'Motor insurance market more competitive than airline industry'

The cost of injury claims in the UK motor insurance market has grown by nearly 30% per year recently, according to Towers Watson.

This puts further stress on expense ratios and delivers new challenges to many insurers' future profitability, the company said.

Towers Watson claimed that competitive pressures and current low investment returns have left insurers "in urgent need of finding a new competitive edge".

Ryan Warren, who leads Towers Watson's pricing and product management practice across EMEA, said: "Business models among participants in the personal lines market have changed significantly in the past two decades: from the Direct Line revolution in the 1990s to the implementation of innovative pricing a decade later.

"Now pressures are compelling the industry to evolve once more. Insurers, who only a decade ago were able to write profitable business by employing strong business strategies around the strict targeting of niche markets and effective distribution channels, are now forced to compete on cost across a wider cross section of the market because of the significant changes in customers' shopping habits. This market has now become even more competitive than the airline industry."

Towers Watson said the motor insurance market continues on average to generate losses, with more claims being paid out than premiums received and with tough conditions expected to endure unless consolidation takes place or players exit the market.

It added that in spite of the "inhospitable environment," opportunities remain for insurers that are prepared to move beyond pricing and invest in evolving their business.

George Maher, senior consultant at Towers Watson, said: "The jump in injury claims specifically has been met with widespread concern across a sector already under intense pressure to innovate, while carriers push to respond quickly to consumer needs in difficult financial times.

"In response, some insurers have acted quicker and more effectively by thinking laterally to improve their business process, reflecting a company culture highly correlated with performance."