Growing retentions and use of captives for fleet motor

Motor insurance rates in some markets have been rising. For example, motor insurance rates in the UK have increased in recent years and are expected to rise by 8% in 2016, according to consultant Ernst & Young. “In Europe, motor is one of the few lines where there has been a modest increase in rates, which has helped to bring more stability to the market,” said Simon Kay, chief underwriting officer for motor fleet at AXA Corporate Solutions. Across Europe, fleet motor rates have been largely flat at a time of increasing deductibles, which have helped contain premium costs for buyers, explained Roger Ball, director of motor at QBE European operations in London. While motor insurance prices are predicted to rise by around 8% in the UK, increases will probably be marginally lower for fleet than for private cover, he said.hideHowever, not everyone sees rates increasing. According to Danny den Hollander, head of motor at Zurich Global Corporate in the Europe, Middle East and Africa region, there are no signs of hardening in today’s competitive environment. Some insurers may be keen to see motor rates rise to counter increased claims severity, but brokers question their ability to do so. “There’s a desire among many fleet motor insurers for an increase in rates going forward, but we are finding that with increasing competition, rates are not always moving in the direction they would like,” said Jim Coumanidis, senior vice-president and head of UK motor placement at Marsh. The desire to increase rates reflects growth in the cost of large claims during recent years, as well as the prolonged low investment return environment. “There has been a big improvement in third-party claims frequency, with fewer accidents involving third parties. But the cost of bodily injury claims has become more expensive, especially larger ones,” said Mr Kay. “The cost of third-party bodily injury claims continues to rise above the rate of inflation and this has had a significant impact on insurers’ bottom line. So rates have had to creep up,” he said. Reduced economic activity in Europe following the 2008 financial crisis resulted in fewer cars on the road and a reduction in accident frequency, according to Mr Ball. Insurance Europe notes that European motor claims expenditure grew 10% between 2004 and 2009, causing motor insurers’ combined ratio to rise above 100%. But from 2009 onwards, following a reduction in the number of road accidents, the sector’s combined ratio fell by 6.5% between 2009 and 2013. Fewer losses also saw a 5% reduction in claims expenditure. However, with lower fuel prices and increased economic activity, falling loss frequency has flattened out and even risen in some markets, such as the UK, said Mr Ball. The cost of large claims in the UK has increased 11% per annum since 2010 for the most severe claims in excess of £250,000, while costs have risen across Europe, he explained. People are living and working longer, serious accident survival rates are improving and legal and medical costs are up. “All of this has resulted in a considerable uplift in loss of earnings and care costs. At the same time, reduced investment returns have negatively impacted insurers’ earnings,” said Mr Ball. There is also a trend for gradual increases in motor fleet retentions by large companies, in part a reflection of higher insurance premium tax (IPT). “Increases in IPT have led to some policyholders considering whether to retain more risk, taking larger excesses and deductibles,” said Mr Ball. Many large companies take the risks of motor damage on their balance sheets, while some are beginning to use their captives. Companies are also increasingly using captives to fund higher retentions for third-party motor liability exposures, explained Mr Kay. The size of the motor fleet and rate of IPT are important drivers for self-insurance and the use of captives for fleet motor. The larger the fleet, the easier it is to predict and manage losses, while companies can reduce IPT through higher retentions, noted Mr Kay. IPT in some European countries is in excess of 40%. It has risen steadily from zero to 10% in the UK, over just a few years. “Retentions have been increasing and captives are slowly coming into the fleet motor space as clients look to manage costs,” said Mr Kay. There is growing demand for international fleet motor programmes, according to Mr Den Hollander of Zurich. “There is a growing trend towards multinational companies purchasing international insurance programmes for fleet motor, and there are now hundreds of such programmes,” he said. “Many risk managers want central control of fleet risk management and the purchase of insurance,” said Mr Den Hollander. “The key advantage of a global motor programme is the ability to centrally manage key fleet exposures and risk prevention programmes around the world,” he said. According to Anthony Monaghan, senior vice-president and motor fleet sub-sector leader at Marsh, global motor programmes are still relatively uncommon, although European fleet motor programmes offer benefits. “Combining regional motor policies under a single European programme can provide risk managers with consolidated vehicle and claims data, opportunities to review limits and deductibles and potential savings, in terms of both premium and local management time,” he explained. However, while there is a lot of interest in European motor programmes, complexity and competition from local motor insurers – as well as the need for local and head office buy in – make such arrangements challenging. True global programmes are difficult in fleet motor, said Mr Ball. The need for local claims handling and local regulations means most covers are still placed locally, he added. “Local regulations do not lend themselves to global programmes. It is not possible to create a single policy wording for all countries but we can structure local policies under a mother arrangement with one premium,” he said.

Growing retentions and use of captives for fleet motor

Want to read this article?

Read Next

Costs rapidly rising for employee health insurance in Portugal

UK market must innovate, not exclude emerging risks: BIBA

EC probes Meta for alleged breaches of Digital Services Act

AM Best improves outlook for Spanish market as talks underway to boost nat cat scheme

Survey suggests risk management losing gains made since pandemic

Costs rapidly rising for employee health insurance in Portugal

UK market must innovate, not exclude emerging risks: BIBA

EC probes Meta for alleged breaches of Digital Services Act

AM Best improves outlook for Spanish market as talks underway to boost nat cat scheme

Survey suggests risk management losing gains made since pandemic

Want to read this article?

Read Next

Costs rapidly rising for employee health insurance in Portugal

UK market must innovate, not exclude emerging risks: BIBA

EC probes Meta for alleged breaches of Digital Services Act

AM Best improves outlook for Spanish market as talks underway to boost nat cat scheme

Survey suggests risk management losing gains made since pandemic

Related Articles