22 November 2016 Insurance

UK motorists face third year of insurance price rises in 2017

UK motorists are expected to be hit with price rises to their insurance policies in 2017 for the third year running, according to EY’s bi-annual UK motor insurance results seminar.

Furthermore, cost savings from the Government’s whiplash reforms mean the savings won’t materialise until 2018.

By the end of 2016, motors will have paid on average £33 more for their insurance than the year before, representing an 8 percent year-on-year rise.

In 2017, motorists are expected to pay an additional £13 – a 3 percent further rise – for the same cover.

According to EY, this rise is due to a combination of high claims inflation, predicted to have risen 3.2 percent in 2016, and jumping a further 5.1 percent in 2017, and Insurance Premium Tax (IPT) rises, which have added an additional 3 percent 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 percent 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.”

A continued underwriting unprofitability is forecast for the motor market, with a net combined ratio of 100.2 percent in 2016.

To achieve even this unfavourable forecast, insurers are anticipated to release another unusually high reserve of 9 percent (compared to 10.8 percent in 2015).

Sault added: “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.”

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