Car insurance premiums drop yet insurer profits soar?


Somehow – and I have no idea how this occurred – car insurance premiums in Scotland have dropped even as insurers in the North report record profits.

Someone better ring up Hercule Poirot because there’s a damned mystery afoot. Apparently the average motor car insurance policy in Scotland has dropped by more than 20 per cent over the last 12 months. Yet at the same time major insurer Direct Line, formerly owned by the Royal Bank of Scotland until the EU-mandated spinoff in 2012, reported some very tidy profits lately as well. How in the wide world of sports does that happen?

The news that car insurance rates are down in Scotland comes directly from the AA, which broke the story lately. The motoring organisation’s latest premium index found that it costs on average around £364 for a year’s worth of cover, with competition likely driving prices downwards so severely.

Meanwhile, Direct Line says that since premium prices have dropped so much that they’re taking in nine per cent less in motor insurance premiums in the last six months, yet somehow it’s first-half profits have not just been holding steady but have actually gone up by nearly 8 per cent to a figure of £225.1 million. And don’t even tell me that the insurer made up for the downfall with their home insurance line, because they didn’t: the value of their written policies for the first half of 2014 also fell.

So how in the blue-eyed world is Direct Line reporting a profit? Well apparently according to industry executives the insurer, much like other car insurance companies, is in the midst of a major restructuring in order to reduce its costs. Now any economist will readily tell you that ‘cost restructuring’ this is usually just code for ‘sacking as many staff as possible,’ so don’t be surprised if you see a few more rather bedraggled looking insurance claims adjusters hanging about Jobcentre Plus.

Honestly I’m tired of insurers whinging about how they’re constantly running out of cash and that the sky is falling and their profit margins are disappearing, especially when an insurer like Direct Line can both afford to lower its insurance rates and still turn a tidy profit. Obviously something isn’t adding up here, and I think it’s the insurance industry’s rhetoric!

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