Insurance premium same or higher every year

Soubrette

The fact that premiums collected does not cover costs and overheads does not necessarily mean that the insurance company is making a loss, nor that the car insurance business is not profitable to them.

Scooby says that s/he feels that the companies are not making a loss and raskazz points out that they are losing 20p in the pound of every premium collected - these two points are not necessarily mutually exclusive.

InsideInsurance

Why wouldn't your motor insurance premium go up each year? Bar a relatively short period we are in a period of inflation so everything costs more each year. Claims inflation is frequently over 10% and given covering claims cost is circa 80% of your premium to stay level you'd need to see a 9% ish premium increase.

mikey72

Soubrette wrote: »

The fact that premiums collected does not cover costs and overheads does not necessarily mean that the insurance company is making a loss, nor that the car insurance business is not profitable to them.

Scooby says that s/he feels that the companies are not making a loss and raskazz points out that they are losing 20p in the pound of every premium collected - these two points are not necessarily mutually exclusive.

That seems very true.

You'll notice whenever any insurance advocate posts, they only ever concentrate on underwriting, and premiums paid.
Thata's a good smoke and mirrors trick again.


For the best example of "loss making" accounting, excessive pay outs to preferred repairers are taken out of premiums collected.
So that's before any discount negotiated.

The discount applied and returned at the end of the year goes back into a different pot, not the premiums pot it was paid out of, as do the referral fees, and any other income which soon makes the 20% loss disappear.

Do we really think insurers are staying "loss making" for so long because they are so charitable, or just like us so much?

Shareholder payments and bonuses are a much better indicator, and these don't appear to have gone down.

raskazz

scooby75 wrote: »

I've heard this so many times before for so long. Any industry that makes a loss like this would go out of business. I've yet to see any figures that convince me.

So could you please clarify which figures that you have seen and for what specific reason(s) they do not convince you?

raskazz

Just_Some_Guy wrote: »

Go to any insurer's corporate website and download their accounts. Page down through the "we are the best" bumpf and get to the profit and loss pages. Takes about ten seconds. To save you the effort I did a couple for you:

Aviva (also own RAC): earned £4.09bn in UK general insurance premiums, paid £4.31bn in claims, wages and other expenses (2010 report and accounts)

RSA: earned £7.18bn in premiums with expenses of £7.33bn (2010 report and accounts)

Insurers never earn enough from premiums to cover their expenses (claims, salaries, reinsurance premiums, office rents, ...). The profit comes from investment income and myriad fees and commissions.

That is all well and good but overall results for all lines, personal and commercial, do not shed any light at all on what the PRIVATE MOTOR insurance result is.

I did this for motor insurance results previously and will try to find a link.

raskazz

Soubrette wrote: »

The fact that premiums collected does not cover costs and overheads does not necessarily mean that the insurance company is making a loss, nor that the car insurance business is not profitable to them.

Scooby says that s/he feels that the companies are not making a loss and raskazz points out that they are losing 20p in the pound of every premium collected - these two points are not necessarily mutually exclusive.

They are not mutually exclusive in theory but in reality they are - the 20p figure is derived from COR's. For this to transform into an insurance profit the market would have to be making over 20% from investment, which is clearly not the case in current economic conditions.

raskazz

mikey72 wrote: »

That seems very true.

You'll notice whenever any insurance advocate posts, they only ever concentrate on underwriting, and premiums paid.
Thata's a good smoke and mirrors trick again.

Er, no. Almost all the discussion centres around combined ratios (which includes all expenses and claims costs - not just premiums paid).

mikey72 wrote: »

For the best example of "loss making" accounting, excessive pay outs to preferred repairers are taken out of premiums collected.
So that's before any discount negotiated.

I don't understand what you are tring to get at her, can you please clarify?

mikey72 wrote: »

The discount applied and returned at the end of the year goes back into a different pot, not the premiums pot it was paid out of, as do the referral fees, and any other income which soon makes the 20% loss disappear.

What? Please explain this.

mikey72 wrote: »

Shareholder payments and bonuses are a much better indicator, and these don't appear to have gone down.

Not at all. Unless you look at these for monoline motor insurers.

mikey72

You'll have to look at the new definition that is being used.

Follow Selden's link, to the respected Ernst and Young report

the report recently published by the Chartered Insurance Institute and Ernst & Young (click here). This is based on the 2009 motor returns to the Financial Services Authority.

The report demonstrates that the unadjusted net combined ratio for personal lines motor insurance written by UK based insurers was 122.7%.

Indeed the 122.7% was created using the following definition, from their own report.

"*The net combined ratio is calculated by taking the sum of net incurred losses and expenses and dividing them by net written premium. A figure below 100% indicates that the company is making underwriting profit while a ratio above 100% means that it is paying out more money in expenses than it is receiving from premiums."

So just premiums, not all income received from other source, to manage the 122.7% headline grabbing figure nowadays.

Unless you claim Ernst and Young are using the wrong figures for some reason?

mikey72

raskazz wrote: »

Not at all. Unless you look at these for monoline motor insurers.

Seroiously, even you admit we shouldn't look at the dividends and bonuses paid out by monoline motor insurers, as they are higher than other insurers that aren't only motor.
You're excluding motor insurers from the discussion because they're doing too well compared to others?

mikey72

mikey72 wrote: »

For the best example of "loss making" accounting, excessive pay outs to preferred repairers are taken out of premiums collected.
So that's before any discount negotiated.

The discount applied and returned at the end of the year goes back into a different pot, not the premiums pot it was paid out of, as do the referral fees, and any other income which soon makes the 20% loss disappear.

At the risk of posting as many times as Raskazz, I answer this for him.

In business, it's very common to negotiate a discount, quite often based on volume of business.
It's then paid back as a single payment back to you at the end of the year, as one lump sum, rather than a discount when you pay the bill.


So say an insurer gets a premium in of £100.
They negotiate a discount of 40% on retail prices with their approved repairer (even more if business is good, 40% is an average trade discount)

So, you have an accident, the bill is £120, which they pay.
So the insurer has paid out £120 for £100 premium.

Then at the year end, the rebate of 40% comes in, so that's £48 back in the bank.
But not as premium, it's a referral fee, or other income, or whatever it's down on the accounts as. But not as premium.

So now we have two sets of figures,

the £120 paid out for £100 premium that we all see quoted,
(Loss of £20, so sob sob, premiums must go up by £20 to cover it)

or the actual company profits, which is in reality £28 in the bank. (The £100 premium, less the £120 paid out, then the £48 returned)

(Have you never wondered why insurers get such high quotes from their "approved suppliers", instead of expecting them to be the lowest quote, and why the same company can do it a lot lot cheaper for cash? Do you think insurers haven't been to a garage themselves, or they really are that gullible?
Or is that that they like the "loss" they've had on paper, for enough years to bankrupt any other company, and not wanted to do anything about, because that headline figure looks good to their sympathisers.)