The motor insurance industry is expecting the new Civil Liability Bill to lead to a positive discount rate and is reducing premiums as a result, according to a report revealed this morning – but are insurers moving too fast?
Comprehensive car insurance premiums in the UK fell by 7% in the first quarter of 2018 – the largest quarterly reduction in premiums seen in four years – reveals the latest Confused.com Car Insurance Price Index, in association with Willis Towers Watson.
The average motorist is now paying £768, which is £13, or 2%, less than they were paying this time last year, the index found.
According to Willis Towers Watson, the reduced prices this quarter reflect the “perceived uplift” in market prospects as a result of proposed government action to tackle low value personal injury claims, and to reform the personal injury discount rate.
“A third quarterly drop and annual deceleration in premiums indicates the industry clearly expects the new Civil Liability Bill to lead to a positive discount rate and, as one would expect in such a highly competitive market, these cost benefits are being passed through to consumers,” Stephen Jones, UK head of P&C pricing, claims, product and underwriting at Willis Towers Watson, said in a release.
Asked whether motor insurers were jumping the gun in anticipating a favourable Ogden rate – not expected until 2019 – Jones told Insurance Business that insurers “have to make their best call of the ultimate outcome while setting their prices in BAU.”
He continued: “In such a competitive market, insurers will naturally challenge themselves not to be overly conservative in selecting their best estimate pricing assumptions, and there’s evidence that insurers have concluded that, on a balance of probabilities, pricing on the basis of a positive discount rate is the least worst option.”
On whether the market would continue to see a decline in premium rates, Jones said that while he was “reluctant to call the market,” his instinct is that there is momentum in the current decreases.
“Of course, it depends what you’re measuring, and in the Confused/Willis Towers Watson Index, we’re very careful to properly adjust for changes in mix of business in the index derivation,” he said.
“There’s competing forces at play here, with inflation of claim severities from such causes as increasing repair complexity competing with insurers’ expense control and automation programmes, increased uptake of (risk controlling and so lower premium) telematics policies at young ages, and vehicle technologies such as automated emergency braking systems being rewarded by insurers with significant discounts.”
The index, which is based on price data compiled from almost six million customer quotes per quarter, found that premiums fell across the UK with all regions experiencing a quarterly decrease. Following the price drop, East London is now the most expensive location in the country for car insurance, with motorists now paying on average £1,360, while the cheapest place is Dorchester at an average of £533 over the last three months.