Premium increases, a fall in injury claims and the release of reserves for large claims due to an “improved outlook” on the discount rate made 2017 the best year for motor insurers since 1994, new figures have shown.
They also predicted that motorists would indeed save £35 from the Civil Liability Bill reforms, as the government and insurance industry have been saying.
The figures come as the bill has finished its passage through the House of Lords and has been introduced to the House of Commons.
According to EY’s annual UK motor insurance results report, the net combined ratio (NCR) – the sum of net claims, commissions and expenses divided by net earned premium – was 96.8% last year, meaning that for every £100 of premium received, insurers paid out £96.80.
The figure was 109.4% in 2016, but the 2017 outcome was the second best result since records began in 1985.
It said that, in 2017, personal motor insurance cost consumers on average £480, up 8.7% from £442 in 2016, and reaching a peak of £491 in the fourth quarter of the year, with the main driver being the original discount rate change.
However, EY said premiums began to reduce in the early part of 2018 and were expected to remain on a downwards trend until early next year.
“The key reasons are the increasing competition by insurers for a share of the market, together with reductions in the level of whiplash claims from the anticipated effect of the whiplash reforms in the Civil Liability Bill which is currently progressing through Parliament.
“EY predicts prices to fall to £471 over 2018 and £455 over 2019; with the benefit of the whiplash reforms equivalent to approximately £35 per policy.”
With the bill also set to change the way the discount rate is calculated, “some insurers have been able to release some of these reserves from their balance sheets”, EY said, estimating that, without this effect, the 2017 NCR would have been around 1.6% higher.
The report predicted that 2018 would be another good year, with the NCR declining slightly to 97.7%.
“Despite rates beginning to fall in the market, business written during 2017 will continue to perform well, and further reserve releases are possible if the Civil Liability Bill receives Royal Assent.”
However, in 2019, EY expected that “the current softening of premium rates will catch up with the changing claims environment”.
It explained: “While the whiplash reform element of the Civil Liability Bill should come into force during the year, the government is likely to put pressure on the market to pass savings directly to consumers, resulting in little net benefit for insurers.
“Reserve releases are also expected to return to normal levels. EY predicts an underwriting result back in the red, with an NCR of 102.5%.”