Severe Flooding Raises Car Insurance Prices
23 August 2007 /
Car insurance premiums are expected to rise in the aftermath of the extreme floods across the UK.
According to Paul Moorshead, senior consultant at non-life insurance consultancy company EMB Consultancy LLP, insurers have been subsidising losses in the car insurance sector using profits from reserve funds in an attempt to compete with other low-cost car insurance companies.
“Unused funds set aside for past claims have rescued the market and, in effect, subsidised the inadequacy of current premiums,” says Mr Moorshead.
Reports indicate that car insurers paid out 11 per cent more for claims and expenses than they received from policies; however, extensive flood damage is likely to see the end of any unfeasibly low prices, particularly as more heavy rain has been forecasted.
Damage caused by the floods, which had the most pronounced impact in areas such as York, Hull and Gloucestershire, is said to have cost as much as £2.9 billion, and UK insurers have already received approximately 60,000 claims from flood victims.
As a result, reserves are running dry and car insurance prices, which actually fell two per cent in 2006, are set to rise steeply in 2008 and beyond. Increases of 10 per cent or more are expected if insurers are to recoup recent losses.
Mr Moorshead says: “The motoring public will find this hard to take, but their insurance is still too cheap.”
“These generalisations do, of course, mask considerable variations in performance between insurers. There are some companies that, it seems, will produce healthy results whatever the market conditions, whilst others struggle to make a profit,” he adds.
It is highly probable that home insurance prices will also rise as a result of the flooding.