Following the release of the ABI's first state of the market report for UK insurance and long term savings, we consider recent and developing issues for the motor insurance market.
2015 saw the first year of underwriting profit for the motor market in 21 years.
Unfortunately this upturn did not continue in 2016; the UK insurance market made a loss of £194m, with a Combined Operating Ratio of 102.3%.
However, this was largely expected, with rising cost of claims, especially in relation to vehicle repairs combined with a weakening pound, both of which exerted significant financial pressure on the market.
Interestingly these losses were contained within the domestic market. The commercial motor insurance market made an underwriting profit for the second year in a row.
Average motor premiums reached a record high of £485 at the end of the third quarter in 2017. This was £57 higher than the average motor premium at the beginning of 2016.
Rising repair costs, repeated increases in Insurance Premium Tax, and industry reactions to the discount rate decrease in February 2017 all contributed to the rise.
Whiplash claims have remained critically high in recent years. Indeed, over 671,000 people made a whiplash claim in 2016/2017.
The Civil Liability Bill has now been published and, together with an increase in the small claims track limit, will seek to reduce whiplash claims to more manageable levels and end the UK's endemic compensation culture. The legislation is a useful attempt at taking the 'market' out of the compensation process, although it remains to be seen whether it will simply displace claims to other areas.
Advanced Driver Assistance Systems use is steadily growing with the blessing of the insurance industry, given the likely reduction in accident frequency and severity. However, replacing and repairing cars with increasingly sophisticated technology is currently more complex and expensive, as yet without the proportionate reduction in the cost of claims.
Within this developing technological environment, rising vehicle repair costs are proving increasingly problematic for insurers, with increasingly expensive spare parts being required. The weakening of the pound is also forcing up import costs, many of which come from Europe. Brexit is likely to exacerbate this situation further, with a poor deal likely to place further pressure on imports and therefore repair costs.
Theft has also been on the increase, with the number of theft claims reaching its highest levels since early 2013, although not near the dizzying heights of the 1990s. The Police report a 19% rise since April 2015. The cost of claims has also been rising, with the average theft claim costing 15% more than 18 months ago.
As the number of cars on the market with keyless entry systems grows, thieves are using increasingly sophisticated methods of vehicle entry, allowing them to intercept these signals to hack into and steal the car. Given higher-end cars are being targeted, this will undoubtedly be a driver of the increasing average cost of theft claims. This is also a significant issue for the advent of driverless technology, when employing such techniques may make it possible to steal a vehicle remotely.