Insurer cut motor rates by 10% in response to falling claims costs

The improving UK economy could lead to a greater number of motor claims as people drive more, according to Admiral chief operating officer David Stevens.

Speaking to journalists after the release of Admiral’s 2013 results this morning, Stevens said: “With people having more money in their pockets and maybe driving more, we might see an uptick in frequency and then we would see quite quickly an end to falling prices and maybe even increases in prices.”

Admiral cut its motor rates by 10% in 2013, compared with the 13% industry-wide rate cut suggested by the Confused/Towers Watson motor price index.

Stevens said the cut was possible because of “big falls” in claims costs during the year. Admiral’s own claims experience suggested that claims costs fell 10% in the year.

This was in part thanks to the Laspo reforms which came into force in April, which are aimed at curbing spurious bodily injury claims.

Stevens said that just as it was possible that rising claims frequency could halt rate cuts, it was equally plausible that the company could continue to cut prices if claims costs continued to fall.

He said: “We are certainly happy to reduce premiums when they are based on falls in claims costs. The prospects for 2014 depend partly on how claims costs evolve and how our competitors price. It is hard to predict price changes in 2014 at this point.”

International prospects

In the results announcement, Admiral chief executive Henry Engelhardt said that the recipe for Admiral’s long-term  success lay beyond its core UK motor business.

The company has launched a UK household product at the beginning of 2013, and also now has a presence in several countries around the world, including Spain, Italy, the US and France.

The household book is still at a very early stage, however, making a £100,000 underwriting loss in its first year, and the international business as a whole is still unprofitable. It made a 2013 loss of £22.1m and reported a combined operating ratio of 152%.

Engelhardt told journalists that he expected the various international units to be profitable within six to 10 years of their launch. He said the youngest international business was two years old and the oldest eight years old.

He said: “We have yet for a country to get to 10 years but within that six to 10 year frame we would expect all of them individually to reach profitability.”