Approximately £2.4 billion (AU $4 billion) of losses have already been disclosed publically following the Ogden personal injury discount rate change, but just how much in losses are insurers and reinsurers in for?
Based on market announcements and its own calculations, professional services firm
EY estimates the overall cost of the Ogden rate change to be £3.5 billion (AU$5.87 billion) across all lines of business. It said that although the change to the discount rate was announced in February, most insurers have already reflected the impact on outstanding claims in their figures for 2016 – and this led to the motor insurance market reporting significant underwriting losses.
“Following a 100.5% Net Combined Ratio (NCR) in 2015, there was a sharp fall to 109.0% NCR in 2016 following the review of the Ogden discount rate for personal injury claims,” noted EY.
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NCR in 2016 would have been 8.8 points lower at 100.2% had the discount rate not been changed from 2.5% to -0.75%. There will be further pressure on the NCR in 2017, with EY expecting it to deteriorate 3.1% compared to the 2016 performance if we exclude the Ogden impact.
All is not lost though if the discount rate is reviewed furthered and the personal injury market is reformed.
“The general election result last week may have created additional uncertainty and insurers will be hoping that the Ogden consultation and reform of whiplash claims will remain priorities for the new Lord Chancellor and the Government,” said Tony Sault, UK general insurance market lead at EY.
Meanwhile, EY predicts motor premium rates to increase by a further 9% in 2017 to £503 (AU$842) amid rising reinsurance and claims costs due to the new Ogden rate, high repair cost inflation, and the rise in insurance premium tax to 12%. Consumer rates were already at record highs in the first quarter (£462, AU$773), according to the Association of British Insurers.
“Further effects will be felt next year when annual reinsurance cover for large claims comes up for renewal. Young drivers will undoubtedly have to bear the brunt of the increase due to the disproportionate number of larger claims they cause,” said Sault.
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