The 1999 motor underwriting loss for the industry was 15.5%, the lowest since 1996. This is just an estimate but likely to be reliable.
The result is good news but certainly not great news.
The motor underwriting result deteriorated every year from 1994 to 1998 so the reversal must be welcomed. The 15.5% loss is a real turnaround from the 22.7% loss in 1998. Underwriting losses at around 20% could not continue but the result could have been better. After all there have been hefty premium increases.
Most motorists have had at least a ten per cent increase and there have been cases of 100% plus rises.
Averages can be deceptive. The range of motor underwriting losses never ceases to amaze. In 1998, for example, comprehensive private care claims ratios varied between 71% and 151%, with the industry average at 94%.
The premium hikes will take some time to reach full effect so it is likely we will see a further drop in the loss this year to around ten per cent. This assumes no big jump in claims frequencies or average claims.
The prospect of moving towards an underwriting break-even is not too promising. Even after recent increases in rates, competition for business remains fierce. After all of the recent takeover and merger activity, the largest seven motor insurers control around 60% of the market. No one insurer dominates with the largest provider having a 15% market share.
This contrasts with other insurance markets where one or two insurers dominate.
Most insurers will, however, be happy with the reduced underwriting losses and that large rate increases have been accepted by policyholders. Insurers will be less happy at the worrying signs emerging of likely significant increases in the cost of personal injuries. We have a likely doubling in pain and suffering awards and lower interest rates to blame.
However, the industry's biggest worry is the possibility of having to augment reserves for claims not yet settled – the risk of retrospection. If this happened it would have a dramatic effect on the industry.
Companies have survived the enormous losses because they have been able to release significant amounts from prior year claims reserves since 1994. A reversal of this could require further premium increases.
Another nail in the coffin for hard-pressed UK motorists?