Tuesday, 6 September 2016

The REAL Reasons your motor insurance has been going up

1-    Solvency ii – a requirement from January 2016 for insurers to hold more capital reserves (money in the bank to meet claims and liabilities). So they can’t invest as much in stocks & shares or buy shopping malls etc. Believe it or not, motor insurers typically don’t make their money from simple underwriting profits (collecting more in premiums than they pay out in claims) although many have moved into this territory in recent years with Combined Operating Ratios (COR’s) as low as 85% (meaning for every £1 they collect in premiums, 85p is paid out in claims). Because they don’t have as much spare cash they can pump into investments, this has caused them to look elsewhere for increased profits – yep you guessed it – their customers; Crank up the premiums, crank up the profits!

2-    People wising up to the loyalty sham/ auto renewal fiasco. The insurance industry really is a strange old bird. How many industries or businesses do you know that actually kick a loyal customer in the shins by charging them more than a new customer? Yes, it’s a strange one, but a fact that customers who allow their insurance to auto-renew will generally be paying much more for the same policy than a new customer. Many consumer champions such as Martin Lewis & MoneySavingExpert.com have long advocated searching around for the best deal each year, rather than letting your existing policy renew automatically. Millions of people have enjoyed success with this approach and hit the price comparison sites to secure the best deal. The knock on effect of this is that the insurers are starting to see this pattern emerge and therefore the cheaper deals for new customers are starting to dry up. Overall this then pushes up the average premium figure. It is still worth shopping around though!

3-    Modern vehicles are becoming more expensive to repair, pushing up the cost of claims. Modern vehicles bristle with technology, such as sensors in bumpers, adaptive headlights, automatic parking systems etc. As more of us purchase newer vehicles via PCP plans, the more modern the “rolling stock” of Britain’s roads becomes and the more it costs to deal with repairs. Not a lot that can be done about this one.

4-    We are in a “hard market” As insurers are required to hold a lot more of their money as liquid cash and / or very low risk investments to protect themselves from large catastrophes and / or crashes in the market. So the drop in value in the physical buildings they own i.e. shopping centres and their other investments mean they have to increase their cash reserves at the expense of their other investments.

The result of the contraction in their investments and increase cash reserves means Insurers are unable to accept so many customers. As the Insurers become more picky with the customers they accept and they charge a higher premium for the customers they accept.

5-    Lack of capacity in the market – We had been in a soft market due to good investment returns which results in new Insurers entering the market which force the premiums down (a price war). When a recession or catastrophe hits, you enter a Hard Market and capacity reduces, Insurers pull out of the markets and premiums go up as there are fewer insurers competing with each other for the same customers

It works in a circle though, as the premiums go up in the hard market, it attracts new Insurers into the marketplace and investments tend to pick up. This completes the circle by forcing premiums down and you return to a Soft Market until the next trigger event. Recently a Gibraltar based insurer, Enterprise Insurance, went bust. So again, fewer insurers competing for the business and the remaining insurers can charge more or be picky about who they are willing to insure.

6-    The insurance industry are playing everyone for fools by blaming price rises on fraud, whiplash claims and claims management companies. They have been jacking up the prices based largely on the reasons already outlined above, but they want to blame the problems on fraud and whiplash claims and claims management companies so that they can lobby government for changes to avoid paying any legal costs on injury claims with a value of less than £5k and even more dramatic than that, ban recovery of compensation for whiplash. If the insurers succeed with their dream of not paying legal costs on injury cases under £5k in value and abolishing whiplash, the savings they create will be biblical. They promise these savings will be passed onto consumers with reduced premiums, but they have already been caught out with this in a recent article in The Times, which challenged the previous savings promises had not been passed on.

Be under no illusion, the insurance industry are as hell bent on profits and moulding the landscape in which they operate as the bankers. They are major players in our economy and have a sympathetic ear from government, who listen to the excuses as to why premiums have risen and take them as gospel. On many occasions the insurers are asked to be transparent with their figures and data on which they base their revelations and time and time again they are unable to come up with transparent and credible data.

But let’s be honest, there is a problem with fraud, but nowhere near the extent to which the insurers bleat. There remains a system to deal with insurance fraud, it is called the criminal justice system. If fraud arises, investigate it and pass the evidence to the relevant authorities. Don’t deny all other UK citizens their rights just because of the actions of a minority and the never ending desire for greater profits.

Whiplash does exist and it genuinely hurts and can affect people’s ability to work and can disrupt their lives for months and even years afterwards. We live in a time where government legislation now allows us to claim compensation due to a late train or flight, causing some minor inconvenience for mere hours, yet get injured in a road accident or at work and suffer limitations and restrictions for months or longer and the insurance industry want your rights to claim completely removed or for injured claimants to lose out by having to pay all their legal fees from their damages.

Claims Management Companies (CMC), yes there are good and bad examples out there. CMCs do provide a helpful service and some are very well behaved. Others are an utter nuisance and use automated diallers to pester people over and over again or pressure them into making claims, promising them there is a pot of money just set aside for them etc. There needs to be a tightening of the regulations surrounding CMCs.

The one key fact the insurance industry will routinely deny is that they are an integral part of the problem they are claiming about. It is a dysfunctional system that operates whereby insurers continue to cut each other’s throats by passing their customers onto law firms they have a relationship with or vehicle hire companies after non-fault accidents. Insurers are the biggest introducers of claimants into the system due to their own claims capture activities.

As a result of this, the insurer of the at-fault party has a more expensive day out. This merry go round just repeats itself over & over again. Maybe the insurers should come clean about the £millions they earn in commissions from law firms, medical agencies & hire companies each year.

The problem is they can blame the reasons for price rises on these issues and they will get sympathy from government and support from the public as they can relate to the nuisance call in the middle of East Enders or the press headlines about whiplash claims and insurance scams which have been drip fed via the media channels for years. Yet the problem is that if the insurers succeed in driving forwards reforms to drive a large sector of the personal injury industry out of business, the reasons for price hikes set out in points 1-5 will still be there and there will be another excuse for the reasons your premium is going up. So you will still be paying the same premiums, but you will have fewer rights if you get injured and a more expensive time making any claim you are entitled to. Meanwhile, expect another year of record profit announcements and dividend payments by insurance companies.


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