Insurers “to reap rewards” from discount rate and whiplash reforms, says EY

Sault: Things looking much brighter for motor insurers

UK motor insurers should see “a strong uplift in profits” next year as a result of the discount rate review and whiplash reforms, Big Four accountancy firm EY has predicted.

It forecast that insurance premiums would also fall by up to £21 if the discount rate rises from -0.75% to 0-1%, as suggested by the Ministry of Justice.

EY’s analysis was that motor insurers would be close to breaking even this year at 100.8% net combined ratio (NCR) – meaning that they would have paid out marginally more than they received in premiums.

But it said the NCR for 2018 was expected to be “solidly in the black” at 98.5%.

The most recent figures from the Association of British Insurers say that, at £479, motor insurance premiums in the third quarter were 10% higher on average than a year earlier, taking them to their highest ever level.

However, EY predicted that the revision to the discount rate was likely to lead to a fall of between 2% and 4% on average premiums, saving up to £21 annually for the average motorist.

The whiplash reforms should provide further relief to motorists, with an additional 8-10% reduction in premiums starting later in 2018, totalling £45 per year saving once the reforms are fully implemented.

Tony Sault, UK general insurance leader at EY, said: “The revised [discount rate] proposals in September have provided something of a reversal in the motor insurance industry’s fortunes.

“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.”

He continued: “The proposed whiplash reforms are also expected to benefit claims costs and premiums later next year, although there is a risk that the weight of Brexit legislation will not leave Parliament enough time to pass the promised Civil Liability Bill.

“The industry though, is certainly facing a much better end to the year than it had feared back in February and its prospects are looking a great deal brighter.”

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