RBSI hit by bodily injuries

RBS Insurance division saw bodily injury claims costs push its Q3 claims ratio from 91.3% in the previous quarter to 104.2%, with net claims rising 22% in the three months.

Income grew by 3% to £1.12bn compared with Q2 2009 [£1.09bn], which RBSI attributed to "the success of the group’s own brands." It said partnerships and the broker segment remained flat.

Churchill and Privilege benefited from deployment on selected price comparison websites, with motor policy numbers up 25% and 13% respectively, and home policies up 33% and 186% respectively, compared with Q3 2008.

Year to date own brand premium income increased 10% against the prior year.

Investment income declined 10% in the quarter and is 41% lower year to date, reflecting lower interest rates earned on the division’s conservatively invested portfolio.

Wage inflation offset

The insurer's expenses fell by 5% in the quarter, "reflecting the phasing of marketing activity and a reduction in industry levies." Year to date, costs were held flat at £569m, with wage inflation offset by efficiency reductions in headcount and reduced marketing spend.

Net claims were significantly higher than expected in the quarter, with an increase of 22% compared with Q2 2009. RBS said: "This was largely due to greater claims being made against our drivers for bodily injury accidents, resulting in the need to strengthen both current and prior years' claims reserves by a total of £118m above that projected for the quarter.

"Significant action has now been taken to mitigate this impact including motor price increases and refining our claims handling processes. Year to date net claims were up 8%, with the additional impact of increases in creditor claims and home claims from cold weather in Q1 2009."

Combined ratio

The UK combined operating ratio, including statutory business services costs was 104.2%, compared with 91.3% in the second quarter, with the impact of the increase in reserves for bodily injury claims only partially mitigated by commission and expense ratio improvement. The year to date combined ratio rose to 98.3%.

Paul Geddes, chief executive of RBS Insurance said: “Despite the current economic environment, we continue to see solid growth in our own brands, across both direct and aggregator channels, supported by strong marketing initiatives and improved retention of existing customers.

“However, the most significant factor to impact our results is the estimated increase in claims costs, notably in the area of motor bodily injury claims. This is mainly due to an upsurge in the frequency of bodily injury claims, as well as an uplift in claim severity that has been driven by an increase in the number of claimants per claim.

Significant action has now been taken to mitigate this impact by refining our claims handling processes and reflecting this exposure in our pricing.

“Net claims were significantly higher than expected in the quarter, with an increase of 22% compared with 2Q09. This was largely due to greater claims being made against our customers for bodily injury accidents, resulting in the need to strengthen both current and prior years' claims reserves by a total of £118m above that projected for the quarter.

“Although, the full impact of this situation may not be realised; we are confident that we are well prepared. We have robust processes in place to detect potentially fraudulent and exaggerated claims; however, we remain committed to paying valid claims quickly and fairly.”