At Deloitte’s 21st Annual Motor Insurance Seminar the 360 delegates heard that the industry is collectively a long way from declaring an underwriting profit.

UK Motor insurers lost 20p for every £1 of premium earned.

The market posted a net combined ratio of 120%, slightly worse than the figure for 2009 of 119%. The market loss ratio was 96%, and the market expense ratio was 24%.

James Rakow, insurance partner at Deloitte, commented:
”At an industry level, the underwriting losses exceed £2 billion in 2010.

“Investment returns will have done little to alleviate underwriting losses, however, those companies skilled at selling add-ons to the basic motor cover may have seen some value created for shareholders.

“One key reason for the poor results is that at a market level the reserves established by insurers were topped up in 2010, the first significant strengthening since the last recession in the early nineties.
This ended a period of unprecedented reserve releases, which had served to prop up the headline market results.”

The industry has been hit hard by soaring claims inflation in recent years, particularly for bodily injury, which has meant many companies having to top up their reserves for previous years – sometimes to the tune of £100m or more.
Royal Bank of Scotland, for example, last year had to pump £390m into the reserves of Direct Line and Churchill, its insurance businesses, due to bodily injury claims.

Mr Rakow said there was a wide disparity of results across the industry.
A handful of insurers n the market were declaring close to break-even underwriting results when reserves additions were included – whereas the worst-performing companies lost more than 40p for every £1 of premiums written.

Such hefty losses come at a time when the industry is pushing through sharp price increases for motor insurance, with the AA reporting a 40% rise in new business motor premiums (see ABP 13 April), backing up the EMB report of a 38% rise in 2010 (see ABP 14 Jan)

However, Deloitte said their analysis of FSA returns showed that the industry had only increased the amount of premiums it took in by 10% over 2009 levels.

Mr Rakow said the difference in the growth was explained by the fact that its calculations included policy renewals, where insurers would hold back price rises to retain good customers, and all commercial motor insurance, where price rises had also been less steep.

Mr Rakow said “Premiums are now increasing fast enough to outpace claims inflation and as long as prices keep rising in 2011, we see the market getting close to break even in 2012.”

In light of challenging market conditions and lack of profits, some insurers are turning to predictive analytics to forecast potential future behaviours in areas such as customer and claims management, fraud detection and underwriting.
Many companies are looking at an increased use of geospatial analysis, telematics and external data to enhance their underwriting capabilities.

Gurpreet Johal, Deloitte insurance analytics lead partner, commented:
“Given the current results delivered by companies in the motor insurance market there is a strategic imperative to adopt predictive analytics at the core of their businesses.
It will be game changing for those insurers who are able to embed the insight they gain through predictive analytics in their key decision making and business-as-usual activities.”