May 31, 2016

Consulting organisation Deeee-loitte was dropping broad hints this week that investors might want to steer clear of the motor insurance market. At least for the foreseeable future.

That’s to say: until driverless vehicles relieve said market of its need, which is as much as to say its opportunity, to continue existing, in any meaningful sense.

The motor insurance market’s Combined Operating Ratio amounted to a dispiriting 102% in 2015, with Deeee-loitte predicting a further deterioration to 104% for the current year.

The number of policies written may have risen last year, with premium volumes up by 5%; but a growing market is distinctly mixed news when you are (averagely speaking) losing money on every new policy you write.

No, forget about motor insurance as a way of making money, Deeee-loitte may as well have said. The game’s over. Pack up your things, Mr Investor. Take your money bags, and go speculate somewhere else.

Deeee-loitte insurance partner Jim Rakow said motor insurers were “struggling to make a profit.” Warning that motorists have developed a worrying habit of “shopping around for the best deal”, he explained that insurers would need to work hard at “building brand loyalty” and “tailoring products and premiums to individual needs”.

It’s not all bad news, though. Some people are making loads of money from motor insurance. The government, for example, are positively minting it, thanks to the IPT windfall they’ve arranged for themselves with various recent rate hikes.

Some have suggested that government should be required to pass on the benefits of this windfall to consumers. Perhaps by filling in some of those potholes, or discounting road tax or fuel duty or something. But cynics suspect the funds will simply go on high-speed rail links, cycle lanes, free stairlifts for wealthy pensioners or some such anti-road initiative.

The idea of not owning a car, thankfully, remains unthinkable – or at the very least unpalatable – to most Brits. But actually taking one out on the road and driving around in it is becoming less and less affordable. “We’re seeing more cars being registered in the UK,” Jakow concedes, but “car usage is declining” and more journeys are being made by something called “public transport.”

Looking ahead, with “autonomous cars” becoming “the norm,” Jakow warns, “motor insurance is going to look very different,” and “insurers will need to change how they think about risk, as our roads fill up with smarter cars over the coming decade.”

Ultimately, the days of as-we-know-it motor insurance may be coming to an end; but there will probably still be some other kinds of insurance around for a few years yet to provide employment and/or investment opportunities. Especially in places like America, France, Germany and Internet.

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