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Motor insurance rates will keep rising because of claims lag: Admiral UK CEO

Admiral Group PLC and the U.K. motor insurance market as a whole will continue pushing up prices to combat rising claims, according to Admiral's U.K. insurance CEO Cristina Nestares.

Speaking to analysts about Admiral's first-half earnings, Nestares said data showed U.K. motor insurers had started to push up prices in the second quarter of 2019 after reductions throughout 2018 and in the first quarter. According to data compiled by Admiral-owned price comparison site Confused, rates for new business were up 5% year over year and 3% quarter over quarter in the second quarter.

Nestares said the data showed there were "early and small signs" of a possible change in the downward trend for motor insurance prices and that it was "very pleasing" to see the market react. But she added that there was still "a big lag" between price increases and claims inflation, "so we will expect the market to continue to put prices up."

Admiral started putting up prices a year ago, Nestares said, and boosted them by low-to-mid single digits in the first half of 2019. She said: "In the second half of the year we expect to continue putting prices up and we hope the market continues to do the same."

Ogden boost

She also revealed that Admiral had put up rates by an additional 1% to counter the change in the U.K. personal injury discount rate, known as the Ogden rate, to negative 0.25% from negative 0.75%. While the change was in a positive direction for insurers, many, including Admiral, had assumed the rate was going to shift to an even more favorable zero percent and had been reserving and pricing accordingly.

The Ogden rate governs how much insurance companies can reduce lump-sum payouts to severely injured claimants based on the investment returns the claimants could make by investing the payment. The higher the rate the better for insurers, but the rate has been in negative territory since March 2017, meaning insurers are adding to claims payments rather than discounting them.

Admiral is expecting an overall pretax hit from the move to negative 0.25% of between £50 million and £60 million, and has taken £33 million of this charge in the first half of 2019.

Nestares said that she expected the 1% Ogden-related price increase to be a final number, but added that there was uncertainty around how claims would evolve. She also said there could be further Ogden-related price boosts elsewhere in the market if the price for motor excess-of-loss reinsurance, which insurers buy to cover their motor books, also increases. Most U.K. motor excess-of-loss business renews at Jan. 1 each year.

But she added that because Admiral's risk retention level before the reinsurance kicks in is quite high "we don't expect a significant impact for us."

Whiplash uncertainty

Nestares also said that the dampening effect on U.K. motor insurance prices from the pending reforms to whiplash claims, which are slated to come into force in April 2020, may not be as big as first thought. In the past, U.K. insurers have suffered from high levels of whiplash claims and had put up prices to compensate.

But Nestares said that there was "a lot of uncertainty" about both the timing and the impact of the reforms. On the impact, she said that when the reforms were first announced, the market had estimated a claim saving of between £30 and £40 per policy, but that there had been a "strong decrease" in the frequency of whiplash claims "so the impact is going to be less than initially anticipated."

She also noted that it was unclear how claimants and their lawyers would respond to the reforms, suggesting that there could be an increase in claims not covered by the reforms.

On timing, Nestares said that the implementation of the reforms could be delayed until October, in part because of the need to develop related systems, such as an online claims portal, and in part because of the "current political climate."

She added: "We don't expect the market to discount prices much until there is more clarity in timing, but also in the actual impact."