What challenges will the UK car insurance industry face in the 21st Century?
Car insurance rates have increased sharply over the last few years, making car insurance one of the most expensive products in the service industry. A 40% increase in car insurance rates has been recorded in the past couple of years. It is not surprising then that more people are driving around in uninsured cars. If the trend is not stopped, car insurance sales will keep taking a dip, leading to minimized profits each year. As it is, many insurance companies are already suffering losses owing to reduced business.
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Uninsured drivers will continue to pose problems for insurance companies. Presently, this group is said to be more than 2 million in number. This is a group that drives regularly, thus increasing their likelihood of getting into accidents. When an uninsured driver hits an insured driver or vice versa, approximately £30 will be taken from their car insurance cover to cover the cost of the accident. Every car insurance policy has that provision – to safeguard their safety in the face of the uninsured driver.
The number of accidents occurring annually has been increasing steadily too. The rate of accidents is expected to increase even further as roads get busier. If out of every 10 accidents, 7 are with an uninsured driver, the insurance company loses over £210 in compensation. In one year, we are talking about potential loss worth over £43,000; a huge amount to lose even for the largest group of insurance companies. Unless the government and the police come in to curb the presence of uninsured motorists, insurance companies can expect to continue spending money on accidents that can be avoided.
Nevertheless, insured drivers still account for the largest percentage of motorists. But this group has gotten savvy. It is like all drivers have adopted the reasoning that ‘if we are spending so much on car insurance, it better be worth it’. The average driver will make a claim in a span of 5 years, even less. As people become more enlightened about their rights as policy holders, they become empowered enough to turn to claims management companies to pursue their claims from the insurer. This trend can only be expected to grow in the 21st century and insurance companies can expect to continue spending more money on settling claims.
Insurance companies have been making huge profits on the basis of a few factors they consider crucial. Two such examples are age and sex. Women have been paying much lower premiums than men, even though not all of them are safe drivers. At the start of March 2011, the European Court of Justice (ECJ) dismissed the practice as discriminatory and passed a ruling that will see the use of gender as a basis for risk assessment cancelled. In view of this, insurance premiums for male drivers will drop. The reduction is expected to be as high as 25-40% in some policies. By the time the industry streamlines its operations to match the new jurisdiction; they can expect to make a substantial amount of losses.