While economic, regulatory, and political challenges have all taken their toll this year, there has been an improved performance in the industry overall – which
should continue into 2018, according to consultancy EY.
Following an “undoubtedly tough” year for insurance in 2016, there has been an uplift across the industry overall this year; and looking ahead to 2018, motor insurers will be “the greatest beneficiaries” following the
proposed Ogden rate revision announced in September, says Tony Sault, UK general insurance leader for the firm.
The UK motor industry saw its prospects “improve dramatically” after the release of the revised personal injury discount rate proposal, according to Sault. While that was tempered somewhat by the Justice Committee’s recommendations for the government on the issue, the market is still expected to be firmly back in the black next year.
“The Justice Committee’s report cautioned against an Ogden rate as high as +1%, as suggested by the Ministry of Justice in September, which it warned would put vulnerable claimants at risk of under-compensation,” he said.
“It also suggested a number of further hurdles should be cleared before the Bill is laid before Parliament, including further studies into how claimants invest money in practice and whether fair compensation is being achieved by current legislation. We believe the most likely outcome is now for the review to result in approximately £1.5 billion reclaimed from last year’s £3.5 billion losses, and a likely fall of up to 3% on average premiums, saving up to £14 annually for the average motorist.”
In addition to the Ogden changes, 2018 could also see the passage of the Civil Liability Bill, Sault said.
“This would reduce the costs associated with bodily injury, potentially reducing premiums by an additional 8-10%, totalling a £59 per year saving once both reforms are fully implemented,” he outlined. “Given these important changes in legislation, we now expect the motor insurance sector to be facing a far rosier 2018 compared to 2017 and predict a Net Combined Ratio (NCR) of 98.5%.”
But the picture isn’t all rosy, Sault warned, adding that there will still be difficulties to contend with.
“With inflation of 3% – high compared to recent years – and likely to continue, consumer spending is likely to weaken which is expected to reduce demand for big tickets items such as cars. In fact, we are already seeing signs of a slowdown with The Society of Motor Manufacturers and Traders reporting a sharp 11.2% year-on-year drop in new registrations in November,” he said.
“We believe this will lead to a 5% reduction overall in 2017 from the record 2.69 million sales last year. Housing transactions are also predicted to rise by just 4% next year, which is less than half the average rate seen in the last four years. Repeated recent increases in Insurance Premium Tax, now at 12%, are providing an additional challenge to the industry by reducing affordability and demand for insurance.”
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