Here’s why
The motor insurance market has reported significant underwriting losses in 2016, according to EY’s annual UK motor insurance results seminar. Following a 100.5 per cent Net Combined Ratio (NCR) in 2015, there was a sharp fall to 109.0 per cent NCR in 2016 following the review of the Ogden discount rate for personal injury claims.
Although the change to the discount rate was announced in February this year – it plunged from 2.5 per cent to negative 0.75 per cent – most insurers reflected the impact on outstanding claims in their 2016 figures. Without the Ogden rate change, NCR in 2016 would have been 8.8 points lower at 100.2 per cent.
EY estimates the overall cost of the Ogden rate change to insurers and reinsurers to be £3.5bn across all lines of business, based on market announcements and its own calculations. Approximately £2.4bn of losses have been disclosed publically to date, following the 27 February decision.
The ongoing costs from the new Ogden rate, and the need for insurers to rebuild reserve margins released to offset it, will lead to further pressure on the NCR in 2017 and EY expects it to deteriorate 3.1 per cent compared to the 2016 performance (excluding the Ogden impact).
Better news could be on the horizon for insurers if the promised whiplash reforms and a review of Ogden methodology materialise. If so, EY expects the market NCR to improve back to 100.2 per cent in 2018, which will give insurers some welcome respite.
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