Archive for December 2009

UK Car Insurance Rates Must Harden As Loss Making Companies Claims Reserves Run Dry!

Incredibly Car Insurance companies in the UK are struggling to make a profit and 2010 is likely to see a large reduction in the supply of car insurance, with many famous brands and suppliers predicted to disappear from the high street and our television screens as the market adjusts to cater for the massive losses, according to analysts from car insurance comparison website

Recently released figures show that the UK Motor Insurance market has been consistently losing money since 2004 when the total UK profit from underwriting car insurance policies was £77 million.
In 2007 the UK car insurance market made a £1.1 billion underwriting loss, last year the loss was £1.3 billion and the figures for 2009 are expected to be worse……..

Very few car insurance providers have escaped the losses and are profitable, whilst many have released claims reserves held from previous profitable years to disguise the ‘actual ‘ loss.

So what is causing such massive losses in a large compulsory market that not so long ago was the most aggressive in the world?

On the face of it the answer appears to be simple …… The Cost of Claims!

Claims are the problem not because the Car Insurance Companies have failed to include the rising costs of claims into their pricing structures; but because they have failed to cover the true costs in the retail price!

Car Insurance underwriters seem to have forgotten the basic rules of betting when setting their prices – and that is, that the Bookie never loses…….

To understand where the car insurance underwriting companies have gone wrong you first need to examine how they arrive at the price of a car insurance policy premium.

The cost of your car insurance premium is basically made up of three components:

1. The costs of production – Staff, Systems, Distribution etc
2. The costs of losses – known claims ratios ( the proportion of a policy premium pool that gets eaten up in claims)
3. Profit

The cost of all these components can be calculated by clever people called actuaries who work for the insurance companies and the rates set accordingly.

So what’s gone wrong?

Well naturally it is obvious to first look at claims as the cause of the losses – but the truth is far from this end of the life of a car insurance policy……

The frequency of claims has either fallen or remained fairly constant over the period of losses and the actual cost of claims has only risen by 1 percent.

Despite all the noise made about gangs of car insurance claims fraudsters roaming the streets of the UK, the fact of the matter is that most of this is propaganda aimed at deterring fraud which naturally rises during a recession/depression. The number of fraud cases are really insignificant in the true scale of the market to affect pricing.
Admittedly there has been a significant increase in the number of personal injury related claims, egged on by claims farming companies, which would affect long term pricing, however the losses experienced by Car Insurance companies are nothing to do with claims and claims pricing.

These type of claims fluctuations have always been dealt with successfully in the past by car insurance companies by adjusting reserve ratios or negotiating better re-insurance ( laying the risk off), or more importantly by adjusting price ……..

But this time something is different….

Car Insurance Companies can no longer set the price! Not if they want to win the business anyway!
And they certainly cannot sell policies at the premium levels that the Actuaries suggest!

Why? Seemple …….The Internet!

And more importantly Car Insurance Price Comparison websites or aggregators as they are known in the industry, which account for around 90 percent of the Car Insurance sold online. Since around 2004 it has been possible to easily compare car insurance quotes online from numerous suppliers, and invariably the cheapest premium wins the business.

Car Insurance companies not longer set their own prices. And this is the problem!
In a race to achieve enough volume to make a book of car insurance business profitable the car insurance companies have been selling their car insurance polices too cheap and covering their losses with their claims reserves……..time is running out!

Thatcher is Dead! At Least She had Pet Life Insurance

A text message reading “Thatcher has died” has sparked a minor diplomatic incident in Canada.
The author of the message was the country’s transport minister John Baird, who was announcing the death of his pet cat.
However Canada’s prime minister Stephen Harper was mistakenly informed that the message referred to the the 84-year-old former British prime minister Margaret Thatcher.

According to BBC News, frantic calls were placed to 10 Downing Street and Buckingham Palace, while rumours circulated among politicians attending a black tie gala event in Toronto.

A Canadian government aide even began preparing an official statement commemorating Mrs Thatcher’s passing.

Luckily the identity of the “real” Thatcher, a 16-year-old grey tabby, was quickly clarified.

