Rocketing claims costs have seen underwriting losses amongst general insurers double in one year to £2.2 billion in 1998, according to a new report.
Motor underwriters were particularly badly hit, taking almost 75% of the losses – £1.5bn. Total underwriting losses in 1997 were £1.03bn according to an analysis of ABI member figures.
The report, from market analysis firm Datamonitor, also finds that those working in the accident and health insurance market are the innovation kings of the future.
Datamonitor says that all is far from well on the motor front and that recent merger activity has still to deliver economies of scale. Despite premium increases in the order of ten per cent so far this year there is no let-up in the pace of underwriting losses, leading the report to conclude they are "running to stand still".
However, the rate increases were cancelled out by an eight per cent increase in claims, bringing the total to £6bn. Datamonitor also finds that the cost of personal injury claims linked to motor accidents is rising. The report states: "This is only the beginning of a trend as the NHS Road Act (April 1999) is expected to cost insurers £150 million in 1999. This is a cost that insurers want to pass on to their customers in the form of higher premiums but, in such a competitive atmosphere, they are unable to do so fast enough."
On the property front the news was also bleak, with exceptional weather claims adding £300m in exceptional claims.
Motor and property insurers need to learn from their counterparts in the health insurance market, where innovations including hospital cash plans – whereby patients are provided with cash for every day they spend in hospital – are at the heart of a revolution in the sector.
"Health insurers have looked at consumer needs and provided a cheaper, simpler product that crosses the boundary between the public and the private healthcare systems," says the report.
However, the report is in no doubt that change will penetrate the traditional markets. It cites the tie-up between Royal & SunAlliance and Dixons to replace stolen goods quickly as the way forward.
"In the next five years, the general insurance market will implement fundamental innovation," said Datamonitor analyst Flora Weaver. "Simple cover and financial compensation are out and support for the unexpected is in. Your insurance provider should be a crisis alleviator rather than the final straw."