Insurance Companies Struggling To Make Profits

Insurance companies have seen reductions in profits and are planning to raise the price of premiums in order to boost their financial situations according to research by business information group Datamonitor.

So far over the last twelve months consumers have seen insurance premiums rise by around twenty percent which has resulted in most people paying an average of one hundred pounds more for their insurance. It has been estimated that over the next twelve months premiums are going to rise by the same amount again, which could lead to more families struggling to meet their monthly bills.

The reason for the increase in premiums has been cited as the result of high numbers of people injured in accidents taking insurance companies to court for their compensation. There has also been an increase in administration costs which have resulted in some insurance companies actually losing money. Coupled with this insurance companies have experience high losses due in part to the underwriting of the policies which has meant they are now needing to find money as quickly as possible to keep themselves profitable.

Some insurance firms have decided to encourage more drivers to opt for fully comprehensive insurance in order to boast their profits, although this may not be as successful as they hope. A report by YouGov has shown that 26 percent of all those who responded are planning to reduce their insurance cover in the next year, which could result in an reduction in premium revenue across the whole insurance industry of as much as £1.5 billion. One way in which consumers planned to cut back was reduced their car insurance from fully comprehensive to third party, fire and theft. This may not be just because the premiums are cheaper but also because consumers feel that that their cars are now worth less due to the increases in fuel prices and the impact of government proposals to increase road tax.

Nonetheless if customers do decide to start opting for cheaper policies the car insurance industry will struggle to change their minds and encourage them to buy more expensive premiums. The car insurance industry is incredibly competitive, meaning consumers have a lot more choice in terms of who they want to take out insurance with. In addition research figures show that drivers are twice as likely to change their car insurance provider as their home insurance provider, meaning competition for customers is never ending.

Other insurers were planning to generate more revenue through Payment Protection Insurance (PPI) schemes, although again consumers have indicated that they are more likely to cancel these schemes in order to reduce household expenditure. It would appear that there could be difficult times ahead for insurance companies as customers struggle to meet bills during the credit crunch. In order to survive remaining competitive will be key, but also providing good customer service will help retain the customers they already have. For those who fail to entice new customers as well as meet the needs of the ones they have will face a very tough future. n