Nine out of 10 motor insurance companies surveyed by Deloitte said they plan on hiking premiums next year, with a third planning a hike of between 5% and 10%. Just over half expect an increase of up to 5% while 3% expect an increase greater than 10%.
The survey showed car insurance firms showed further falls in profitability, with four of the major companies showing an underwriting loss for last year.
Respondents to the survey are “guardedly optimistic” about trading conditions this year, says Deloitte. While there is optimism that premium rates will have to rise to ensure profitability, there are a number of factors, which, in reality, may make this difficult to do.
Customer loyalty, according to Deloitte, has been severely reduced. More than two out of three respondents said there have been significant rises in the numbers of policies sold online.
The Deloitte analysis found that in 2009 many of the smaller companies gained market share at the expense of the more traditional companies and firms expect this to continue in the coming year.
Another challenge for insurance companies is that despite the premium rate increases the overall total premium receipts fell last year.
Consumers are seeking lower cost insurers even if this means a reduction in ancillary policy benefits, choosing to keep vehicles off the road or changing to a lower cover policy
Director of actuarial services with Deloitte, Dick Tulloch, said: “The challenge for motor insurance companies is to balance the market forces that are currently at work. On the one hand an increasingly price sensitive and savvy consumer is leading to fluctuations in companies’ market share. On the other hand, decreases in the number of premiums, and the level of cover in these premiums, are impacting significantly on profitability.”
Mr Tulloch said the level of increases in premium rates are not as high as many insurers would like them to be, as in recent years initial claims estimates have proved inadequate and have needed to be strengthened.
“What’s clear is that companies operating in the industry will need to align premium rates with the increases in claims and expense costs while also providing appropriate policies for recessionary pressed customers,” he said.
CEO of the Irish Brokers Association Ciaran Phelan said prices are moving up from historical lows.