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Drop in fraudulent PI claims “will not lead to lower premiums”

FCA: Tighter regulation

A likely reduction in fraudulent insurance claims – because of more stringent regulation of claims management companies (CMCs) and next year’s whiplash reforms – will probably not boost insurers’ profits, it was claimed today.

Fitch Ratings said it expected insurers to use the savings stemming from the Financial Conduct Authority’s tighter regulation of CMCs to keep premium rates down rather than to increase profit margins, “as the market is highly price-sensitive”.

The authority took over regulation on 1 April, and the transfer process seems to have persuaded a significant number of CMCs to leave the market [1].

Fitch said: “Insurers have also stepped up their efforts to tackle rising fraud, challenging more claims in court to limit payouts, push for convictions and deter false claims.

“Whiplash reforms planned for next year to counter small bodily injury claims, which are often falsified or exaggerated, could also help. These are a major source of insurance fraud.

“The initiatives should reduce fraudulent insurance claims. However, we think insurers will wait for evidence of a declining trend before factoring it into their premium rates to avoid jeopardising their underwriting profitability.”

The ratings agency said that, even if fraudulent claims do fall, premium rates were still more likely to edge up than down, as insurers were looking to “defend” profit margins against rising overall claims.

“Average claim sizes are increasing due to inflating repair and replacement costs, while motor insurers are facing a surge in vehicle theft claims. Fraud reduction would simply limit the scope for rate rises,” it said.

Meanwhile, comparethemarket.com’s quarterly motor insurance index recorded that the average premium in Q1 2019 dropped marginally over the last quarter to £736 – although within those three months they rose and then fell significantly.

“Premiums increased significantly over the past few years as a result of a number of government changes, such as hikes to insurance premium tax and changes to the personal injury discount rate. These changes will likely keep premiums comparatively high for the foreseeable future until any further reforms are implemented.”

Simon McCulloch, director at comparethemarket.com, said: “This is the first bit of good news for British motorists in a long time. Insurance prices have been on a relentless upwards march since 2012. Seeing a £100 drop in insurance costs between December and February indicates that a more structural reduction in premiums is taking place.

“These reductions in cost follow recent changes to the law around whiplash claims, passed in December 2018 and due to come into force next year.

“This is also likely aided by the reduction in the number of car registrations in the past six months, which suggests that insurers are having to compete more to win a larger share of a smaller market.

“With the review of the Ogden personal injury discount rate now under way, there is hope for motorists keen to see further reductions of their premiums.”