Fitch Ratings has reported that UK motor insurance premiums appear to be declining as re/insurers anticipate reforms to curb whiplash claims and revise the Ogden discount rate, which will reduce lump-sum payments for long-term care costs and lost earnings.
UK motor premium prices have risen for the last three years, driven by rising claims costs and shrinking margins, but price comparison website confused.com has reported a 7% quarter-on-quarter drop in average prices for Q1 2018, and this trend is expected to be confirmed by the Association of British Insurers (ABI) in their upcoming sales data.
Fitch does not expect the reforms to have a material impact on re/insurers’ profitability or credit profiles, as pricing adjustments will tend to compensate for altered claim costs.
Given the competitive nature of the UK motor re/insurance market, Fitch also finds it unsurprising that insurers would reduce premium prices in response to the limits on whiplash compensation and revisions to the Ogden discount rate.
The proposed reforms will likely be in place by April 2019, and will apply to any claims made or settled after this date, even if the related incident occurred before the rules were implemented.
The reforms will thus affect policies sold over a year beforehand, so insurers have already begun to adjust prices in anticipation, a trend that Fitch expects to escalate as the new rules become more imminent, with further price reductions to follow their implementation once claim costs visibly fall.
However, re/insurers’ approach to price cuts will likely remain cautious, as underwriting performance has been weakened in the past by overconfidence in previous attempts to reduce personal injury claims costs.
Fitch’s sector outlook for UK non-life re/insurer’s also remains negative, reflecting pressure from intense competition, claims inflation, and the growing use of price comparison websites.
