UK motor insurance market expected to see strong uplift in profits in 2018 following Ogden review and Whiplash reforms - EY

The UK motor insurance market’s profitability is expected to approach break even this year and see a strong uplift in profits in 2018, according to EY’s latest UK motor insurance analysis.

This follows the revised proposals for the Ogden discount rate for personal injury claims published in September - which the Ministry of Justice expects will result in a new rate between 0 per cent and 1 per cent - and the prospect of the positive impact of the whiplash reforms which should reduce bodily injury costs markedly.

2017 profitability is likely to be close to breaking-even at 100.8 per cent Net Combined Ratio (NCR), EY predicts, compared to the previous forecast (in June) of 103.3 per cent, now the latest position on Ogden has been announced.

The NCR for 2018 is expected to be solidly in the black at 98.5 per cent; a substantial improvement on the 100.2 per cent predicted in June’s analysis, due to the one-off releases expected following the new Ogden rate.

Motor premium rates are currently at record highs having risen 10 per cent over the past 12 months.

However, EY predicts that the revision to Ogden is likely to lead to a fall of between 2 per cent and 4 per cent on average premiums, saving up to £21 annually for the average motorist. The whiplash reforms should provide further relief to motorists, with an additional 8-10 per cent reduction in premiums starting later in 2018, totalling a £45 per year saving once the reforms are fully implemented.

Tony Sault, UK General insurance leader at EY, said: “The revised Ogden Rate proposals in September have provided something of a reversal in the motor insurance industry’s fortunes. While the changes announced earlier in the year meant the insurance industry was facing an additional cost of £3.5bn, the revised proposals could see up to £2.5bn shaved off this figure. The reversal is also expected to have a positive effect on premium rates for consumers and we would expect the premiums to start to fall next year in anticipation of the new legislation coming into force.

“The proposed whiplash reforms are also expected to benefit claims costs and premiums later next year, although there is a risk that the weight of Brexit legislation will not leave Parliament enough time to pass the promised Civil Liability Bill. The industry though, is certainly facing a much better end to the year than it had feared back in February and its prospects are looking a great deal brighter.”