Nearly 90% of Irish motor insurance companies said that they expect to increase premiums in 2009. 41% expected an increase of up to 5%, with 42% expecting increases of between 5% and 10% according to Deloitte’s annual Motor Insurance Survey.

Once again, analysis of the Insurance Statistical review and returns made to the Financial Regulator show that overall the motor insurance companies showed an increase in profitability. However, much of this has arisen from continued release of reserves from prior years, increasing profits in the current accounting period. The current year’s business is not showing the profitability of previous years, leading to the expectation that premium rates will need to rise.

According to Deloitte, it may not be easy for motor insurance companies to implement the desired premium increases as there are a number of factors causing a downward pressure on rates – not least the fact that the market is still very competitive and the continued fall in levels of road deaths and injuries, together with the possibility of a continued recession into 2009.  

The actual versus expected price fluctuations in the industry in 2008 reflect the dilemma now facing motor insurance companies. For example, in 2007 13% of companies expected companies to increase prices in 2008 by over 10%, but in reality, no such price increases were implemented. In addition, 35% of companies expected to decrease prices by up to 10%, but in fact 42% of companies ended up actually doing so. Looking ahead to 2009 - with 51% of respondents more optimistic about trading conditions and 49% less optimistic, it appears the industry is somewhat divided on how 2009 will pan out.

Commenting on the results of the survey, Dick Tulloch, Director, Actuarial Services, Deloitte, said: “Motor Insurance companies are facing a push/pull situation – on one hand, as competition in the market remains intense companies are coming under pressure to reduce costs. On the other, reduced margins in current premiums are creating pressure to increase premium rates. What’s clear is that motor insurance companies will need to be extremely careful when deciding upon their pricing strategy as a loss of market share is the very probable result of getting it wrong.” 

The survey also showed that over 80% of respondents feel that the Injuries Board (previously known as PIAB) is continuing to have a positive effect on compensation culture, up 10% from last year. However, only 47% are more optimistic about road safety, down from 74% from last year’s survey. This again shows the conflict motor insurance companies are facing.

Glenn Gillard, Partner, Financial Services, Deloitte said: “From the consumer’s point of view, it is very much a wait and see situation on whether their premiums will rise or fall in the next year.  Insurers must bear in mind that consumers will change providers if they feel they can get a better deal elsewhere – its too simple and quick not to. In fact, motor insurance has the highest rate of switching of any financial product. Therefore, our advice to companies is to look at where internal efficiencies can be improved – passing costs on to the consumer isn’t the easy answer.”

Ends

About the Survey

The Deloitte Motor Insurance survey was completed by representatives of all levels from 90% of motor insurance companies in Ireland.

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