Biba 2010 preview: Surviving the perfect storm?

When announcing our 2009 results, our chief executive officer Francois-Xavier Boisseau talked about the private motor market being on the critical list and it is really not difficult to see why. Although research suggests that claims have been on a downward path since peaking at 4.4 million in 2006, then beginning to stabilise during 2009, the headline numbers mask a number of important factors that are costing the market dear writes Philip Bird, claims director, Groupama Insurances.

We are seeing continued growth in the value of claims as injury inflation bites hard. We are also tackling rising incidence of fraud, presumably driven by the impact of the financial crisis and the recession. Yet the major concern must surround the increasing success of claims farming activities as these organisations continue to drive larger volumes of potential customers into the waiting arms of a grateful legal profession. This has produced a spike in the number of smaller injury claims being received by insurers with whiplash often being the claimant's weapon of choice. In fact, according to Mintel, the average personal injury claim grew by a staggering £1,500 over the four years to 2008.

Between the lines

Although the number of claims might be levelling out as the industry improves its handling practices, the number of claimants for each reported claim is definitely on the up as our bucolic friends plough onwards to find ever-more innovative ways to identify new opportunities to raise revenues. At Groupama, we have seen the number of average claimants for each case rise from around 1.2 to 1.6 - an increase of around 30% - and this has happened quickly over the last 18 to 24 months. It is bizarre to think that the average motorist is now carrying 30% more passengers, so it is therefore straightforward to determine the likely cause.

Credit hire costs also remain the bane of insurers' lives but the recent rate of increase has possibly begun to ease off. While these costs continue to be a significant challenge and form a high proportion of average claim expenses, they are not contributing as significantly and we now have greater control over our own damage losses, total loss claims and windscreen breakages.

The industry seems to be getting to grips with the fraud epidemic that was mentioned earlier. The last two years have seen our claims teams detect an increasing volume of fraudulent claims both by number and value, although it is still difficult to establish if we are becoming more successful at detection or if the numbers are continuing to grow as a result of recessionary pressures. We believe that the recession is causing a good proportion of fraudulent notifications and we are also now seeing a higher volume of opportunistic fraud in motor lines.

Recent poor weather, aggressive claims farming, the credit hire challenge, rising injury inflation and the impact of fraud have all combined to create perfect storm conditions for the motor market and we can expect the road to recovery to be hard and slow. Counter-fraud activities and investment in specialist training will make a difference in reducing claims leakage and we will shortly begin to see whether the much vaunted Ministry of Justice review will improve processes, speed up PI settlements and help to reduce costs.

Jackson report

In the longer term, there is also some industry support for the review by Lord Justice Jackson and, while ultimately we might have to sign up to an agreement for higher awards, its recommendations to curb claims referrals are welcome.

Meanwhile, the tools available to help balance the books are probably rather less sophisticated but nevertheless just as necessary. An unacceptable level of claims inflation is primarily responsible for the motor sector making an underwriting loss in each of the years since 1995 and it must be tackled. The situation is unsustainable, particularly as the recession has depleted company reserves.

Not surprisingly, premium rates are beginning to harden quickly and rise steeply. For the immediate future, this particular patient remains on the critical list, even though we are finally beginning to stem the bleeding.

PANEL DEBATE AT BIBA 2010

At this year's BIBA conference in London's Excel, a seminar entitled 'Claims wars! - the motor session' will take place on 19 May at 16:10 in stream 1. Motoring journalist Quentin Wilson will chair a panel featuring Patrick Smith, chairman of the British Insurance Brokers' Association and Swinton, Philip Bird, director of claims at Groupama and David Sandhu, chief executive at Ai Claims Solutions.

Click here for more info on the conference: www.campaignpartners.co.uk/biba