What is the UK commercial motor market's future?

The rocky UK commercial motor market has claimed another scalp, with Ecclesiastical Insurance confirming it will pull out of UK broker motor.

Ecclesiastical decided to leave the sector because it found it difficult to make a profit.

Ecclesiastical is not the only insurer to turn its back on sections of commercial motor this year. In September RSA stopped writing new mid-market motor trade business and cited tough market conditions and lack of profitability as the reasons.

The future for commercial motor

Brokers seem unfazed by Ecclesiastical’s exit, as the insurer was a relatively small player in the sector. Brokers also say that capacity is still abundant in commercial motor.

But this competition is keeping premiums down and causing the sector as a whole to be unprofitable. A recent Deloitte report pegged the average commercial motor combined operating ratio (COR) at 107%.

There are several reasons for the unprofitability: lack of rate rises, management not scrutinising the reasons behind profits and losses, fraud, and bodily injury claims increases, to name a few.

On the plus side

The market is showing slow signs of improvement, however, as Deloitte found that the average 2010 COR was 109%. But the commercial motor market still badly needs rate rises if average CORs are to decrease at all, let alone fall below 100%.

This is possible, but is unlikely to happen to all sections of the market.

Commercial motor is not purchased on price as much as its personal lines counterpart, but many believe that the small and medium-sized end of the market is likely to move online and follow the ‘stack ‘em high, sell ‘em cheap’ private motor model, while the larger accounts will end up stomaching the rate rises that the sector craves.