The case for the defence: motor premiums fall despite sharp rise in claims costs

Motor claims: premiums fell 7.1% in 2011

Motor insurance premiums fell in 2011 despite rising claims costs, new research has found.

The Institute and Faculty of Actuaries also for the first time revealed that the average size of a small third-party injury (TPI) motor claim is £8,400.

The number of TPI claims rose last year despite a sharp fall in the number of accidents, with statistics highlighting a clear correlation between claim hotspots and the main locations for claims management companies (CMCs).

Issuing an update to its annual report on motor claims – which was published in July – the Institute’s figures militate against the oft-heard claimant lawyer argument that despite moves to cut claim costs, insurance premiums have not fallen.

It said that despite an estimated £400m increase in cost to insurers of claim payouts – a rise of 19% – it appears that insurers have not passed this on to consumers, with the cost of average UK motor insurance premium falling 7.1% in the last 12 months.

It sourced the premium figure from the Watson car insurance price index, published in July.

The average size of a small (ie, less than £100,000) TPI claim in 2011 was £8,400. “This highlights an increase in the average size of small claims, for which we have reported an increasing trend since 2005,” the report said.

The institute recorded that while the number of TPI claims increased by 6% in 2011, the number of accidents leading to a claim fell by 11%, according to police figures. Dating back to 2006 there has been a 20% fall in accidents but a 40% increase in claims.

“This data discrepancy supports the view that TPI claims are driven by a change in claiming behaviour rather than a change in the underlying risk,” it said.

TPI claim hotspots in Birmingham, Manchester and Liverpool correspond with locations of CMCs, it continued, and despite a decline in the number of authorised CMCs, their income increased by 21% in 2011.

David Brown, chairman of the Institute and Faculty of Actuaries’ UK third-party motor and PPO claims working parties which produced the report, said: “All of the updated data that we have collated supports the conclusion that claims management companies have had a marked effect on the number of small injury, whiplash like, claims.

“This increase in claims has cost the insurance industry what we estimate to be £400m, but despite this the average cost of a UK motor insurance policy is decreasing. This is good news for the consumer, but it does raise the question of how sustainable this is for insurers.”



    Readers Comments

  • The number of accidents is based on Police figures. That is, frankly, a pretty poor indicator. Many, many accidents do not get reorted to the police, or the police refuse to attend if the parties do not need hospitalisation. Why can the insurers not produce figures on the number of accidents reported to them, by their policyholders, which would be slightly more accurate. Although some people leave their insurers out for fear of increased premiums. The bottom line is, this figure, the number of accidents, is completely innaccurate and it would be ridiculous to rely upon it, and the insurers know this.
    Turning to the average size of a claim, once again, they consider a small claim up to £100,000. it doesent take many £100k claims to skew your figures and make it look significantly higher than it really is. I would suggest that the average cost of a small PI claim is probably half the amount they state, including costs. Why are these stats just swallowed as gospel when they are clearly manufactured.

  • On a further note, if they are paying them, then presumably they are genuine claims. In which case, what have CMC’s done wrong? What they are effectively saying is, these are genuine claims but we want people to stop claiming so that we make more profit. Also, if premiums are on the way down before the reforms have kicked in, why are we reforming? Or is it in response to the Competition Commission? Cynical, moi?

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