Reduced road traffic accidents and personal injury claims as a result of the pandemic boosted the profits of motor insurers by £3.3bn, a report for the Association of Consumer Support Organisations (ACSO) has found.
Executive director Matthew Maxwell Scott said ACSO has written to business secretary Kwasi Kwarteng to ask him to commission the Office for National Statistics to review industry pricing data.
Mr Maxwell Scott said the only way to be certain that consumer were getting a fair deal from motor insurers was for them to “submit their numbers to an official body for peer review”.
He went on: “We believe that, for a compulsory product like car insurance, it is not OK for insurers to mark their own homework.
“There may be a number of reasons why insurers charge what they do. But if claims numbers drop precipitously and there’s very little fall in prices then somebody is doing rather well out of a very regrettable set of circumstances.”
“Insurers are dragging their feet on paying out claims for business interruption, and now it appears from our research that they are keeping under wraps the true extent of their pandemic profits from car insurance too.”
The report Profiting from Pandemic Premiums by economics consultancy Pragmatix Advisory found that there was a 23% fall in road traffic accidents in 2020 and a 21% fall in vehicle thefts, but the average reduction in car insurance premiums was only 9%.
Pragmatix said that, until the pandemic, insurers had seen premium income “only just cover” claims and operating costs, with profits coming instead from investment income.
“Calculations suggest that the excess profits accrued by insurers purely from the impact of Covid likely total £3.3bn – which is equivalent to £118 per policy.
“Even taking account of the reduction in the average premium of £25 over the past 18 months (calculated using official statistics), insurers have benefitted from an average £93 unexpected windfall from every motor policy since March of last year.”
The report found big differences in the average cost of premiums last year, with the Association of British Insurers quoting £465, Money Supermarket £490 and Go Compare £526. However, Compare the Market quoted £707 and Confused.com £763.
Researchers said all the insurers for which they were able to source data had seen a reduction in the share of premiums being used to pay for claims, with Direct Line recording the biggest drop, down nine percentage points to 60%.
There was also “little evidence” that the pandemic had placed additional cost burdens on motor insurers and the industry used the furlough scheme to reduce salary bills.
The Association of British Insurers (ABI) has reported that the average personal injury pay-out rose 13% between 2019 and 2020 to £2,100. Pragmatix said this may reflect, in part, an increase in the average severity of accidents during lockdown.
“But this should not be overstated. The government’s data suggests that both severe and less severe accidents fell by similar percentages through the pandemic, with only the number of fatalities falling less.”
Mr Maxwell Scott commented: “If insurers are keen to trumpet the £25 drop in premiums during the past 18 months, it’s worth asking why they have kept quiet about the further £93 per policy in unexpected profits, for which they have had to do nothing.
“Insurers need to give consumers a break and commit to a substantial and immediate cut in car insurance prices.”
An ABI spokesman said: “Motor insurance remains fiercely competitive and the ABI’s premium tracker, the only one to record what customers actually paid, shows the average cost is at a five-year low and fell by £38 in the first half of 2021.
“Motor insurers supported customers throughout the pandemic including providing cover for key workers to drive to and from work free of charge and those volunteering in response to the pandemic.
“Whilst premium refunds or discounts are a commercial issue for individual insurers, and the vast majority of motorists will still have required some cover even when not using their car as much, some have provided premium refunds, free-of-charge breakdown cover and replacement vehicles for NHS staff as well as flexible premium payment options.
“The same firms often provide cover for home and travel insurance meaning savings from one product line across the year can also help keep availability and affordability of insurance for other customers too.”