90% no claims car policy is bad news

Updated: 
AXA websiteFrench insurer AXA has launched a UK direct car insurance product offering drivers up to 90% no claims discount (NCD), at a time when many drivers are seeing their premiums rise rapidly.

Great news for consumers - just another silly, price-cutting move for the insurance sector, which has not made a profit in motor insurance for more than a decade.

There are some good additions to the policy. For an extra £34.99 you can add £1m of driver injury cover, which AXA claims is unique. More than half of all drivers don't realise that their car insurance does not cover them if the accident is their fault.

A good thing

This could just be a start. AXA may just lead the rest of the industry to offer this as standard (most people think they are covered anyway). That would be a good thing.

But the problem is the emphasis is likely again to be on price, rather than quality. Insurers are hopeless at maintaining underwriting discipline.

Actuarial consultant EMB recently concluded a study of insurers 2009 results and reckoned the combined ratios for the private and commercial motor insurance market in 2009 will exceed 115%. In private motor, the combined ratio could exceed 120% it says, with 110% for commercial motor.

Expenses and damages

The combined ratio measures the costs paid out in claims and the expenses insurers incur in managing policies and handling claims. They show that for personal car insurance insurers are paying out £1.20 for every £1 they get as premiums.

The Association of British Insurers' (ABI) says its figures show motor insurers have not made an underwriting profit for more than ten years.

The AA recently suggested premiums would rise and some insurers, - noticeably Zurich - have promised 20% increases to try to claw back some of their losses.

Sensible heads will roll

But cut-throat price competition so often means the sensible heads of the underwriters are silenced to madcap schemes of the marketeers.

And make no mistake, despite insurers pinning hopes on Lord Justice Jackson's review of costs to curtail excessive solicitor fees, claims costs will rise.

Association of Personal Injury Lawyers (APIL) chief executive, Denise Kitchener has defended 20% in motor insurance premiums because of personal injury claims costs.

Negligence

"If someone is injured and suffering because of someone else's negligence, that person is absolutely within his rights to claim fair redress - regardless of the severity of the injury.

"The fact that more people are becoming aware of their rights should be welcomed and it should also be noted that a claim for compensation cannot succeed unless negligence is proven," she said.

Cheap insurance may seem good for consumers but insurers need to grasp the nettle and stop silly price wars.

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