Increasing Loss Ratio, Decreasing Premiums

Profitability within the motor insurance industry is under pressure. The loss ratio keeps growing while premiums are being squeezed.

Insurance losses

Insurers’ loss ratios decrease due to various (predictable) reasons. However, these reasons do not include unforeseen developments. Insurance companies could have anticipated on trends in pricing and underwriting. Also, an oversaturated market makes competition intense. Consumers are persuaded with low prices when choosing an insurance policy. This phenomenon is being stimulated by comparison websites. In this situation, insurers usually do not request premiums that cover the costs in order to gain market share.

Quantity before quality

Online comparison sites create a group of consumers that select insurance companies merely on price considerations. This enables consumers to hop from low premium to low premium, not allowing the insurer to earn back the acquisition costs. The urgent need to attract new customers often supersedes a critical determination of the yield that a customer will contribute to the portfolio. This could prevent customer unfriendly measures at claim handling.

Repair shops

Surprisingly, the vehicle repair industry claims the opposite. Research states that repair shops have been suffering from a decreasing loss ratios for years now. Reasons for this trend is the changing attitude of the consumers. Cars have lost some of its status as status symbols and small damages are not being repaired in many cases.

The role of telematics

Developments in the market have already led to tough consequences for repair shops. On top of that, the rise of telematics will have its future impact on insurers, the insured and the repair industry in both positive and negative ways. Cars and its drivers will be fully connected with telematics. This might result in lower loss ratios for the insurance industry.