14 June 2019
  • UK motor insurance Net Combined Ratio (NCR) was 94.8% in 2018, the best result since 1985 when EY analysis began
  • For the second consecutive year, UK motor insurance market records a profit – only the third time since EY records began the industry has had a NCR below 100 for two years running. In fact, the UK motor insurance industry has only made an underwriting profit in five of those past 33 years
  • Result reflects greater than anticipated reserve releases from Ogden and the benefits of premium strengthening in 2017
  • Headwinds expected, however, with claims inflation combined with a softening rating environment and increased regulatory scrutiny around pricing practices
  • Following an 8.7% increase in 2017, premiums fell by 3% in 2018 meaning consumers are now paying around £15 less per policy

The UK motor insurance market has reported impressive underwriting profits for the second consecutive year, according to EY’s Annual UK Motor Insurance Results. The Net Combined Ratio (NCR) for 2018 was 94.8%, the best result for 33 years and a 2% improvement from last year.

2018’s strong result reflects 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 estimate a 98% NCR for 2018, slightly worse than last year.

Prospects worsen for motor insurers in 2019 and 2020  
Despite 2018’s good results, prospects for motor insurers over the next two years look poorer with underwriting losses expected. EY predicts a NCR of 104.7% in 2019 and 107.6% in 2020. This increase in NCR is partly reflective of continuing high claims inflation and of insurers pricing in the anticipated impact of the Whiplash reforms – part of the Civil Liability Act – ahead of their implementation in the second half of 2020. Some recovery in 2021 NCR is expected as these benefits are fully realised.

Motor insurers will also face significant challenges this year to address the FCA’s concerns on pricing practices and co-operate with the upcoming market study following the pricing super-complaint to the CMA. Pricing policy and governance will be under intense scrutiny as the FCA assesses potential cross-subsidies between new and long-standing customers and decide on what actions are required.

Tony Sault, UK General Insurance Market Lead at EY, commented: “Motor insurers have had another good year – in fact the best since our records began 33 years ago – benefiting 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.”

Premiums drop in 2018
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 predicts that premiums will remain at lower levels, as despite high claims inflation, insurers price in the anticipated effect of the Whiplash reforms. Premiums will also be depressed as insurers battle for competitive advantage, each striving for greater market share.

Sault concludes: “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.”