The ‘one-off benefit’ from reduced claims frequency in 2020 may continue for the first half of this year too, however it won’t be as large as last year
The cost of motor insurance claims will continue to rise in 2021, however “pricing will remain weak” thanks to the uncertainty surrounding the FCA’s report on price walking and the delayed whiplash reform implementation, according to Graham Coutts, senior director and head of EMEA reinsurance at credit ratings agency Fitch Ratings.
Speaking on 27 January at the agency’s webinar ‘Ask the Analysts: UK Non-Life Insurance’, Coutts said a key driver of increasing motor claims costs is “the rising cost of repair for vehicles”.
He explained: “Cars are getting much more complex and vehicle technology is becoming more advanced and that has a knock-on effect on the cost of repairs.
“Also, the specific to 2020 trend was that these claims were potentially exacerbated to some extent by reduced repair centre capacity and the lockdowns and social distancing measures that were in place throughout 2020.
“The more recent lockdowns have been a bit lighter in this term – repair centres were able to remain open and the impact on the custom of motor insurance repairs should be less in the later lockdowns.
“The other thing that will impact them though is the impact of Brexit, so we are expecting that there could be an increase in the cost of some parts imported from the [European Union] and that’s a trend that we’ll be following in 2021.”
Downward pricing trend
At the same time as rising claims costs for motor insurers, Coutts noted “that pricing will remain weak and this reflects the uncertainty over the FCA’s fair pricing rules and also the timeline of whiplash reform”.
“[The Litigants in Person portal] was set to be implemented in April 2021 – it has already been subject to some delays, it could be subject to further delays,” he added.
Plus, “premium rates have been very subdued for the last three years. That’s a trend we do expect to continue in 2021. The forecast for the first half of 2021 is that pricing will continue its downward trend”.
Coutts added that motor insurers did profit last year from the reduction in the frequency of claims, creating a “one-off benefit” – some insurers paid this forward to customers in the form of premium rebates, for example Admiral.
With the sector as a whole under pressure, Coutts said things could have been “a lot worse” without this “one-off benefit”. He predicted that insurers may see this plus-point continue in the first half of 2021, but it won’t be as large or impactful as last year.
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