The UK motor insurance performed better than expected in 2013, according to a report released Monday by Ernst & Young, but this outperformance was due mainly to an increase in reserve releases.
The combined ratio for the motor sector in the UK is likely to be about 101%, 2.5 percentage points better than in 2012. That would make it the strongest underwriting result since 2006.
However, EY noted that "the strong results are heavily dependent on the referral fees ban delivering as intended". EY observed that there were "already signs that this may not be the case".
EY head of retail P&C Actuarial EMEIA Catherine Barton said: "While referral fees themselves are banned, it looks like there are still ways in which customers can be encouraged to make claims, and that those encouraging them can receive payment in a form other than a referral fee. Genuine claimants do of course need to be compensated, but the continued presence of manufactured claims in the market drives extra costs into the system, as well as increasing the number of claimants, which has a knock-on impact on premiums."
Increasing competition in 2013 led to an 8.8% fall in prices, said EY. Barton observed that the motor insurance sector sees many late reported claims for small injuries, which raised the question on whether they were genuine.
EY thinks that the medical panel for motor insurers should help insurers better understand the high volume of complex injury claims, particularly those involving so-called soft-tissue damage.
However, EY warned that the Financial Conduct Authority's proposed shake-up of the "add-on" market could lead to a reduced take-up of such products, which could reduce insurers' sales of higher margin products. That in turn could lead to higher prices for the "core" motor and household products, said Barton.