Changes to the Ogden rate and whiplash reforms are set to contribute to putting motor insurance back into profit.
The motor insurance market could return to profit in 2018 and break even this year according to analysis from consultancy firm EY.
The 2017 profitability is likely to be close to breaking-even at 100.8% Net Combined Ratio (NCR), compared to the previous forecast (in June) of 103.3%, said the EY predictions.
The NCR for 2018 is also expected to be solidly in the black at 98.5%; a substantial improvement on the 100.2% predicted in EY’s June’s analysis.
EY noted that the new figures follow the revised proposals for the Ogden discount rate for personal injury claims published in September – which the Ministry of Justice expects will result in a new rate between 0% and 1% – and the prospect of the positive impact of the whiplash reforms which should reduce bodily injury costs markedly.
Fortunes
Tony Sault, UK general insurance Leader at EY, commented: “The revised Ogden Rate proposals in September have provided something of a reversal in the motor insurance industry’s fortunes.”
EY pointed out the changes announced earlier in the year meant the insurance industry was facing an additional cost of £3.5bn, the revised proposals could see up to £2.5bn shaved off this figure.
Sault continued: “The reversal is also expected to have a positive effect on premium rates for consumers and we would expect the premiums to start to fall next year in anticipation of the new legislation coming into force.”
It also predicted that premium rates for motor in 2018 would fall. EY noted that the revision to Ogden is likely to lead to a fall of between 2% and 4% on average premiums, saving up to £21 annually for the average motorist.
Prior to the indications that Ogden would be amended there were fears that motor premiums could hit record levels.
Falling
EY further stated that the whiplash reforms should provide further relief to motorists, with an additional 8-10% reduction in premiums starting later in 2018, totalling a £45 per year saving once the reforms are fully implemented.
Sault added: “The proposed whiplash reforms are also expected to benefit claims costs and premiums later next year, although there is a risk that the weight of Brexit legislation will not leave Parliament enough time to pass the promised Civil Liability Bill.
“The industry though, is certainly facing a much better end to the year than it had feared back in February and its prospects are looking a great deal brighter.”
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