Can car insurance pricing keep up with an increase in injury claims?

With some 85% of the UK motor insurance industry providing evidence and data to the report, much of the information is still being analysed. However the working party has already identified that while settlement rates across the industry are speeding up, settlement amounts are increasing.

David Brown, chair of the working party, said: “Overall, the trends don’t look positive for the private motor insurance industry. Although there are fewer accidents with third party claims, the number of accidents involving personal injury has been growing consistently since 2007 at about 9% per year.  Equally startling is what we are seeing in the average costs of such claims. Average claims costs have always increased year on year, but inflation has really taken off since 2009 and now sits at 21% for settled claims. Certainly the industry is settling larger claims slightly faster and this may be driving some of the headline increase. With both numbers and average costs up, the cost of settling injury claims is now growing by 30% each year.

“At a time when the industry already isn’t making money and the combined operating ratio for private car insurance is running above 120% this is not good news. The industry is going to need to recoup costs if it is going to turn to profit. Premiums have indeed gone up across the market already, but with these new findings, we must question whether those increases are enough.”

He added: “The working party has only done limited research on why there has been such an increase. What is clear, however, is that the growing number of claims management companies are at the heart of it. They are driving people to claim who would not have considered claiming before – not just leading to more claims but to more expensive claims (with more than one claimant on each claim). 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.”

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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. 85% is measured by GWP of companies regulated by the Financial Services Authority.
2. The study covers both personal and commercial motor insurance. However, these preliminary results are based solely on analysis of personal motor data.
3. 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.
4. 120% combined operating ratio is based on 2009 FSA returns.
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