Belt tightens around motor insurers
The car insurance sector has reported an underwriting loss after two years of profits.
Accounting consultancy EY found that this was a result of rising claims. However, losses were marginal, with insurers registering a net combined ratio (NCR) of 100.05% in 2015 – 0.7% worse than 2014.
EY said the small loss was masked by a 10.8% reserve release, which was ‘the second year in a row at this level and the joint second highest in the last 30 years.’ It predicts a small loss in 2016 with an NCR of 100.1% due to the increase in premium rates at the end of last year, and with the support of a nine per cent reserve release.
Tony Sault, UK general insurance market lead at EY, said relying on reserve releases is becoming more prevalent, but doubted the sustainability of this model.
Losses are expected to continue in 2017, with NCR predicted to be 101.7%, as the government’s planned whiplash reforms will add pressure on insurers to pass on premium reductions to customers.
‘We expect the premium growth to slow through the rest of this year, until it begins to fall as insurers pass on the benefit of soft tissue injury reforms, Sault continued. ‘While some may be tempted to retain some of the cost benefit from the anticipated reduction in claims volumes, the continued competitive nature of the market will mean that the majority of insurers will not risk the loss in market share this move might otherwise have heralded.
‘So it’s good news for motorists, who may benefit from a £50 reduction in premiums next year, but less good news for the motor insurance market.’