Insurers will be in for a bumpy ride in coming years, says new Towers Watson report

UK personal motor insurers will return to underwriting loss in 2014 after making their first profit for 19 years in 2013, according to actuarial consultancy Towers Watson.

In its 2014 UK motor insurance industry report, titled ‘The rollercoaster ride continues’, Towers Watson said that UK personal motor insurers reported a profitable 2013 combined operating ratio (COR) of 99.4% - the industry’s first underwriting profit since 1994.

This was despite a 12,.5% drop in  the average comprehensive motor premium to £644 during the year.

The figures back up similar findings by Deloitte and Ernst & Young earlier this year.

But Towers Watson said that most indicators suggest that the combination of lower prices and reduced reserve surpluses will return the personal motor industry’s COR to above 100% in 2014.

The report said this was despite some companies cutting back gross written premium to protect profitability.

It said: “Many similarly tough decisions lie ahead. The sector should strap itself in for a stomach-testing, but potentially exciting, ride.”

Towers Watson’s study, based on companies’ 2013 PRA returns found that the 2013 profitability was heavily dependent on reserve releases. Excluding these releases, the 2013 personal motor COR would have been 109.3%.

The company said that the industry’s return to underwriting profitability in 2013 was to be “heartily applauded”.

But it added: “Ensuing experience has given little cause for insurers to sit back comfortably in the knowledge that they have successfully turned a corner.

“New challenges are emerging thick and fast to keep the industry in a spin and to test its mettle yet further.”

Challenges and changes on the horizon include new regulations and regulatory reviews, increasing use of big data for underwriting, and the advent of telematics.