Changes to motor groups will take account of new technology and security advances

Changes to the motor insurance group rating system will improve motor insurers' profitability, a leading motor insurer has said.

This week the ABI announced that the group rating system, which is used to calculate premiums, would be updated to more accurately reflect changes in vehicle technology and the range of new vehicles.

The changes will see the number of insurance groups increase from 20 to 50, to reflect developments such as the growth in vehicle types and different repair techniques and materials.

Norwich Union (NU), which will implement the changes over the next 18 months, said the move would help insurers to improve their vehicle rating and could improve motor insurers' financial performance.

Nigel Bartram, motor underwriting manager at NU, said: "Between 1995 and the present day there have been massive changes in technology, for example air bags and collision avoidance technology. More factors now need to be taken into account.

"A few pence up or down [in rating] can make a big difference and will feed through to the bottom line."

The motor insurance market has failed to make a profit since 1994 as fierce competition has prevented average premiums from keeping up with rising claims costs.

The market's poor profitability, however, masks a wide range of individual performances.

The insurance group rating system takes into account factors such as the cost of spare parts, crash repair times, and security to help insurers set premiums. It was last reviewed in 1992.

The new system could impact on premiums, depending on individual vehicle characteristics, although it will not affect average premiums.

In the past three years the range of new cars has risen 42% to 6,000 models.

Justin Jacobs, ABI's assistant director, motor and risk pricing, said: "With repair bills now costing over £7bn a year, these changes will help insurers keep pace with technological changes and more vehicle types to ensure they continue to provide value-for-money policies for customers."