Category Archives: Property and Casualty / Non-Life / General

The cost of this summer’s wet weather has yet to be calculated

UK household insurers had a good 2011 – but floods will have an impact

Figures show that 2011 was the fourth consecutive year when UK home insurance premiums either met or exceeded the cost of claims and expenses.

Home insurers in 2011 posted a net combined ratio of 89. In 2007, the most recent year to experience widespread flooding, the net combined ratio was 120.

James Rakow, insurance partner at Deloitte who compiled the figures comments “At an industry level, the size of the home insurance market remains stable with annual premiums worth about £6.5bn. Profitability improved in 2011 because it was a relatively benign year for weather-related losses compared to 2010, when the insurance industry was hit hard by the extremely cold weather that Britain experienced in the December.

“The cost of claims arising from the floods that have swept across the country over the past few weeks will be the greatest since the 2007 flood losses, and will make insurers, reinsurers and other agencies look again at their flood models to check how well they predict the cost of flood claims,” he adds.

Climate body calls for flood defence upgrade

A further £20m a year needs to be spent on flood defences to keep pace with climate change, according to a new report from a climate change body. If this does not happen, the number of homes and businesses at the highest risk of flooding could almost double to 610,000 from its current level of 330,000 in the next 20 years.

The report by the Adaptation Sub-Committee (ASC) of the Committee for Climate Change, which advises the government, found that the number of properties built on flood plains has increased by 12% over the past 10 years, compared with a 7% rise outside flood-affected areas.

Citing figures from the Environment Agency, The ASC noted that at the same time, funding for flood defences from both public and private sources is decreasing. It was 12% lower for the current spending period compared with the previous period, after inflation.

Take-up of measures to protect individual properties from flooding is 20 to 35 times lower than the rate required to safeguard all properties that could benefit, the report said.

The ASC estimates that if the additional £20m was spent on flood defences, only 160,000 properties would be at significant risk of flooding by 2035.

ASC chairman Lord John Krebs said in a statement: “We must take adaptation more seriously if we are to manage the growing risks of floods and droughts. This can be done by investing more in flood defences, faster roll-out of water meters and giving serious consideration to where and how we build our housing and infrastructure.

“Without action by households and businesses to prepare for these inevitable weather extremes the country faces rising costs, unnecessary damage and future disruption.”



Research shows material worsening of bodily injury claims experience

The Institute and Faculty of Actuaries has released its 3rd annual report looking at ‘third party motor and periodic payment orders (PPOs) UK claims data’; a report which collates and analyses data from across the motor and PPO insurance industry for 2011.

A key finding of the Institute and Faculty of Actuaries report is the increase in the proportion of third party accidents involving bodily injury where data shows a staggering 18% increase from 2010 to 2011. A rise in the proportion of reported accidents involving bodily injury has been a key trend for several years; however this year has seen the greatest increase ever. The Institute and Faculty of Actuaries believes that this rise is down to unprecedented activity by claims management companies. The increase in claims increased costs to insurers to the tune of approximately £400 million in 2011.

David Brown, chairman of the Institute and Faculty of Actuaries UK third party motor and PPO claims working parties which produce the annual reports comments;

“The increase in costs to insurers because of the rise in bodily injury claims is likely to result in a rise in motor insurance premiums for drivers. The clear correlation between claims management companies office locations and the ‘hotspots’ for bodily injury claims suggests that the two are interlinked. We expect to see legislation coming soon which will affect the way in which claims management companies do business, which may account for the significant increase seen in 2011 – it is possible this is a last hurrah.

“In 2010 the worst areas of the UK overtook the worst areas of the US in terms of the proportion of accidents involving bodily injury. It is disappointing to see this trend not only continue, but worsen in all regions with the exception of Scotland.”

Accidents giving rise to third party claims are on the decline according to our 2011 data. Our research suggests that the rise in petrol prices has contributed to a reduction in the number of hours people spend driving and therefore has reduced accidents. Specifically third party damage claim frequencies have continued to decrease. This is the sharpest drop for the last 5 years, representing a decrease of 11%.

Third party bodily injury (TPI) claim frequencies increased by 5% in 2011. Claim numbers have been rising year on year since our records began, (with the exception of 2010 which appears to have been the result of Ministry of Justice personal injury claims reform rather than a change in trend).

A staggering 18% increase in third party accidents involving bodily injury (third party bodily injury/third party damage ratio) from 2010 to 2011. Since our records began year on year a greater proportion of accidents has involved a bodily injury claim, but this year has seen the greatest increase ever. We believe this rise goes with unprecedented activity by claims management companies. This change alone increased costs to insurers in excess of £400m and as a result it is likely that motor insurance premiums will rise.

Hotspots of third party accidents with bodily injury claims were found – mostly in the North West and West Midlands, in particular Liverpool, Manchester and Birmingham.  Previously these hotspots were contained to city centres but our 2011 data shows they are now spreading out to more rural areas within these regions.

One trend that did continue from 2010 is that the worst areas of the UK overtook the worst areas of the US in terms of the proportion of accidents involving bodily injury.

There was a 9% increase in the average cost of small  third party bodily injury claims reported to insurers.

