The UK motor insurance industry has produced an underwriting profit in only two of the past 14 years – 1993 and 1994. Two years ago, 1998, was the worst year on record, with an underwriting loss ratio of 124% and a £1.6 billion underwriting loss. Last year, say experts, the figures are likely to every bit as bad.
To paraphrase Michael Caine, not a lot of motorists know that. Which means not a lot of them know they have been enjoying an exceedingly good deal from the insurance industry for nigh on 15 years. The prices they have been paying bear no relation to the prices insurers have been paying for the privilege of having the business on their books.
This is not the motorists' fault. The appalling financial affairs of the motor insurers will have passed them by, hidden as they generally are by the healthy profits generated for the big insurers by their life, pensions and investment activities.
But this ignorance is now presenting problems for insurers. Thanks to interest surrounding the CGNU story, national newspapers are finally getting excited about the 2% per month premium rises that insurers have been pushing through during the past year.
Their angle is that the new mega-insurer is anti-consumer and will impose swingeing motor premium rises.
There is also, at last, some informed national media comment on the effect of Ogden on motor insurers' spiralling costs.
And the NHS charges are adding to the pressure for premium increases. These, however, are not accompanied by any particular sympathy for insurers – they are still fat cats trying to put one over the poor consumer.
Is this a problem for insurers? Perhaps not. After all, the past year's rises have been paid by consumers, albeit with a grumble. This week's results from Provident, Colonnade's parent, shows how one company has been able to exploit the motor market.
But there are two problems. Direct writers such as Direct Line and Churchill have been making money by cherry-picking the motor market and are under much less pressure to push rates up. They will see this as a time to become even more aggressive.
And then there is the Internet. It has yet to exert downward pressure on motor rates but that may soon change.
But even the lean, mean Internet machines cannot afford year-on-year underwriting losses. They may undercut traditional sales routes by having lower costs but they will still have to support some premium rises to stop the losses. They will have to accept that consumers have had cheap insurance for too long.
Harold Macmillan successfully told the electorate that they had never had it so good. It's about time insurers were as honest.