Fortunately the old moggie has pet life insurance an element of Cat Insurance which will cover the costs of  the state funeral.

In Memorium we were going to publish a few pictures of Thatcher’s 11 year in office achievements… here’s some treasured memories anyway!

1981 Riots in every town in the UK

1982 – The Falklands War
1984 The Miners Strike
Restructuring The Economy – The 1980′s
Happy Days!
Think before you vote!

Events Insurance and the World Cup Finals

Well Today InsuranceBlogger is going to break one of his golden rules and write a post that really is hardly connected to Insurance or the Economy…
And I just can’t resist it……

Now being the world’s top insurance blogger brings with it a certain sense of responsibility, however today all that goes out the window …..

Well unless you are of European, African, Hispanic or Asian origin ( That’s you USA!) you would have failed to notice that one of greatest battles on this planet will take place next year in South Africa, and as revenge and for the first time since 1950 England will put the USA to the sword in the very first round!

Bring it on!

Sporting Event Insurance

Green Shoots in the UK Economy and Markets?

There’s been a lot of positive talk in the UK housing market over the last few days or so……..Onward Christian Soldiers…..

Relaxation of the credit stanglehold?

Total net lending to individuals rose by £0.3 billion in October. The twelve-month growth rate fell to 0.7%, and the three-month annualised growth rate increased 0.3% to 0.5%, according to new figures from the Bank of England.

Money for New Mortgages?
The value of building society mortgage approvals in October was £1,511 million – broadly in line with the £1,565 million of approvals in September according to new figures from the Building Societies Association.
Gross lending also remained steady with £1,666 million being lent in October compared to £1,605 million in September.
Within the total, net lending secured on dwellings increased by £0.9 billion, in line with the September increase and above the previous six-month average of £0.6bn. The twelve-month growth rate was unchanged, at 0.8%. The three-month annualised growth rate increased 0.4 percentage points to 1.0%. Within total secured lending, secured lending by banks (excluding the effects of securitisations) increased by £3.1 billion, slightly below the September increase (£3.3bn) but above the six-month average of £2.6bn.
The number of loan approvals for house purchase (57,345) was above the September figure (56,205) and above the previous six-month average, whereas approvals for remortgaging (24,596) were below both the September figure and the previous six-month average.The number of loans approved for other purposes (29,195) was higher than in September and higher than the previous six-month average.

Credit Cards – Britains ‘Secret’ loan sharks!
Consumer credit fell by a net £0.6 billion, below the previous six month average of -£0.1bn. Credit card lending increased by £0.1 billion and other loans and advances fell by £0.7 billion. The annual growth rate of consumer credit continued to fall, to -0.1%; the three-month annualised growth rate fell to -2.2%.

Housing Market still in Cheyne-Stokes
House prices grew by 0.2% in November according to the latest national house price survey published by Hometrack, the housing intelligence business – the fourth consecutive increase in prices, bringing the year on year rate of house price growth to -2.9%.
Commenting on this month’s survey, Richard Donnell, Director of Research said:
“There are three distinct elements to the latest results from this and other recent surveys. This first is that prices continue to post month on month increases. The second is the extent of prices rises across the country and the number of households who have seen an improvement in market conditions over 2009. The third, and most important element, is the short term outlook for prices.”
“This is the third consecutive month that the survey has posted a 0.2% price rise. Add to this a growth in sales volumes and it is easy to see how agents are beginning to feel more confident about sustainable pricing levels – at least in the short term. But this pick up in market activity and prices is not one that has been felt across the whole country. The stark reality is that there are large swathes of the country where prices have remained unchanged or have seen continued price falls.”
Over the last 6 months London and the South East have consistently seen the largest number of postcodes registering price rises – values are up across 78% of London and over half of the South East. Yet in five regions less than 20% of the market has registered any price rise.

Personally I see nothing in these indicators to warrant any change of course by the Bank of England regarding Interest Rates.
It is quite clear however that the money invested by the British people into the Quantitive Easing ‘project’ is clearly designed to line the pockets of those within the system where the money will not ‘trickle down’ into the general money supply.
The credit strangulation of SME’s and individuals is as bad as ever!