
