The U.K.’s motor insurance market posted its first underwriting profit in two decades following a government ban on referral fees and an increase in reserve releases, research from Ernst & Young LLP shows.
Britain’s publicly traded insurers had a net combined ratio of 98.5 percent in 2013, a four percentage point improvement from 2012 and the strongest performance since 1994, according to a statement. The benchmark measures claims and expenses as a proportion of premiums, with a figure of less than 100 indicating an underwriting profit.
The U.K. government last year banned insurers from collecting fees by selling details of customers who had been in accidents to no-win no-fee lawyers and car-hire firms. The practice had been blamed by politicians and consumer groups for soaring motor premiums.
Excluding releases of reserves, money set aside in previous years to cover the expected cost of claims, the ratio for the industry would still be 105.7 percent, Ernst & Young said.
“A net combined ratio of less than 100 has been hoped for since the referral-fee ban, which aims to curb excessive and often illegitimate claims farming,” said Catherine Barton, Ernst & Young’s head of retail property and casualty actuarial for Europe, the Middle East, India and Africa. “The question remains: are strong reserve releases simply masking true performance.”