Third party damage claim amounts increased by 12.5%, a dramatic rise from 2010. The data also points to a slowing down in third party property damage settlement rates.

For the 3rd year in a row PPO awards that were settled in the UK motor insurance market totalled around the 70 mark, suggesting that a ‘mercury level’ has been reached.

There is evidence of stabilisation in the average PPO awards. The average age of PPO claimants increased only slightly from 34.4 years in 2010 to 35.2 years in 2011. Consistent with this increase, there was a slight decrease in future life expectancy in the 2011 data from the previous year reducing from 41.5 years to 40.4 years.

The average size of an annual PPO payment in 2011 was £78,700– almost identical to the 2010



Churchill, Privilege and Sainsbury’s Bank branded insurance available on aggregator

Churchill, Privilege and Sansbury’s Bank-branded insurance products are now available on price comparison site Comparethemarket.

The move follows an agreement reached between the price comparison site and Direct Line Group, which owns the Churchill and Privilege brands and has a white-label deal with Sainsbury’s Bank.

The deal expands Direct Line Group’s presence on price comparison sites, also known as aggregators. Churchill and Privilege products are now quoted on the top four UK aggregators, which make up the majority of the UK private motor price comparison market.

Direct Line Group said price comparison sites are an integral part of its distribution strategy. However it added that products carrying the Direct Line brand would continue to be sold direct to customers and are unavailable through brokers or aggregators.

Commenting on the launch, Direct Line Group chief executive Paul Geddes said: “I’m delighted that this agreement extends our multi-channel distribution strategy, making some of our products more widely accessible.

“This partnership supports our retail general insurance strategy and gives even more customers more choice in how they can access some of the leading retail brands in our portfolio.”

Comparethemarket managing director Paul Galligan added: “Adding leading Direct Line Group brands such as Churchill and Privilege further strengthens our offering and means that our customers can receive great prices from an even wider range of insurers, all in one easy to use comparison service. We are delighted to have them on board.”






Invite to discussion on dimension reduction techniques and forecasting interest rates

A free talk for actuarials on the methods used when forecasting interest rates will take place at Staple Inn, London on Tuesday 17 July 2012 at 18:00. The talk will help to broaden understanding on the following topics by,

· providing an overview of the methods available and their possible uses.

· Highlight the importance of the many assumptions and choices to be made by the modeller

 · Discuss how a business’s assets and liabilities should be considered when constructing an interest rate model

 · Place such issues in the context of a Solvency II internal model, touching on issues relating to curve fitting and tail behaviour.

 Guests are invited to turn up on the night and are invited to enjoy a free drink at buffet at a nearby pub after the talk. Please contact 0207 632 1498 for more information.

Actuaries promoted to partner at Hymans Robertson

Three actuaries were among a group of seven members of the Hymans Robertson team to be promoted to partner last week.

They include Mark Jaffray, who qualified as an actuary in 1998. He joined Hymans Robertson’s Glasgow office as an investment consultant and specialises in providing advice to defined contribution pension schemes.

In particular, his work includes helping clients who are preparing to implement auto-enrolment schemes.

Barry McKay qualified as an actuary in 2006. He first joined Hymans Robertson in 1996 and, after a brief break travelling, rejoined the company in 2005. He works as an actuary in the firm’s public sector team and most recently has been heavily involved in helping clients to deal with public sector pension reform. He is also helping to develop the consultancy’s online presence.

Calum Cooper qualified as an actuary in 2007, joining Hymans Robertson in 2003 as an actuarial trainee. He is now a scheme actuary working out of the firm’s Glasgow office. As lead consultant for a range of private sector pension schemes, he works with companies and trustees to help them develop risk management strategies.

He specialises in funding strategy, flexible income drawdown, benefit flexibility and risk management opportunities.

Finance and operations director Nick Pope has also been promoted to partner, and so has head of coaching and development, Monica Smith.

All at Gaaps with them will in their new roles within the company.

Ronnie Bowe, senior partner at Hymans Robertson, welcomed the appointments, which take the number of partners at the firm to 63.

Reinsurance rates continue upward trend at April renewals

Two thirds of natural disasters in 2011 occurred in Asia and as the April deadline for the reinsurance renewal got closer (April 1st) reinsurers were getting ready for the first real indication of how the damages had affected reinsurance rates in Japan and the rest of the region.

It was good news- as the market continues to work through the impact of the events of 2011, April’s reinsurance renewal rates have continued their rising trend seen in January according to reinsurers Guy Carpenter.
David Flandro, Guy Carpenter’s global head of business intelligence said that the reinsurance sector continues to function normally, despite 2011’s losses, and holds sufficient capital to support the Asia-Pacific region and the global property/casualty insurance industry overall.

“Japanese insurers were hit hard by catastrophic flooding in Thailand, which itself came less than six months after the Tohoku earthquake,” he said. “Nevertheless, we were pleased to see that reinsurers remained supportive of the Japanese market. Fortunately, loss activity during the first three months of 2012 has been relatively light, with insured losses expected to be under $5bn. This is significantly down from the first quarter of 2011, when insured losses exceeded $50bn.”