UK Consumers Face Steep Motor Insurance Premium Rises 24/08/00 A new report from Mintel predicts UK motor premium increases of 25% over the forthcoming year. Although, the Internet revolution has been slow to reach the insurance industry, it is predicted that sales will grow substantially over the next five years. Whereas in 1999 motor insurance premium increases were in the region of 20%, they are predicted to reach 25% this year. The study expects consumers to face steep premium rises for some time as insurers gradually raise rates to more realistic levels to achieve profits on their private motor accounts. At present, premium rises by insurance companies are doing little more than cover the increased cost of personal injury claims, which have risen as a result of the impact of the Ogden and Woolf reforms - the Law Commission recommendation on personal and injury payments and road traffic replacement costs. The cost of motor repairs has also become a factor, with garage "charge out" rates rising sharply and garages no longer prepared to depress labour rates to guarantee volume business. According to Paul Davies, Finance Consultant at Mintel, "UK motor insurance appears to have fallen in to an unprofitable abyss for the time being. There are also signs that some new entrant companies are still volume chasing on price, although the results for 2000 should show an improvement, the UK motor insurance market is unlikely to record profit until 2001 or 2002". There are now belated signs that the online revolution is impacting the motor insurance industry. In general terms, the insurance industry in the UK has been slower to embrace the potential of e-commerce than other financial services sectors. The intrinsically conservative nature of the business has meant that online selling of car insurance has not developed rapidly. Consumers are still adapting to the idea of buying motor insurance online fairly slowly. Difficulties in navigating websites are fairly common, and many consumers prefer the ease of picking up the telephone to complete a transaction. Mintel's consumer research showed that only 1% had arranged their last policy over the Internet. "Insurers are confident that the Internet will have a key role to play in car insurance distribution in the future. It has been predicted that by 2003 a significantly greater proportion of sales will be sold over the Internet, but the majority will still be sold over the telephone and the remainder sold face to face" added Paul Davies. Cross-selling initiatives by insurance companies are aiming to link the customer bases of different general insurance sectors, and the next step is to combine the products themselves. According to Mintel research, some 51% of consumers would be interested in combining all insurance products into one policy if it saved time or money. Research questioning 1,830 adults reveals that 47% of adults have a motor insurance policy in their own name, with 40% holding a comprehensive policy. A further 12% are covered by company or someone else's insurance. Some 56% of respondents bought their last motor insurance direct from an insurance company, compared to 40% of the sample that used a broker. "When Mintel last conducted research on motor insurance in December 1998, some 51% had purchased their cover direct and 44% through a broker. The growing influence of direct providers is confirmed by these results, with the direct share continuing to take business away from the traditional broker distribution channel" comments Paul Davies. Using the telephone was the most popular method of arranging cover, accounting for 68% of those with motor insurance. The most important factor in choosing a particular provider was that it offered the cheapest cover, cited by 47% of respondents. The second decision driver was that the insurer provided the cover that the consumer wanted, noted by 22% of the sample. Customer churn seems to be on the increase, with 22% of respondents having been with their provider for less than one year and a further 23% between one and two years.