Motor rates predictions vary

Patrick Smith, chief executive of Swinton Group, has predicted that car insurance premiums will rocket over the coming year.

He told a national newspaper this week there would be a “significant correction” in rates in the private motor market.

“Premiums are 20% lower than they should be. They are seriously adrift,” he said.

Fierce competition has kept premiums down, but they have begun to increase in the past 12 months in a bid to counter rising claims costs and improve insurers’ profitability.

Predictions vary over the size of any increase. The AA has predicted the increase could be close to 10%.

It also said that, for every £100 currently taken in premiums, more than £105 is paid out in claims.

Deloitte, the professional services firm, said it expected rates to go up 5.7% this year, following a 6.2% increase in 2008.

The private motor market has not made an underwriting profit since 1994. Deloitte said it would continue to make a loss this year, even after factoring in prior-year reserve releases.

It said the market’s net operating ratio in 2008 would be 103.9% deteriorating to 104.7% this year.

Excluding reserve releases, Deloitte predicts that the motor market’s net operating ratio will be 111.9% in 2008 and 110.7% in 2009. Claims inflation is expected to be 3.4% and 4.4% in 2008 and 2009 respectively.