UK Auto Market ‘Saturated’ as Claims Rise Says Towers Watson Study

“The cost of injury claims in the UK car insurance market has grown recently by nearly 30 percent per annum concludes a study, based on industry data, compiled by Towers Watson (TW).

TW also noted that the findings were further supported “from the Actuarial Profession’s working party,” and that “expense ratios and challenging many insurers’ future profitability.” As a result TW concluded that “competitive pressures and current low investment returns have left insurers in urgent need of finding a new competitive edge.”

Ryan Warren, who leads TW’s pricing and product management practice across EMEA*, explained: “Business models among participants in the personal lines market have changed significantly in the past two decades: from the Direct Line [telephone] revolution in the 1990s to the implementation of innovative pricing a decade later.

“Now pressures are compelling the industry to evolve once more. Insurers, who only a decade ago were able to write profitable business by employing strong business strategies around the strict targeting of niche markets and effective distribution channels, are now forced to compete on cost across a wider cross section of the market because of the significant changes in customers’ shopping habits. This market has now become even more competitive than the airline industry.”

In addition the rise in the number of claims has made most UK auto business unprofitable TW found that it “continues on average to generate losses, with more claims being paid out than premiums received and with tough conditions expected to endure unless consolidation takes place or players exit the market. The company contends that in spite of this inhospitable environment, opportunities remain for insurers that are prepared to move beyond pricing and invest in evolving their business.”

TW senior consultant George Maher pointed out that the “jump in injury claims specifically has been met with widespread concern across a sector already under intense pressure to innovate, while carriers push to respond quickly to consumer needs,” said. “In response, some insurers have acted quicker and more effectively by thinking laterally to improve their business process, reflecting a company culture highly correlated with performance.”

According to TW’s findings, the “most critical challenge for personal lines insurers is to quickly and cost-effectively identify their customers’ unique and changing needs and to deliver optimal solutions to meet those needs by leveraging their strategic strengths.”

“Carriers that sit on the sidelines to see what happens next will rapidly find themselves at a serious disadvantage,” Warren warned. “However, insurers that embrace a learning and intuitive culture in anticipation of change are more likely to prosper. Being technically the strongest data cruncher no longer guarantees profits in an unprofitable market.”

TW also pointed out that the “exclusive dependence on pricing to compete is a major reason for some insurers struggling for profitability, as is delaying investment in next-generation strategies such as telematics — the technology of sending, receiving and storing information via telecommunication devices in vehicles.

Source: Towers Watson

* Europe,Middle East, Africa