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

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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 Confused.com/Towers 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.”