UK motor insurance scores best underwriting result for 33 years

The UK motor market has achieved its lowest net combined ratio for 33 years.

This is according to EY’s Annual UK Motor Insurance Results, which put the NCR for 2018 at 94.8% - the best result since EY analysis began in 1985 and a two percentage point improvement on last year.

This makes it the second consecutive year UK motor has scored a profit. It is only the third time since 1985 that the market has seen two consecutive years of underwriting profit. In only five of the last 33 years has the market recorded any underwriting profit.

EY stated that the strong result reflected the benefits realised from premium strengthening in 2017 and an improved outlook for the Ogden discount rate for personal injury claims, with insurers releasing reserves ahead of this summer’s announcement of a new rate.

Excluding the benefit of reserve releases from Ogden, EY estimated a 98% NCR for 2018, slightly worse than last year. 

Struggles ahead

Looking forward for 2019 and 2020 though, EY said it was anticipating underwriting losses in UK motor.

EY predicts a NCR of 104.7% in 2019 and 107.6% in 2020. EY stated this was partly reflective of continuing high claims inflation and of insurers pricing in the anticipated impact of the whiplash reforms, part of the Civil Liability Bill, ahead of its implementation in the second half of 2020. EY stated some recovery in 2021 NCR is expected as these benefits are fully realised.

The FCA’s fair pricing study was also highlighted as a challenge facing motor insurers this in the coming year.

Tony Sault, UK general insurance market lead at EY, said: “Motor insurers have had another good year – in fact the best since our records began 33 years ago - benefitting by larger than anticipated reserve releases ahead of the Ogden announcement in August.

“That’s despite an overall 3% reduction in premiums. However, the outlook looks altogether gloomier over the next couple of years, with results expected to slip firmly in to the red. The market is softening rapidly as it prices in the impact of whiplash reforms, at the same time as contending with continued high inflation on damage claims.

“The FCA Market Study will be another key focus for the industry this year, potentially resulting in fundamental changes as insurers seek to demonstrate fairness and transparency in their pricing models.”

Premium drop

Further analysis found in 2018 personal motor insurance cost consumers on average £477, compared to £480 in 2017, reaching a low of £471 during the year. In the first quarter of 2019 this has reduced further to £466, a 3.2% reduction from average 2017 levels.

EY said it predicts that premiums will remain at lower levels, as despite high claims inflation, insurers price in the anticipated effect of the whiplash reforms. It said premiums will also be depressed as insurers battle for competitive advantage and market share.

Sault added: “The anticipated benefits of the whiplash reforms, together with insurers vying for market share, mean consumer premiums are likely to stay at these lower levels. Welcome news for all car owners.

“As for insurers, they need to do all they can to shield themselves from the predicted downturn.

“They need to differentiate their propositions and take advantage of the latest technologies to help drive down costs and improve their customer offerings.”