Insurers are being too optimistic in reaping the benefits of claims reforms 

Another day, another warning that motor insurers risk ending up with a claims reform hangover.

Bank analysts at Berenberg, who cover the Sabre stock, note rivals are pricing in the benefits of Ogden and whiplash crackdown reforms too aggressively.

“We believe names at the more adventurous end of these assumptions could end up winning a large amount of poor business given the elastic nature of demand in the UK motor insurance market,” Berenberg says.

Of course, Sabre does have a non-standard book of business, meaning it’s pricing strategy will be different to rivals.

Nonetheless, others such as Ageas boss Andy Watson, are warning the market risks getting ahead of itself.

A high stakes gamble

The issue at stake is that there is a great deal of uncertainty around what will actually happen with the claims reforms.

Lord keen

Lord Keen has promsied to hold insurers to account over passing on the claims reforms savings 

The small claims limit was initially suggested to rise from £1,000 to £5,000, but there is now talk that the government will go for a lower rise.

The Lords debate and  justice select committee criticism showed there is much more opposition to the bill and cliams limit than expected.

There’s also a growing feeling, particularly among Tory MPs, that a compromise is needed.

The limit change is a ministerial decision, rather than one which needs parliamentary agreement, so is therefore a relatively painless way to quickly appease detractors.

There is also considerable political antipathy from MPs to the fixed tariffs, and a feeling is brewing that it is punitive to the man on the street.

The fixed tariffs may well end up quite a bit higher than the original proposals. 

Parliament is full of MPs, many of ex-lawyers, with sympathy to claimants.

Finally, on Ogden, nobody actually knows for sure where the discount rate change will land. 

Insurers argue that the reforms are needed to tackle the scourge of whiplash claims and offer a fair solution to payouts for seriously injured people - but momentum is moving against them. 

What this could end up with is motor insurers, having got their pricing wrong, suddenly having to jerk up rates.

That will leave a sour taste in the mouth of the government which has promised the public that the whiplash reforms – The Civil Liability Bill and raising of small claims limit - will lead to lower premiums. Will they ever trust insurers again?

A high stakes gamble is being played out with damaging consequences if the bet goes wrong.