Insurer prepared to lose business to regain profitability
Rival insurers have remained tight-lipped as to whether they will follow Norwich Union's (NU) moves to increase motor premiums by up to 40%.
NU announced this week that it would hike its rates by an average of 16%, with higher risk groups such as young driver facing even larger increases. The insurer blamed the increase on the rising cost of claims which has caused its profits to tumble.
The insurer reported a £33m underwriting loss on its private motor book in the first six months of the year. This was more than double the loss in the first half of 2005.
Simon Machell, chief executive of Norwich Union General Insurance, admitted that the insurer would lose business as a result of the move. But he said the company was prepared to lose as much business "as it takes" to return its motor book to profitability.
Machell said he expected to see a positive impact on the profitability of NU's motor book by "early to mid 2007".
NU's rate increase comes during a period of prolonged unprofitability for the motor market as a whole.
The market has failed to make a profit since 1994. In 2005, the market's combined operating ratio was 102% and analysts predict the market is to plunge further into the red unless significant rate increases are achieved.
Catherine Barton, insurance partner at Deloitte, said: "Norwich Union's decision to raise motor premiums is timely. Rate increases at this point in the year will help improve 2007 insurance results.
"If other insurers choose to follow Norwich Union's lead, then this could help to curb the overall decline in the motor insurance market's operating performance."
But other insurers contacted by Insurance Times would not commit to any rate increases.
A spokeswomen for RBS Insurance agreed that motor rates needed to rise, but would not comment on the group's potential price hikes. Churchill, part of RBS Insurance, made an underwriting loss in 2005.
Royal & SunAlliance would also not comment on future rating movements.
In a statement it said: "Based on... internal models we regularly adjust our rates up and down."
Fortis, however, indicated that it would increase its motor rates, to head-off a predicted underwriting loss in 2006.
Uninsured driving 'will increase'
An increase in motor rates will swell the number of uninsured drivers, a law firm has warned.
Jeff Zindani, managing director at Forumlaw Solicitors, said young drivers who are at higher risk of having an accident may not be able to afford, or just unwilling, to pay the higher premiums.
He said: "It looks as if it's been forcefully directed at certain groups.
"This could increase the number of uninsured drivers."