Allianz's Holmes: Motor re would be last resort after reinsurance market and government intervention

By Rebecca Delaney

Feb 27 - (The Insurer) - A motor state-backed reinsurance scheme in the UK may be needed if insurance premiums become both unaffordable and unavailable for policyholders, Allianz UK CEO Colm Holmes warned at the Association of British Insurers’ annual conference in London on Thursday.

Holmes called on the industry to find solutions to the current inflationary pressures pushing up premiums in UK motor lines.

“The question to be asked is how to get the price of insurance down. There's lots of ways, but it has to be material," he said.

“Quite frankly, fiddling around with the edges or taking a young person's insurance from 4,500 pounds to 4,300 pounds is an improvement, but still not at the level of affordable insurance that we care about.”

Holmes added that although the UK is not inherently expensive from an administration perspective, this is not fully understood by consumers who only see consistently high premiums on the front end.

“The one thing insurance companies universally hate are high premiums, because with high premiums, you get higher churn, higher fraud, you get a lot more grief and you tend to get more regulation, none of which is actually fixing the problem,” he said.

“The truth is, I want small premiums and stable margins and stable relationships with our customers. High premiums deliver the opposite of all that, which is why we're all working towards the same end.”

The underlying cost of insurance is predominantly driven by the cost of claims, with claims handling companies adding costs to a claim from a customer perspective.

In the UK specifically, post-Brexit impacts are still being felt across the supply chain relative to other European countries in terms of the cost of spare parts and labour, while the UK also has higher liability costs and a greater frequency of whiplash and other soft tissue injuries.

“A lot of countries don't have unlimited liability, which will obviously make quite a material difference in the cost of insurance. Do we need a Motor Re? I hope not,” said Holmes.

“I specifically hope not because I do think it is incumbent upon the industry to find the right answer and the right solutions. There's a government and a regulator in the UK that is genuinely looking to take the right actions to ensure that insurance is available and affordable to people.”

He added: “That doesn't mean that you can always make that a reality, hence Flood Re and Pool Re. Could we end up with Motor Re? I suspect we could. Simply, it's not good enough for it to be available, it has to be affordable.”

Holmes cautioned against using data to an overly granular level, as this will lead to strict risk screening and insurability challenges.

“I would be concerned that as we get more data, by definition, you start excluding more extreme risks, and those extreme risks become individuals who might need a vehicle to get to work, or a house that reside at the wrong tree or the wrong soil type because of subsidence or flood,” he said.

“Personally, I'm a big fan of having much more market solutions. We could look at reinsurance or retaining reserves on the balance sheets of insurance companies to actually cater for those cycles that we see which are increasingly part of everyday life now. We're better to do that in the UK. The UK is probably, I still believe, the only real global insurance market in the world.”