Companies are lowering prices before the benefits of legal reforms materialise, report says
Motor insurers’ decision to cut prices before they have seen the benefits of recent legal reforms is hurting investors, the Financial Times reports.
Motor rates dropped 9.8% in the second quarter of 2013 compared with the same period of 2012, according to the AA’s British Insurance Premium Index.
This is despite little evidence so far that the legal reforms contained in the Legal Aid, Sentencing and Punishment of Offenders Act 2012, which came into force in April this year, have reduced bodily injury claims.
The Financial Times pointed to the example of recently-floated motor insurer Esure, whose stock dropped sharply after it announced in its first-half results that its full-year premium growth would be lower than in the first half because of tough conditions.
Esure said in its results statement: “The UK personal lines motor market has seen an increase in price competitiveness as demonstrated in the recently published indices, which show significant rate reductions.”
The insurer’s interim dividend of 2.5p was also far lower than analysts’ expectations.
Esure shares are now trading at 242p, below their initial offer price of 290p.
The FT quoted EY partner Catherine Barton as saying: “The market isn’t behaving rationally.”
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