While you may not be happy about your rising car insurance rates, the increased revenues brought in by these premiums have put smiles on the faces of executives from car insurance companies as the industry approaches profitability after 16 years straight of being in the red.
The motor car insurance sector’s underwriting profitability will increase by as much as 20 percentage points in 2011, according to information supplied by Ernst & Young. This is quite a bit of good news to the discount car insurance industry, as insurers have collectively lost approximately £5 billion from underwriting over the past two years.
The E&Y report shows that for each pound brought in by premium payments last year, the insurance industry ended up paying out around £1.16 in expenses and claims. These losses had reached ‘unsustainable’ levels, according to E&Y actuary and partner, Catherine Barton.
Insurance providers have had no choice but to respond with price increases and a renewed focus on controlling the cost of claims, Ms Barton said, adding that E&Y believes this will help turn the tide on the losses the industry has incurred.
However, the industry has become subject to sharp scrutinisation by the Office of Fair Trading for the large increases in costs to drivers. The OFT said recently that it will be conducting a probe as to why premium prices had increased by a factor of 40 per cent this year alone.
However, E&Y is more bullish than many analysts in their claims that the insurance industry has finally dug itself out of its hole. Standard & Poor’s analyst, Nigel Bond, remarked that he had no expectations of the car insurance sector to break even this year, though he did acknowledge that it had entered ‘recovery mode’ in 2011.