Motor insurance gross written premiums fell in 2013 as insurers anticipated the impact of the UK government’s ban on referral fees for personal injury claims, leading to an increase in price competition. Trade sources have indicated that the amount of claims has not decreased by as much as anticipated, and a number of loopholes still exist allowing some firms to get around the ban. This will damage the profitability for a number of insurers who have priced aggressively over 2013.

2014 is going to be a pivotal year for the motor insurance industry, which is going to have to fight for its reputation as it faces increased political and regulatory scrutiny. The performance of motor insurers will be under the spotlight, particularly in terms of claims performance, pricing performance and customer service. The publishing of the Competition Commission report, due for publishing in September, should outline the way ahead for the industry and trigger reform.

This report examines the main issues affecting the personal motor insurance market. It provides an overview of the market size and share. The report also examines innovations, distribution channels and recent developments. Mintel’s exclusive consumer research provides insight into product ownership, renewal behaviour, interest in policy add-ons, the appetite for telematics and attitudes towards motor insurance.

Under the Road Traffic Act 1988, all motor vehicle drivers and passengers must be insured for liability for bodily injury and property damage. There are two broad types of insurance available to private motorists: comprehensive insurance and non-comprehensive insurance.

Third party only – covers liability for injuries to other people (including passengers), damage to other people’s property, liability of passengers for accidents caused by them and liability arising from use of a caravan or trailer.

Third party, fire and theft – as above plus cover for fire damage and theft of vehicle.

Comprehensive (also known as ‘fully comp’) – is the most popular form of motor insurance and includes protection to the policyholder’s vehicle in addition to the cover available through a third party, fire and theft policy. Policies may also offer additional benefits such as medical expenses and legal costs.

Other terms used in the report include:

Exposure in vehicle years – a guide to the number of vehicles insured, measuring the period of time that the policy is in force during the chosen year.

Gross written premium (GWP) – premium income accepted during the year, which is quoted gross of reinsurance ceded, but net of reinsurance accepted.

Net written premium (NWP) – premium income net of reinsurance ceded but gross of commission, and excluding premium tax.

Reinsurance – the cover insurance companies can purchase to protect themselves against large losses or an unexpected aggregation of losses.

Outgo – the total expenditure of an insurer in relation to any class of insurance business, comprising the cost of claims and the insurer’s business expenses, including any commission paid to sales staff, brokers or intermediaries, together with amounts set aside for reserves.

Underwriting result – the profit or loss achieved by an insurer on insurance underwriting activity, calculated as premium income less the cost of claims and the insurer’s expenses in connection with that business. It has been common for insurers to make underwriting losses since they also receive investment income, which generally offsets the underwriting loss.

Crown copyright material is reproduced with the permission of the Controller of HMSO and the Queen’s Printer for Scotland.