Motor insurance premiums to rise again in 2010 by up to 10% – Deloitte

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2009 saw greater than expected increases in premiums
Introduction of Speed Cameras would reduce claims costs
Claims cost the major driver of premium hikes

Over 85% of Irish motor insurance companies said that they expect their company to increase premiums in 2010. 18% expected an increase of up to 5%, with 50% expecting increases of between 5% and 10% and 18% expecting an increase greater than 10% according to Deloitte’s annual Motor Insurance Survey.

Analysis of the most recent Insurance Statistical review and returns made to the Financial Regulator show that overall the motor insurance companies showed a decrease in profitability with one of the major companies showing a loss. This is the first time in five years that this has happened. Over the last number of years, there have been releases by companies from prior year’s reserves, now we are beginning to see the reverse happen, with companies strengthening past reserves as initial estimates of claims costs prove inadequate. It is expected that the current year’s premium rates will have to continue to increase to bring profitability to current accident years.

In fact, respondents to the survey are more optimistic about trading conditions this year than at any point since the survey began in 2006. This may also be explained by the fact that last year, less than 10% of companies expected to increase rates by over 10% in 2009. In reality, 38% actually did. 35% of respondents said that they increased rates by between 6-10% in 2009.

Despite this, many feel that it will be difficult for motor insurance companies to implement the desired increases as customer loyalty is severely reduced in the face of such premium rises. There are still some downward pressures on rates due to the continued improvement in road safety. The impact of the recession has also led to a possible reduction in costs related to CPI and earnings. However, 76% of those surveyed felt that these downward pressures on claims costs could be markedly increased if speed cameras were widely introduced. Other impacts of the recession identified by respondents included the increased likelihood of uninsured driving and fraudulent claims.

This year’s survey also shows that consumers’ buying patterns are changing. 67% of respondents indicated that there had been a significant increase in the numbers of policies sold through their internet channel. This change, together with the rate increases, will mean that there may be a significant change in relative market shares between the main players in the industry over the next 12 months.

Commenting on the results of the survey, Dick Tulloch, Director, Actuarial Services, Deloitte, said: “Motor insurance companies are relieved that they have at last been able to increase rates to levels that may halt the slide in profitability despite the continuing upward pressure on costs. This is especially important as many have found that recent years’ initial claims estimates are inadequate and might need to be strengthened. However, both the increases in rates and the impact of the recession may be reducing the size of the market further. This will put pressure on companies to align premium rates with increases in claims and expense costs. ”

With a possible reduction in overall premium take, despite an increase in premium rates, the pressure on expense costs remains high. The focus on cost reduction in the industry will continue to be a priority. The majority of those surveyed felt that although the lower levels of new cars in the market would help to keep the average cost of claims down, there would be a general upwards movement to the frequency of claims.

Glenn Gillard, Partner, Financial Services, Deloitte said: “While consumers may baulk at premium increases, it is very likely that insurance companies will pass on the rising cost of claims to customers. Motor insurance has been one of the most competitively priced financial products available in recent years leaving little room for companies to absorb additional costs. While companies need to continue to focus on internal costs, the greatest potential impact on price will be as a result of stricter enforcement of speeding and drink driving laws and a crack down on an emerging fraudulent claim culture.”

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About the Survey
The Deloitte Motor Insurance survey was completed by representatives of all levels from companies representing more than 80% of motor insurance premiums written in Ireland.

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