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What to expect from the insurance industry in 2014
2013 was a great year for motorists who wanted to save on car and bike insurance, with average premiums falling by as much as 14 per cent throughout the period. There were plenty of cheap deals going around as insurers fought to gain volume rather than make money through higher margins.
However, many industry experts agreed that rates had fallen too quickly and are now so low that they will not be sustainable in the long run. Common predictions are that premiums would either remain flat or rise moderately in 2014; however, it is difficult to forecast with any degree of certainty, given premiums are known to go up and down on a regularly basis.
Any changes to pricing strategies should come after the end of the fiscal year in April, as insurers assess their financial performance and operating results. They would then be able to judge whether rates need to be lifted or if they are able to maintain low prices but still be profitable.
Competition Commission keeping a close watch
Despite the currently low premiums, the Competition Commission believes prices can be further reduced.
The watchdog cited several concerns following an extensive investigation into the motor insurance industry. Firstly, it believes that unnecessary costs incurred during the claims process as a result of an accident are pushing up the total premiums by up to £200m a year.
Although costs are borne by the insurers of the at-fault drivers, they eventually culminate in premium increases for all motorists.
The Competition Commission is also uneasy about the relationship between price comparison sites and insurance companies, due to the penchant for comparison sites to request exclusive deals. The worry is that this may lead to reduced competition and therefore higher prices.
According to Alasdair Smith, the leader of the watchdog’s investigation, we can expect to see industry changes to address these issues.
“We are now considering a range of possible measures – some of them far-reaching reforms – to ensure that the market better serves the interest of customers,” he said.
This could result in lower premiums for motorists, as insurers work with the commission to remove unnecessary costs that drive up car insurance premiums.
Online driving records to lower insurance costs
Another piece of good news for motorists comes from the launch of DVLA’s My Licence project.
The scheme will see all driving licence records go into an online searchable database, allowing individuals and companies to carry out checks efficiently.
Due to the inability to perform checks on driving licence or traffic offence details currently, insurers need to incorporate additional costs into their premiums to cover the risk of drivers providing false information.
According to the British Association for Insurers, the migration from paper to online system will eliminate the need to price in this cost. Additionally, significant cost savings can result from reducing the need to obtain paper copies of licences from policyholders.
It has been estimated that motorists will save around £15 a year on car and bike insurance premiums as a result of the project.