On that cold wet day in June, when voters made their way to the ballot box on the future of the UK in Europe, one of the last things on their minds would have been how the outcome of the referendum would impact on the cost of their motor insurance.
But it is now possible, even likely, that the decision by voters to leave the European Union will lead to higher motor premiums.
Here are three potential drivers of higher premiums prices:
· Sliding pound, expensive parts – The pound was trading against the dollar at $1.50 but has now fallen to $1.34. The pound has slid against other currencies as well. This means that importing parts for vehicles, especially the latest models, will become more expensive.
This is likely to feed through into premium prices. Indeed, The Willis Towers Watson index showed premiums up 6.3% compared to the first quarter and nearly 20% up on the same time last year. Willis Towers Watson said “… what is contributing to premium increases are the cost and complexity of repairs, particularly as cars are fitted with more expensive technology.”
· Small claims crackdown on ice – Will the UK government really spend its time pushing through the legislation to reform small claims? The big changes welcomed by motor insurers were the raising of the small claims limit to £5,000 and the elimination of cash payments for minor soft tissue injuries.
But with Brexit on the cards, and a new cabinet with a different agenda, it remains quite possible they will postpone or even consign these proposed reforms to the dustbin. The reforms were important because it was expected that insurers would pass on the reduction in claims costs to customers with reduced premiums.
· Squeezed investment returns –The Bank of England might have raised interest rates prior to Brexit. Now it looks like the Bank of England will end up cutting them further.
This is significant because when interest rates are low, investments returns for insurers are also low. Without the investment returns, insurers faced added pressure to be tight on underwriting to make profits. Cutting prices will certainly not help insurers achieve underwriting profitablity.