UK motor insurance sector posts record results

The UK motor insurance market has reported a net combined ratio (NCR) of 96.8 percent in 2017, the best result since 1994 and the second best since records began, according to EY’s Annual UK Motor Insurance Results.

The 2017 results compare to 109.4 percent NCR the industry reported in 2016. The improvements in 2017 were driven by premium increases, a fall in injury claims, and a readjustment of reserves for large claims due to the improved outlook for the Ogden discount rate for personal injury claims.

Motor insurers generally took a cautious view in their 2016 results following the original announcement to change the Ogden personal injury discount rate in February 2017, when the rate was reduced to -0.75 percent. However, given the UK government’s progress towards reforming the way the rate is set via the Civil Liability Bill, some insurers have been able to release some of these reserves from their balance sheets. EY estimates without this effect, the 2017 NCR would have been approximately 1.6 percent higher.

“After the disappointing result in 2016, motor insurers have experienced a reversal in fortunes, buoyed by the anticipated changes to the Ogden rate,” said Tony Sault, UK general insurance market lead at EY. “This helped create the best underwriting result since the mid-1990s. While the outlook for 2018 looks bright as the industry continues to benefit from the premium rises during 2017, the market is now softening rapidly and we expect this to impact 2019 profits.”

Personal motor insurance cost consumers on average £480 in 2017, up 8.7 percent year on year, reaching a peak of £491 in the fourth quarter of the year, with the main driver being the original Ogden rate change.

EY expects 2018 to be another good year for UK motor insurers, with the reported NCR declining slightly to 97.7 percent. Despite rates beginning to fall in the market, business written during 2017 will continue to perform well, and further reserve releases are possible if the Civil Liability Bill receives Royal Assent.

However, premiums have begun to reduce in the early part of 2018 and are expected to remain on a downwards trend until early next year. The key reasons are the increasing competition by insurers for a share of the market, together with reductions in the level of whiplash claims from the anticipated effect of the whiplash reforms in the Civil Liability Bill which is currently progressing through the UK parliament.

Rodney Bonnard, UK insurance leader at EY, commented: “The proposed changes to the Ogden rate – which earlier last year meant substantially higher compensation amounts for serious injuries – resulted in increased premiums as firms anticipated higher pay outs. However, with the expected Ogden rate revisions and whiplash reforms, consumer premiums are now on the way down which is clearly welcome news for car owners. And more good news could be on the way as the large players continue to vie for growth and market share, driving down prices further.”

EY predicts prices to fall to £471 over 2018 and £455 over 2019; with the benefit of the whiplash reforms equivalent to approximately £35 per policy.

In 2019, EY expects that the current softening of premium rates will catch up with the changing claims environment. While the whiplash reform element of the Civil Liability Bill should come into force during the year, the government is likely to put pressure on the market to pass savings directly to consumers, resulting in little net benefit for insurers. Reserve releases are also expected to return to normal levels. EY predicts an underwriting result back in the red, with an NCR of 102.5 percent in 2019.

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