Car insurance in the UK is too cheap.
The majority of insurers who write car insurance have a combined operating ratio of over 100%, and therefore to ‘balance the books’ they make a profit by loading their more profitable lines of business.
In effect, for many insurers, car insurance is a loss leader.
This situation has arisen due to the fact the investment returns they receive from premiums are not what they used to be, fraud, and the pot of gold that never stops giving to ambulance chasing lawyers, the advent of no win no fee (in other words risk free to the claimant) compensation claims.
It is a sorry state of affairs that bottom-feeding lawyers know it is cheaper for an insurance company to pay a couple of grand to a claimant for unsubstantiated ‘whiplash’ than it is to ask the claimant to prove their loss.
In March Lynne Truss amended the Ogden rate with a 3.25% swing which, while sounding small, is going to have a profound effect on serious injury claims. I won’t bore you with actuarial statistics, but suffice to say a £1m reserved pre-Ogden claim could now be reserved at £3m, and therefore insurers are having to set-aside millions (in one case I’m aware of £400m) for post-ogden increases in claims awards.
In addition, Insurers have to abide by very robust solvency rules, and therefore as insurers are having to set-aside more money for claims, some of the more tertiary insurers could very well fall foul of the solvency rules resulting in them being closed down by the FCA – if this happens there will be less market capacity, rates will harden and premiums will increase.
Bottom line is, insurance is going to increase, and therefore now more than ever people should be shopping around.
Incidentally, it is now a requirement of the FCA that companies offering personal insurance must state there may be cheaper rates if people look around. Essentially treating people as if they are morons (when was the last time you went into Sainsbury’s and they warned you that you might be able to get a tin of beans cheaper at Tesco).