Insurance premiums to reduce
According to Fitch Ratings, insurers anticipate reductions in UK motor insurance premiums due to reforms that limit whiplash claims and reduce lump-sum payments for long-term care costs and lost earnings.
A reduction in UK motor insurance premiums appears to be underway from the new reforms implementation. Fitch Ratings expect the reforms to not have a material impact on insurers’ profitability or credit profiles, as pricing adjustments will tend to compensate for changing claim costs, although this may take time while firms wait to see how the rules affect costs.
Confused.com has reported a seven per cent quarter-on-quarter fall in the average premium quoted through its price comparison website in 1Q18 and expect upcoming insurance sales data from the Association of British Insurers to confirm that prices did indeed fall in the first three months of the year.
A fall in claim costs should lead to lower premiums, given the competitive nature of UK motor insurance. Likewise, the government’s September 2017 proposal to revise the Ogden discount rate should also lead to lower premiums.
The government hopes the proposed reforms will be in place by April 2019. They first need to pass through parliament and could be subject to amendment, but Fitch Ratings expect the main aims to be agreed and claim costs to start falling after implementation.
Fitch Ratings expect insurers will gradually reduce premiums further as the new rules become more imminent, and again after they take effect – if there is evidence that claim costs are falling at least in line with expectations.