British car insurers make first profit in 20 years

The car insurance industry has only been in profit twice since EY's study began in 1985. Photograph: Rui Vieira/PA

.Clampdown on fraudulent claims driven by compensation culture appears to be having effect, despite falling premium rates
Britain's car insurers have made their first collective annual profit in 20 years amid signs that a clampdown on fraudulent claims is starting to have an effect. According to consultants at EY, they paid out £98.50 for every £100 received in premiums last year – only the second time the sector has swung to profit since its study began in 1985.

The industry's hopes of getting back into the black received a boost last year when the government began reforms to crack down on the country's soaring compensation culture. The turnaround has been set against a recent trend of falling average premium rates.

Catherine Barton, the head of retail property and casualty actuarial for Europe, the Middle East and Africa at EY, said: "Soaring rates driven by a rampant claims culture have meant that insurance underwriting has proven to be perpetually unprofitable over the last decade.

"Returns were heavily supplemented by ancillary profits or add-ons from other sections of the business."

The Association of British Insurers recently released research that showed how fake car crashes helped push the level of insurance fraud to a record £1.3bn in 2013, an 18% jump on the previous year and more than double the cost of the UK's shoplifting bill.

The government's measures to tackle the problem include cutting fees for personal-injury lawyers, and banning payments for exchanging the details of policyholders.

Last week, the justice secretary, Chris Grayling also pledged to cut questionable whiplash claims by improving medical assessments, and announced plans to ban lawyers from encouraging people with incentives like cash or iPads. However, EY warned that it may be too early to start celebrating a turning point for motor insurance profits, because of the way insurers release reserves they have held to cover potential claims.

Barton said these reserves could still be acting as a support system, and questioned whether insurers would plunge back into the red once they ran out, as they did nearly 10 years ago.




Source The Guardian