Car insurance price rises “unsurprising” say actuaries.

The Actuarial Profession's working party on third party motor insurance has said that the AA's reported price rises of car insurance are "unsurprising" given the steep rise of third party insurance claims.

In July 2010, the working party issued interim findings of a report into the costs of third party claims, findings which did not look positive for the insurance industry.

David Brown, chair of the working party, said: "The number of claims involving a personal injury has grown at a rate of around 10% per year since 2007. Coupled with a startling increase in average claims costs, which now sit at 20% for settled claims, the cost of settling injury claims is now growing by 30% each year."

He added: "With the combined operating ratio for private car insurance running above 120%, the industry was always going to have to increase premiums to turn profit. And, even though premiums have increased, questions remain if they have been increased enough."

Commenting on why there has been such a marked increase in the cost of settling claims, Dr Brown said: "Claims management companies are at the heart of it. They are driving people to claim who might not have claimed before. Claims management companies are also involving lawyers before a claim is made. When legal costs are a major component of bodily injury costs, this is a significant driver of inflation."

The working party will issue its final report on Thursday this week.

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Enquiries: Tel. Michael Scanlan on 020 7632 1453 / 07798 804 871 or email michael.scanlan@actuaries.org.uk

Notes for editors

1. The study covers both personal and commercial motor insurance. However, these preliminary results are based solely on analysis of personal motor data.
2. In assessing the ultimate costs of claims it is necessary to project data. The working party has simply reported data without projection. There may be reasons why projections would produce inflation levels somewhat lower than the figure cited.
3. 120% combined operating ratio is based on 2009 FSA returns.
4. Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.
5. Members of the Profession have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s.
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