Motor insurers in the UK produced their best results for several years during 2004, but will find it increasingly hard to make profits in the future.
Analysis by EMB, the UK’s largest firm of motor actuaries, found that Motor premium income rose 5% during 2004 to £8.9 billion. Loss ratios fell slightly to 74.0%, whilst combined ratios (which take operating expenses into account) dropped 0.9% to 101.3%.
Insurers normally compensate for any underwriting deficits by investing the money they receive from policyholders and using the income to bolster their bottom line. The consultancy believes, however, that this income is unlikely to be enough going forward.
"UK motor insurers need to see rates rise by 5% a year just to keep up with claims," says Paul Moorshead, the consultant who carried out the research. "All the indications are that the market has flattened out and, if anything, insurers are accepting more risk per pound of premium than they were. This can only mean one thing, bigger underwriting deficits.
"We predict that, unless there’s a return to boom investment conditions, the Motor market as a whole will see red ink during 2005. Only the most successful insurers will make acceptable returns on capital."
EMB’s research was based on analysis of insurers’ returns filed with the FSA.
Part of this article appeared in The Evening Standard in August 2005
