Car insurance claims are on the up in the UK, and this is having a knock-on effect on insurance company share prices, according to a recent report in The Financial Times.
The article specifically refers to a nine percent fall in the value of Esure shares, but also cites smaller share price falls for other insurance companies, including Admiral and Direct Line, and seems to suggest that rising claims and lower share values are a trend that will continue.
Lower petrol prices are cited as a likely reason for the increase in claims. An insurance sector analyst surmises that “more people are driving, they are driving faster and there are more accidents.” While the latter two points are quite possible, the first is somewhat at odds with a recent survey that suggested cheaper petrol hadn’t persuaded people to drive more.
In the car insurance industry, everything boils down to what’s known as the “claims ratio and loss ratio,” essentially the balance of what the firms earn in premiums against what they pay out. When more people drive further and faster, as will likely happen if fuel prices remain low, the ratios will fall at the insurance companies’ expense.
The likely outcome? Well, it’s probably not even that cynical to predict a future rise in premiums…