June 26, 2013

Post Magazine stood back this week from the constantly shifting sands of motor insurance rates to survey the bigger picture. What impact, the paper pondered, will recent legislation have on insurers ability to scrape an honest crust from the turbulent motor market?

It’s almost ten years now, the report reminded readers, since the market returned an operating profit for all but the fortunate few. But lately there’s been a lot of excitement about how the Government has finally pulled its finger out and given the sector some prospect of profits to scrabble over.

LASPO (the Legal Aid Suppression and Prevention Ordinance) was meant to put and end to the profit-eroding practice of allowing people to claim compensation for bad things that happened to them. Its implementation provoked much rubbing of hands amongst motor insurers at the prospect of untrammeled profitage.

Alas, many commentators now suspect that motor underwriters have been guilty of counting unhatched chicks and have jumped the gun en massse, slashing rates like there’s no tomorrow in a frantic scramble to secure a bigger slice of the PI-free motor pie. Post Magazine spoke to some of these commentators.

James Rackoff, a partner with consulting firm Deee-Lite suggested that LASPO might prove “a false dawn due to preemptive strikes by insurers to lower rates” adding dryly that it may now be “difficult for insurers to bring the overall market COR below 100%.”

AXA motor underwriter Jon Bypass tended to agree, telling Post Mag paradoxically that “We are definitely seeing people in the market taking stock of the reforms before they really know the effects”, which, with no conclusive data yet available, “will take a few months. They only came into force in April, so there is no data yet to say with certainty what any of this means – it will take a few months.”

Colin Babayaga of Coverya says much the same thing, contributing some top-of-head type statistics in the form of the following utterance: “our analysis says that around 6% is a reasonable estimate for a reduction in claims costs – but I have heard figures as high as 15%.”

The article goes on to quote Iniquity Red Star underwriter Rob Clarg, who has gender worries. The overall effect of the Eeew Gender Directive, he reckons has been to push rates down. “That is huge,” he warns, “and we haven’t seen it go through entirely yet. You can’t think the market meant to drop eight points from the average rate when the COR is sitting at 105%. It defies common sense.”

And so it does, of course, Dear Reader.

The article goes on to consider a number of fantastical scenarios like making a profit from add-ons, introducing some underwriting discipline and the like, before, concluding that, if not actually crazy, motor underwriters all share improbably high levels of self-belief enabling them to believe that they can make money, even when everyone around them is losing it.

And, who knows, perhaps they’re all right.

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