Motor rates will fall when the government fulfils its promise to raise the Ogden rate, says Direct Line chief executive Paul Geddes

As the government has pledged to raise the Ogden rate back above zero, so prices will come down, according to Direct Line Group chief executive, Paul Geddes (pictured).

“If Ogden goes back up, there will be a benefit for customers,” he emphasised. “In an efficient and competitive market, prices will come down.”

He pointed out that some of that effect is already evident, as motor premiums have come off their peak levels since the government announced its intention to raise the Ogden rate.

And he added the same goes for the government’s planned crackdown on whiplash claims.

“In an efficient, competitive market, you would expect the customer to benefit,” he said.

Last year’s cut in the Ogden personal injury discount rate to minus 0.75% from 2.5% was a shock for the insurance industry, and insurers stepped up their provisions in their 2016 accounts to cover the expected extra settlement costs.

Some insurers have reported this week that they have made further provision in their 2017 results announcements.

But not DLG. DLG chose to “kitchen sink” its 2016 provisions to the extent that it was able to release some of the provisions during the course of 2017.

DLG’s motor business benefitted from a £49m reserve release in the first half after a review of the prior year’s £175m reserves for the Ogden hit.

“We took the hit all at once,” said chief financial officer John Reizenstein.

Reizenstein denied that DLG had been “over-prudent” in its immediate response to the Ogden cut. However, he added, “It’s true, we were a bit prudent. It was painful, but we took the hit.”

Earlier, DLG reported profits up by more than a half and a substantial improvement its key ratios for 2017, boosted by a strong motor and commercial performance.

Operating profit from ongoing operations rose to £611m from £404m in 2016, while the combined operating ratio improved to 91.8% from 97.7%. Adjusted for normal weather the COR was at the lower end of the group’s target range of 93%-95%.

Prior year reserve releases totalled £435m for the year, compared with £290m in 2016.