Motor insurance 2020 - Rising reinsurance costs
ERS Active Underwriter Martin Hall explains how rising reinsurance costs faced by motor insurers will have to be accounted for in their 2020 pricing.
Reinsurers carry the risk for insurer’s largest claims. A big influence in the costs of these claims is an assumption that the money awarded will earn interest over time - the Ogden rate is used in this calculation. During 2019 the Ogden rate changed from -0.75% to -0.25%.
This change was not expected by most insurers (previous guidance was for the Ogden rate to be set somewhere between 0% and 1%) and means that the cost of claims will be higher than anticipated. Due to this increase in claims costs, many of these claims will now be picked up by reinsurers who will, in turn, increase their rates to reflect their additional exposure.
Additionally, there is a change in the income assumptions that reinsurers will receive on the investments of the premiums they hold before paying claims.
Most reinsurance contracts are renewed annually, and many were due on the 1st January. Feedback we have received is that the market increases were up to 30%. We also know there were less reinsurers providing motor capacity which contributed to increased prices due to less competition.
ERS’ reinsurance will add several million pounds of expense to the business. To stand still, we need to collect that amount in additional premium at the same level of exposure, which roughly equates to increasing all prices by 1.6%.
This increase will make trading for many motor MGA’s more difficult, as their capacity providers will insist that they increase rates to cover the additional reinsurance costs. It is also possible that capacity providers will have to reduce their expenses to improve their profitability which may result in them paying MGA’s less commission which will squeeze their returns and viability.
If you would like to read the full article from ERS Active Underwriter Martin Hall that explores the challenges facing the motor market in 2020 CLICK HERE
ERS is the UK’s largest specialist motor only insurer underwritten by Lloyd’s and rated A+. For over 70 years, we have worked directly with brokers to provide bespoke cover for their customers’ specialist requirements.
For these customers’ their vehicle is often at the centre of their livelihood or passion, giving rise to different or specific needs that cannot be met with one-size-fits-all insurance. At ERS we recognise and embrace this difference; it is why we employ teams of underwriters who are experts in their field to understand each risk individually to provide the ideal cover and it is also why brokers have told us that they trust us more than any other insurer with a specialist motor risk.
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