Motor insurers on a bumpy road


Ernst & Young has predicted an end to the period of profit making for the motor insurance market.

Motor insurers enjoyed a good run from 2013 to 2015 following reforms to the personal injury compensation system, but Ernst & Young’s annual motor insurance results report found the industry struggled again last year.

It said that premium rate increases would result in a slight improvement to net combined rations (NCR), predicting a 100.1% NCR for 2016, but warned that losses would continue into 2017 with a fall in NCR.

New whiplash legislation would increase pressure on insurers to reduce premiums, which Ernst & Young said would damage profitability, while the level of reserve releases which are currently providing insurers with profits, will dry up.

Tony Sault, UK general insurance market lead at Ernst & Young, said, ‘With the insurance market slipping back into the red – a trend we expect to continue over the next year – discipline around pricing and underwriting will be key to maintaining a favourable NCR in the current climate.

‘The reliance on reserve releases, which last year saw something of a surprise jump, now appears to be becoming a norm. However, the sustainability of this model is questionable, particularly as the market has reduced rates so aggressively from their recent peak in 2012.

‘One of the most notable impacts is that we are seeing an increase in market share from some of the Gibraltar-based insurers, which have increased their share of the motor insurance market to almost 20%.

‘This increase in competition may lead to a softening market, which will not help insurers looking to post a profit over the coming year.’

Ernst & Young also predicted that while premiums would rise this year, they would fall by as much as 6.2% during 2017 as a result of whiplash reforms.

Tony continued, ‘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. 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.’