ABI assistant director and head of statistics Shaun Flanagan says rising personal injury claims and IPT spell challenging second half for motor
After a solid two years of falling motor rates, with more than £1.1bn in savings passed by the industry on to motorists since the second quarter of 2013, insurers face increasing cost pressures that are beginning to push rates upwards.
Rises in personal injury claims and an unwelcome rise in the rate of Insurance Premium Tax (which will also affect the cost of domestic property insurance) look set to make it a challenging second half of the year for the motor insurance market. Personal injury claims remain a key issue. The ABI’s latest quarterly motor insurance claims figures highlight that, in the second quarter of this year, while personal injury claims made up only 9% of all motor claims, they accounted for 46% of the total claims cost.
The civil justice system in England and Wales has seen significant reform in recent years with the introduction of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), the extension of the Claims Portal, the reduction of fixed costs and, most recently, the introduction of MedCo, which all led to reductions in premiums. But insurers are now experiencing an increase in the number and cost of personal injury claims again, particularly for whiplash. Claims Portal data shows the number of personal injury claims related to road accidents was 12% higher for the year ending April 2015 compared with the previous 12 months.
The ABI’s average private comprehensive motor insurance premium tracker, which follows what motorists are actually paying for their motor cover (as opposed to what they are quoted), shows that after two years of falling average premiums, the second quarter of this year saw a 2% rise in the average premium to £367 on the previous quarter. This said, it is important to bear in mind that average premiums remain lower than they were in the second quarter of 2013 (£377) when the government introduced reforms to the civil justice system including a cut in fixed legal fees for personal injury claims.
And the chancellor did the industry and its motor customers no favours in June’s budget when he announced nearly a 60% rise in Insurance Premium Tax from 6% to 9.5%. Assuming this increase is passed onto customers – and with current cost pressures climate it seems likely that it will be – this will add an extra £12.50 to the average motor premium from November.
The activities of overzealous claims management companies remains a concern despite government reforms to curb their unscrupulous behaviour. This is why government plans to regulate their activity, announced in the budget, cannot come soon enough.
It will be interesting to see what the impact of the cost pressures currently facing motor insurers and the recent rise in whiplash claims will have on the ABI’s premium tracker and motor claims data in the second half of this year.