UK motorists to be hit with insurance price hike in 2017 for third year running
UK motorists can expect to see insurance premiums rise in 2017 for the third year running, according to EY’s bi-annual UK motor insurance results seminar, which suggests delays to the Government’s whiplash reforms meaning savings won’t materialise until 2018.
Motorists will end 2016 having paid on average £33 more for their insurance than the year before, representing an 8% year on year rise, and in 2017 are expected to pay an additional £13 (3% further rise) for the same cover, says EY.
This is due to a combination of high claims inflation, predicted to have risen 3.2% in 2016, and jumping a further 5.1% in 2017, and Insurance Premium Tax (IPT) rises, which have added an additional 3% to premiums this year.
Tony Sault, UK general insurance market lead at EY, said: “Although the price of motor insurance will continue rising throughout 2017, it will be at a slower rate than in past years. Now that the initial shock of the double Insurance Premium Tax (IPT) rise has passed, which in part accounts for the 8% rise in 2016, we do expect premiums to start to flatten. Clamping down on whiplash claims, which account for around 1/4 of motor claims by cost, should also help to reduce prices for consumers from 2018 onwards. However, this won’t address the industry’s current problem of poor underlying profitability, as they will be under mounting pressure from the government to pass on the full savings to their customers.”
Continued unprofitability forecast for the motor market
The motor insurance industry is predicted to narrowly miss an underwriting profit for the second year running, and achieve a near break-even Net Combined Ratio (NCR) of 100.2% in 2016. To achieve even this unfavourable forecast, insurers are anticipated to release another unusually high reserve of 9% (compared to 10.8% in 2015).
2017 is expected to bring further challenges for insurers, as cost inflation driven by the weakened pound in the aftermath of the Brexit vote is anticipated to sharply increase, placing the industry on track to report an underwriting loss of 103% NCR.
Sault said: “This poor two year outlook means that insurers are likely to enter 2017 with trepidation. The elephant in the room is becoming increasingly hard to ignore: many insurers are not able to sustain their reliance on high reserve releases to prop up profits. This, coupled with the worse outlook for claims inflation means that motor insurers’ bottom lines show no immediate signs of improving.”