After profitability for UK motor insurers was hard hit by the sudden drop in the Ogden discount rate for personal injury claims, the industry is expected to make a recovery with profits moving to break even before strengthening to a strong increase in 2018 following the Whiplash reforms, according to EY.
2017 profitability is likely to be close to breaking-even at 100.8% Net Combined Ratio (NCR), EY predicts, compared to the previous June forecast of 103.3%.
The NCR for 2018 is predicted to be back in the black at 98.5% – an improvement on previous predictions of a 100.2% NCR for the period, due to expected one-off releases following the revised Ogden rate.
Tony Sault, UK General Insurance Leader at EY, explained that; “while the changes announced earlier in the year meant the insurance industry was facing an additional cost of £3.5 billion, the revised proposals could see up to £2.5 billion shaved off this figure.
“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.
Although the proposed whiplash reforms are expected to benefit claims costs and premiums later next year, there’s a risk that all-consuming Brexit legislation won’t leave Parliament enough time to pass the promised Civil Liability Bill.
Despite this, Sault said; “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.”
The revised proposals for the Ogden discount rate for personal injury claims published in September are likely to result in a new rate set between 0% and 1% – reducing bodily injury costs significantly.
EY predicts that motor premium rates, which had risen by 10% over the last 12 months, will fall to between 2-4% on average premiums, saving up to £21 a year for the average motorist.
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.