EMB revises 2009 performance estimates downwards, with a loss ratio estimated at over 115%

Motor insurers should increase premiums by up to 20% to make up for poor performance in 2009, actuarial and business consultancy EMB has said.

Sharp increases in bodily injury claims and dwindling reserve releases will undermine the rate rises that finally filtered through last year, EMB’s annual Motor Industry Report stated.

Last year’s combined loss ratios for motor, commercial and private, are set to exceed 115%. In private motor, combined operating ratios could exceed 120% the report said, while commercial motor ratios are likely to exceed 110%.

Naeem Ali, author of the consultancy’s report, said: “It has reached a point now where companies operating in these markets have to make a conscious decision for profitability over growth, or face eroding their capital base.

“The logical conclusion from these figures is that motor premiums need to increase by around 20%.”

While underwriting losses, including expenses, are up by at least 10% on 2008, according to EMB estimates, the big element affecting 2009 results will be the amount of reserves available for release.

In 2008, reserve releases boosted the bottom line by nearly 10%. Now, however, the reserves appear to be drying up and some companies may have to dip into their capital.

In a further blow, EMB estimates an increase in excess of 10% from 2008 to 2009 in the cost of bodily injury claims per policy for claims under £100,000.

Increases are being fuelled by claims management companies and solicitors encouraging more people to make a claim.

Ali said that, based on recent experience across a large number of companies, EMB had revised its estimates for 2009 performance downwards since the publication of its last report in September on 2008 FSA returns.

“Even with recent price increases and the improving yields these are slowly starting to deliver, the signs are that the industry will continue in the red in 2010,” he noted.

To turn around the losses, insurers should focus on a range of tactics, including technical pricing for bodily injury, business retention strategies, price optimisation, claims management, anti-fraud measures and approaches to selling add-ons.