Motor premiums for UK re/insurers have risen at a faster rate than ever before, up by 11% from this time last year as the industry adjusts to the Ogden rate hike by passing on its increased costs to policyholders, according to the Association of British Insurers’ (ABI) Motor Premium Tracker.
The ABI expects the impact of this price hike to be passed on to reinsurers, who are likely to increase premiums on renewal; “Most reinsurance renewals will take place in January 2018. This will add to insurer costs which will inevitably feed through to the premiums insurers have to charge customers.”
The ABI tracks changes to premiums by calculating sums paid by customers, rather than by quotes, and found the average price for comprehensive motor insurance has risen by 11%, or £48 from June, 2016.
This represents the fastest year-on-year rise ever recorded, the ABI said, demonstrating the hard-hitting impact to both motor insurers and policyholders following the Ministry of Justice’s decision in February to cut the Ogden rate, a calculation used to determine lump sum compensation to claimants who suffered life-changing injuries, to -0.75% from 2.5%.
Director General of the ABI, Huw Evans commented that this makes a pressing case for the government to review its discount rate framework, and call a stop to further hikes in insurance premium tax; “The UK is one of the most competitive motor insurance markets in the world, but the unprecedented increase in claims costs is driving up prices to record levels.
“Most younger and older drivers are likely to face increases even higher than this, hurting people who can least afford it.
“Worryingly these increases are unlikely to be the end of the road if reinsurance premiums go up at the end of the year, adding further costs to insurers.”
Many firms insuring UK motorists have reported ensuing profit loss, and this could be compounded by insurance premium tax recently increasing from 10% to 12%.
The ABI said it would publish month-by-month premium data to show the continued impact of both the discount rate change and the tax rises as it develops, in the last couple of months the rate has risen steadily and prices appear likely to continue to climb until the industry fully realises the extent of the changes.
A Motion of Regret has been put forward for debate following the House of Lords Secondary Legislation Committee’s dismay at a lack of an impact assessment accompanying February’s change to the discount rate.
The UK Economic Secretary Steven Barclay said in a recent speech at the Association of British Insurers conference, the government is consulting on how to set the Ogden rate for England and Wales, to ensure a “better and fairer system for claimants and defendants.”
He called the current system “outdated,” stating that with negative returns on interest-linked gilts, the mechanism had “lost its connection with the way people invest in the real world,” adding, “we are currently considering the responses to the consultation we’ve received and I would like to thank the industry for the constructive engagement on this issue.”
