The UK motor insurance market’s profitability is expected to approach break even this year and see a strong uplift in 2018 due to the revised Ogden discount rate, according to EY’s latest UK motor insurance analysis.
The revised Ogden rate is expected to be between 0%-1% – sharply reducing bodily injury costs.
Tony Sault, UK General Insurance Leader at EY, said that “while 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.
“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.”
Profitability for 2017 is expected to be at break even at 100.8% Net Combined Ratio (NCR), however, in 2018 it’s forecast to be solidly back in the black at 98.5%.
Sault said that although the proposed whiplash reforms are expected to improve premiums later next year, fears remain that these won’t be quickly passed through Parliament due to being outweighed by Brexit legislation.
However, Sault remained optimistic on the industry’s prospects, adding that the industry “ is certainly facing a much better end to the year than it had feared back in February.”
Motor premium rates have been at record highs after rising 10% in the past year after the Ogden discount rate saw a sudden decrease from 2.5% to minus 0.75% early in 2017.
EY predicts that the revision to Ogden will cause a 2% – 4% drop on average premiums, saving up to £21 annually for the average motorist.
Later in 2018 premium rates could plummet by 8-10%, reducing costs for policyholders by £45 annually once reforms are implemented – reversing fortunes for both the motor insurance industry and motorists.
