Scroll down

Motor insurance premiums set to rise

An analysis of the UK motor insurance market, by Ernst & Young, issued in November 2019, concluded that, whilst in 2017 and 2018 insurers had made the first two consecutive years of profit in the last 40 years, in 2019, many insurers failed to increase their premiums sufficiently to cover claims inflation.

Written by Paul Brown on 28th February 2020

Motor insurance premiums set to rise

An analysis of the UK motor insurance market, by Ernst & Young, issued in November 2019, concluded that, whilst in 2017 and 2018 insurers had made the first two consecutive years of profit in the last 40 years, in 2019, many insurers failed to increase their premiums sufficiently to cover claims inflation.

This insufficient premium increase leads Ernst & Young to predict that UK motor insurance will deliver a 2019 Combined Operating Ratio (a ratio of claims and all costs and expenses to premiums) of 105%, returning the sector to loss making. Such a forecast has a significant impact on premium pricing calculations for 2020 and for many insurers considerable price increases will be required to return to profit.

What factors are creating headwinds for Motor Insurance premiums in 2020?

The increasing cost of Reinsurance

As a result of changes to the Ogden Discount Rate the cost of personal injury claims will be much higher than Motor Insurers had anticipated and many of these claims will be picked up by reinsurers who will, in turn, increase their premiums to reflect their additional exposure.

In addition, low interest rates mean that the return on the income received by reinsurers on the investment of premiums held is negligible.

A reduction in the number of reinsurers providing motor capacity will also contribute to increased prices and early indications suggest reinsurance premium increases for 2020 of up to 30%.

 

Claims Inflation

Improvements in vehicle technology for example bumper sensors, cameras, smart windscreens means that own and third party repair costs are spiraling. The Association of British Insurers (ABI) said that in the first quarter of 2019 repair costs were the highest since the ABI started collecting this data back in 2013. 

In addition, in the first three months of 2019 the cost of vehicle theft claims rose 22% to £108 million on the same period the previous year.

This trend is expected to continue into 2020, but on a positive note new legislation in the form of the Civil Liabilities Act aims to reduce the cost of whiplash and soft tissue injuries which can be recovered from within two years by providing a fixed tariff of damages. Also the Small Claims court limit will be increased from £1,000 to £5,000 to deter claim farmers. This will reduce the legal costs in claims settlements and most likely reduce the number of claims made and claims portals are being introduced to allow unrepresented individuals to process their own claims online.


Increasing Payments to Motor Insurers’ Bureau (MIB)

The MIB provides compensation for the victims of accidents caused by uninsured or untraced drivers. All insurers pay an annual fee (a percentage of each insurer’s premium) to the MIB, which contributes to a central fund for this purpose.

This increase applies to all motor insurers and is due to several factors:

  • The change in the Ogden Discount Rate
  • Claims inflation for large claims
  • Claims following acts of terrorism, as these are now picked up by the MIB
  • Costs associated with the MIB building a small claims portal relating to the Civil Liabilities Act
  • Increased internal operational costs at the MIB

The MIB levy for 2020 is set to increase by 18% to £404m


What Will Happen to Premiums in 2020?

These three factors mean that 2020 is likely to be one of the most unpredictable years in recent history for motor insurers and premiums will increase.

Market commentators have suggested that, on average, premiums will need to increase between 8% and 10% in 2020 and risks with poor claims experience will see even larger premium increases.

In 2020 you will need to access the motor insurance market via an experienced, well connected and respected Insurance Broker and to weather this storm contact Franklands on 01332 545720.

Source

https://www.ey.com/en_uk/news/2019/12/uk-motor-insurance-market-to-record-underwriting-loss-in-2019rce:

https://www.abi.org.uk/news/news-articles/2019/07/fall-in-the-cost-of-motor-insurance-stalls-as-the-abi-warns-of-a-bumpy-road-ahead-for-motorists/

 

 

 

 

 

See other blogs related to: Insurance

Quality insurance, expert advice - call us for your FREE no obligation review on

Tel: 01332 545720