If you read The Telegraph or The Daily Mirror you’d be forgiven for thinking it was inevitable that insurance premiums will rise across the board by up to 20% during 2009. But is it? All the adverts we’ve seen from insurers talk about savings, not more costs. NCD News investigated further, contacting insurers directly to find out the truth behind the headlines.
First we contacted the AA, who recently predicted a need for premiums to rise by at least 10%.
“… we are not immune from the general industry trends, any more than other providers are although there will always be those who are for one reason or another cutting introductory premiums to obtain market share which helps to keep the premium increases in check. We certainly don’t expect to see the 20-pc premium increases that some industry commentators are predicting for 2009.” — Ian Crowder, AA Public Relations Manager
So, we contacted Aviva, RAC’s parent company and the future replacement branding for Norwich Union. They told us that at present they have no intention of raising premiums, although they couldn’t definitely rule out any rises in the future.
The iconic brands of the RBS Insurance Group: Direct Line, Churchill and Privilege also dismissed talk of impending rises:
“Our current Churchill motor offer is to not increase premiums next year. Therefore, customers taking out insurance with us now will pay the same or even less next year.” — Claire Foster, RBS Insurance
Meanwhile Maggie Game, Head of Car Insurance for Direct Line, told us:
“At Direct Line we don’t see our prices going up in line with the AA predictions because we don’t pay commissions to brokers, middle men or price comparison sites and we pass these savings directly onto our customers. With an estimated 300m being paid by insurers to price comparison sites each year, consumers will inevitably end up paying for this.”
Now we had the bit between our teeth, we approached Sainsbury’s. They promptly responded with a variation on the classic financial opt-out of ‘the value of your investments may go down as well as up’:
“Sainsbury’s Bank aims to remain competitive at all times by offering excellent cover at a fair and competitive premium. We regularly review and change our premiums across all of our insurance products, taking into account a number of external factors. This means that there is a chance some premiums may go up, while others may also go down during 2009.” — Natasha Virtue, Sainsbury’s
From the Nationwide, Roy Beale’s sound bite was short but sweet:
“I can confirm that there are not currently any plans to increase insurance premiums for Nationwide customers.”
Now intrigued, we couldn’t stop there. There’s apparently this credit-crunch thingy going on so surely someone is raising prices? We contacted Endsleigh and got the following response:
“Endsleigh is an insurance provider, not an actual insurer. This means that the prices are determined by our suppliers, so we couldn’t say whether prices will be going up or down – it would be dependent on the insurers, although of course Endsleigh will query any increases for adequate explanation.” — Bethany Wheatly, Endsleigh
Still very noncommittal. Finally Liverpool Victoria, two years on from their LV= brand exchange, was singing a similar tune to the AA:
“There is a general view that premiums will go up – as a result of a range of different factors – which are detailed in the article in Insurance Times, these include the rising cost of claims and the current financial market problems, however we do not currently have plans to implement blanket increases across our book. What I would say is that LV= is as a mutual organisation, i.e. we don’t have shareholders, so we may not be under as much pressure as other financial organisations are.” — Emma Hoyler, LV=
But they were the only ones to say such. A Legal and General call centre told us:
“Legal and General have no plans to increase premiums for the foreseeable future and advised that service agents are told three months in advance so they can make adequate preparation.”
With More Th>n also stating that they didn’t foresee any possible rises for 2009.
Sheila’s Wheels declined to comment and Barclays were not prepared to discuss the matter at present, (although given current events you can understand why they might want to stay out of the media spotlight for once).
So it seems the general outlook from most insurers is that they have no plans to increase premiums – but does that mean that the newspaper reports we mentioned earlier are wrong?
We checked with the Association of British Insurers regarding the financial state of the insurance industry in general, just in case. The figures speak for themselves, they said.
As of 31 December 2007, the insurance industry had 1,599 billion invested in company shares and other assets compared with 1,480 in 2006. General insurance investments amounted to 121 billion whilst in 2006 they were 112 billion, their long-term investments accounted for another 1,478 billion.
It all sounds very impressive so why the doom and gloom?
Essentially the problem is that insurers have their capital tied up in investments that are yielding smaller dividends, making capital liquidity an issue. Whilst the figures available at present are for 2007, the carnage in the stock market over the last 18 months would have done nothing for the financial health of their assets. The FTSE 100 is already 50% lower than its 2007 high and whilst institutions like Barclays, Lloyds, Rio Tinto et al may have seemed like safe blue chip companies two years ago, the credit crunch and global recession have reduced them to penny shares.
Add to this the 644 million underwriting losses suffered in 2007 and we see a different picture emerging. So whilst insurance providers may not wish to increase premiums during 2009, it won’t be long before they are left with no alternative to ensure economic viability in an ever-shrinking global economy.
Specialist Cover Providers
