UK Car Insurers to Raise Rates as capital Investment Income Dwindles

U.K. car insurers will have to raise premiums by a further 5 percent to make up for lower investment returns this year, according to research by Deloitte LLP.

British auto insurers will likely make a 1 billion-pound ($1.7 billion) loss from insuring drivers this year and will have to raise prices to offset the cost of claims and dwindling investment income, the London-based management consultant said in a statement.

“Motor premiums are on the increase,” said James Rakow, insurance associate partner at Deloitte. “The current year of trading is far from being profitable at a market level and this is likely to remain the case in 2010.”

The car insurance industry hasn’t made an underwriting profit, which excludes investment income, for at least 11 years, the Association of British Insurers said. The Bank of England’s record low interest, which was cut to 0.5 percent in March, is squeezing the investment returns that buoyed insurers’ earnings for the past decade.

Aviva Plc and RSA Insurance Group Plc, the U.K.’s two biggest non-life insurers, said they succeeded in pushing through price increases in the first half of this year. In the market as a whole, motor insurers raised prices at the fastest rate on record in the three months to Sept. 30, and the average premium has risen 14 percent over the last year, according to the Automobile Association Ltd.

UK Capital Investments Group News, December 2009