Motor Insurance premium set to soar in 2010 says Deloitte:

By Car Insurance Blogger Kris Oldland

A recent report from global financial consulting giant Deloitte points to an uncertain year ahead for the Motor Insurance industry.

Worryingly the report indicates that the industry as a whole could make underwriting losses of up to GBP1bn in 2009 if not for the support of prior year releases.
Deloitte also suggest that for the motor insurance industry, worth some GBP12bn, these losses are likely to continue into 2010.
Estimates suggest that car insurers will have to raise their premiums by a minimum of 5% to replace the lost income resulting from lower investment returns.

Insurance associate partner at Deloitte, James Rakow, commented that: "Results at a headline level for UK motor insurers have shown this market cruising along at close to underwriting breakeven point from 2001 to 2007."

Looking at the latest annual results available (2008), the headline net operating ratio is reported at 105%. In real terms this translates to Motor Insurers making an underwriting loss of GBP5 for every GBP100 of premium. However there is rising concern that unlike in 2008 where the investment market conditions were good enough for insurers to recoup this underwriting loss and make a small insurance profit, the additional revenue streams simply are not able to compensate this time around.

Mr. Rakow also voiced his concerns regarding this area stating that: "Looking beneath the likely headline result for 2009, the picture is even worse for motor insurers.
Indications are that the current year trading is far from being profitable at a market level and this is likely to remain the case in 2010. For the last few years prior year reserve releases have been at exceptionally high levels. I do not expect to see anything other than modest levels of reserve releases in 2009."

Figures from Deloitte's Motor Premium index are showing that the current rise in motor insurance premiums are increasing at the fastest rate seen since the index began back in 2003.
Premiums for comprehensive cover have soared in particular showing a rise of 11% for the year (to September 2009) and with a rise of 4% in the third quarter of the year also it appears that there is little to indicate that this trend will slow down at any time soon.

Speaking with particular regard to these premium increases, Mr. Rakow said: "One piece of positive news for motor insurers is that there is now strong evidence in the market that motor premiums are on the increase.
This is not such good news for consumers who may find it increasingly difficult to compare car insurance and to shop around for a cheaper premium at renewal.
With lower investment returns and the prospect of only modest support from prior year reserve releases insurers have had to look to premium increases to improve their results."

As Mr. Rakow suggests there is certainly the hint of a silver lining in motor premiums being on the increase for Motor Insurers, however these increases will have to be particularly fierce for many to make underwriting motor insurance a profitable sector again. However, for the consumer, who will almost unilaterally will face a steep increase in the cost of insuring their vehicles, this will be of little comfort.

Also we are now seeing the motor insurance market now becoming more a more integrated with a bloated aggregator model. Ironically the aggregator market has now developed to become a daunting and confusing landscape of its own after setting out to simplify the market for us humble consumers just a few years ago.

The confusion of meerkat's, tenors and tigers now just seems to add another layer of choice into the process. Add to this the current worries about dual pricing where we are faced with having to leave our current insurer to guarantee a better deal and finding decent value motor insurance in 2010 seems like a lot of hard work.


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