Insurers heading into unprofitability, Datamonitor says

Brokers are losing their motor market share at a double-quick rate and insurers are heading straight back into unprofitability as they succumb to the temptations of price competition.

The bleak analysis and forecast come from business information specialist Datamonitor.

It found that brokers' gross written premium fell by 13% between 1997 and 2001, with the trend accelerating with an 8% fall between 2000 and 2001.

The brokers' loss is turning into a gain for utilities, retailers and affinity groups. This sector has increased its share sixfold since 1999 and enjoyed a 4% increase between 2000 and 2001. The entry of ASDA into the market would only fuel the trend, Datamonitor suggested.

The industry's total underwriting result hit a low in 1998 and insurers' underwriting losses fell by 86.6% in 2001, but claims costs are rising.

A 16.2% rise in net written premiums, better risk selection and customer screening in the period helped improve insurers' lot.

But claims costs increased by 1.6% in 2000 and 4% in 2001.

The motorcycle and non-comprehensive sectors saw significant in the number of claims, by 40.8% and 19.2% respectively. The comprehensive sector saw growth in number of claims fall while the commercial sector declined as the number of vehicles covered by commercial policies fell by 12% in 2001.

Hardening premiums have boosted profitability. Claims costs accounted for 75.5% of net written premiums in 2001 down from 84.4% the year before.

Correspondingly, the top 20 motor insurers' combined ratios fell in 2001 by an average of 7.6% to 101.7%. Norwich Union, Royal & SunAlliance, Allianz Cornhill, Churchill, NFU and Avon are among the insurers that got back to profitability in 2001.

But Datamonitor analyst Fiona O'Regan forecast the market would return to making losses in 2004.

"All we need is one person to start reducing premiums and competing on price and others will follow suit," she said. "The industry's memory is short and despite the losses incurred only a short time ago, once profitability is reached, capacity in the market increases and thoughts turn to market share."

She forecast the market would remain profitable through 2003, but become unprofitable in 2004.