The future of the motor insurance market

Document description

The future of the motor insurance market is a potentially vast topic. We decided to limit the scope of this paper to the UK private motor market from an insurer's perspective. We consider the key issues that are likely to have a significant influence in determining which insurers will be successful in future. The changing shape of distribution is discussed with a summary of the factors affecting the broker and direct writing channels. A comparison of the relative advantages of direct writers and broker insurers is included. This is followed by an outline of marketing issues for a direct writer that covers marketing costs and discussion of various marketing and advertising methods. The next section provides a review of recent trends in overall market profitability. A brief analysis of the expense ratios of two leading direct writers is used to discuss the relative profitability of direct writers and broker insurers. This is followed by a discussion of the factors that are likely to lead to consolidation in the insurance sector. A discussion of factors affecting claim costs and an outline of current legal developments involving the Ogden tables is included and an actuarial approach to projecting potential Ogden exposures is briefly described. Internal claim management issues relating to large claims are outlined and the opportunities offered by structured settlements are discussed. Underwriting developments are discussed in the following section which covers redlining, the potential impact of the Disability Discrimination Act, lifestyle rating and a summary of no claims bonus and its potential future development. The paper ends with a section on technical analysis that outlines current pricing practice and describes mathematical tools which may be used by actuaries to extend the scope of actuarial work in the motor market. The techniques described are neural networks, genetic algorithms, expert systems, cluster analysis, data mining and spatial analysis. Possible applications are outlined for each technique.