There are challenges and opportunities in commercial motor, and while the white van sector is providing good profits, rate hikes market-wide are long overdue
Insurance Times talks to Mark Game, head of London market broking and City underwriting bureau at Brightside Group.
Q: Commercial motor now lags behind personal motor in terms of profitability. How is Brightside performing?
A: Although we do several sectors, 80% of our book is based around insuring your typical ‘white van man’. We are the largest provider of this type of coverage in the UK, with more than 100,000 clients. This sector is performing well for us and making good profits for our insurers. Within this sector alone we are seeing combined operating ratios on our business of close to 60%.
Q: Which sectors are performing poorly?
A: All the different segments of commercial are performing at different levels but haulage is the worst. About 10% of our book is fleet, which is more competitive, and about 10% courier. But competition in the haulage market is just fierce and it has been like that for some time. I think of it as a vanity thing: insurers think they have to be in haulage for some reason.
Q: How have you retained such a profitable market share in the white van market?
A: It stems back to when we launched the business in 2001. Everyone was targeting personal lines and this was a forgotten segment. We specialised in the sector and invested in establishing expertise. That still stands us in good stead. We also work closely with our insurers - we are very close to about 20 in this business and they have all accepted a common policy wording we use. We also invest heavily in credit scoring and risk management techniques, and have an excellent call centre with good technical backup. It is all about expertise and working closely with our insurers.
Q: Do you anticipate rate hikes in commercial motor overall?
A: They are an absolute must. With investment returns where they are, prices just don’t make sense. The market is totally underpriced. Rate increases of at least 20% are required - maybe even 30%. It needs some visionary companies to push rates forward. It is tough on the customers, but if the whole industry is losing money, that is also a recipe for disaster.
The big question:
Is fraud the big challenge facing commercial motor insurers, and how can they tackle this?
Phil Bird, director of the Insurance Fraud Bureau (IFB):
“Organised motor insurance fraud costs our industry more than £350m a year, inflating every honest policyholder’s premium. The ‘cash for crash’ phenomenon sees criminal gangs orchestrating complex, multimillion-pound insurance scams across the UK.
“Fraudsters adopt various modus operandi to defraud the industry, including deliberately damaging vehicles to mimic road traffic accidents, right through to inducing accidents with innocent members of the public. Commercial vehicles are certainly not immune from ‘cash for crash’. IFB investigations have uncovered examples of commercial vehicles being targeted by fraudsters inducing accidents.
“The insurance industry takes a zero-tolerance stance on fraud. The IFB uses sophisticated counterfraud software to interrogate over 130 million cross-industry insurance records, detecting and disrupting organised criminal activity. Working alongside UK police forces and industry partners, criminal gangs abusing the system are brought to justice.”
Roger Ball, head of commercial motor at Allianz UK:
“Instances of fraud are increasing and this tends to be disproportionally focused on the commercial sector as opposed to personal lines.
“I do believe people are more likely to behave fraudulently during a recession, when times are tough. On the commercial side, we tend to find our policyholders are not the perpetrators but the victims of this.
“People are more likely to exaggerate or falsely pursue a claim if they know it is a commercial vehicle involved. As with any type of fraud, it is difficult to spot but as an industry I believe we must do everything we can to get on top of this. It is one of our biggest challenges.
“We must target achieving a combined ratio of below 100% and tackling claims fraud is one way to help do this.”
David Brown, chairman of the Institute and Faculty of Actuaries UK third-party motor and PPO claims working parties:
“The increase in costs to insurers because of the rise in bodily injury claims is likely to result in a rise in motor insurance premiums for drivers. The clear correlation between claims management companies’ office locations and the ‘hotspots’ for bodily injury claims suggests that the two are interlinked.
“We expect to see legislation soon that will affect the way in which claims management companies do business, which may have accounted for the significant increase seen in 2011. It is possible this is a last hurrah.”