Hastings’ CFO seeks ‘balance’ on premiums and costly claims inflation

The biggest ongoing challenge for Hastings is getting the balance right between the pace of claims inflation and premiums.

This was the message of John Worth, chief financial officer at Hastings, after revealing half year profits after tax were slashed to £38.2m, compared to £72.9m for the same period last year.

Soaring claims inflation in motor was a key contributor to the performance.

Worth said the very competitive nature of the motor market had only seen very modest premium inflation. “We have seen this gap widen between the rate of which we can increase our prices to match the cost of claims.”

“What we [now] are seeing is this gap narrowing during the first half of this year, which is really a sign of the market turning. We have been able to apply rate increases and those increases have stuck. We are also seeing that amongst our competitors as well.

“What we should see, going into the second half of this year, is the gap between premium inflation and claims inflation closing so that should feed through in terms of a better operating result going forward.”

Matching claims inflation and premiums

Worth added: “We try and keep premiums as low as we can for as long as we can, but when you get price inflation on claims it is something you eventually have to price in. But we are seeing an improvement in the pricing environment and we are seeing that we can now more closely match claims inflation through increases in premiums.”

Worth added that Brexit was one of the factors affecting claims inflation. He said exchange rates and the weakening of Sterling had increased the price of foreign parts for car repairs.

The result saw Hastings’ share price drop by 8%.

He explained: “More generally in terms of share price on the market, because we are so focused on motor insurance, our share price tends to follow the cycle quite closely - which is not unusual for motor insurers.”

Retention

Worth said there were positive signs from the result and indicated that Hastings was taking action to deal with claims inflation. 

He said: “We are pleased with our growth in live customer policies. What’s important in this market is that we remain disciplined on pricing, it is a very competitive market. We have increased the policy count, whilst maintaining as far as possible an operating result.

“There are a couple of initiatives that we have been working on for a while now and in particular looking at existing customers and making sure that most of them stay with us.”

Worth explained that the firm has been making sure its customer service staff have the right training as well as the right conversations with customers.

He cited gross written premiums being up 3% as a result of customer retention and policy, as a successful achievement.

Worth added: “We are finding that we are having to adjust our prices accordingly in the current environment, but we are seeing retention rates improve compared with 2018.”

In terms of Ogden, the broker accepted there was a “one off hit” which Worth said was “as expected”.

But he said it is good to now have some certainty from the government with regards to the Ogden rate in order to price accordingly.

Hastings’ DNA

Hastings has had a diversity initiative in place for a number of years. Worth said it was “part of the DNA of Hastings”.

He said that Hastings is investing in its mobile app, which it mentioned in February this year. This is “responding to customer [demand] and keeping the cost base low”.

Worth said Hastings hopes to develop the app in terms of claims reporting so that policyholders can report directly from it using a photo and written details of the incident.

“We have good diversity credentials and everything we are doing on the ESG – the environmental, social and governance agenda. It is something that is becoming increasingly important to our customers and our shareholders as well,” he said.

He added that the insurer will continue to capture relevant data to more accurately price certain areas of the market.