Bodily injury claims inflation rate has remained constant

UK motor insurance rates continued to rise in 2011, but there has been a drop in the frequency of large claims, according to a report by reinsurance broker Willis Re.

Willis Re’s fourth annual review of the UK motor market found that some drivers are facing rate increases of up to 50%. However, the frequency of large claims up to a value of £5m has dropped by 10% when measured against premium income. This is thanks to a fall the number of deaths and serious injuries on British roads, the broker said.

Richard Bloss, executive director of Willis Re, said the motor market is in a state of flux, both on the insurance and reinsurance side. “We’ve seen significant increases in what people are paying for their car insurance, and a gradual but clearly discernible pattern of reducing numbers of deaths and serious injuries on the UK roads,” he commented.

Bloss added: “At the same time, those serious claims that are still happening are tending to cost on average nine percent more than last year, and many are being settled as continuous regular payments for the remainder of the claimant’s life, which dramatically increases the time horizon.”

The report also found that although bodily injury claim values are rising faster than inflation, the rate of escalation has remained relatively constant over time. Willis argues this is a good point for insurers to raise with reinsurers when negotiating coverage.

Further trends highlighted by the study include insurers’ increasing claims reserving accuracy, and the fact that male policyholders are twice as likely as female policyholders to make a large claim.

While it notes that motor rates have risen by up to 50% according to market indices, Willis Re warns that the this data needs to be treated with care. “When we look at the actual price rises achieved by insurers, they generally seem to be less dramatic than some of the indices suggest,” said Willis Re executive director Catherine Pearson. “We think that what might be happening is that drivers faced by substantial premium increases may well be adjusting the cover they buy in order to mitigate the up-front cost.”

Taking this into account, the Willis Re study has used more conservative assumptions of annual rate change.