Two pending personal injury reforms in the U.K. could slash a combined £80 from the average motor insurance premium in the second half of 2018, according to Admiral Group Plc CEO David Stevens.
Speaking to journalists during an earnings call, he also said that one of the pending reforms — a shift in the personal injury discount rate to between zero percent and 1% from its current level of negative 0.75% — could increase the use of periodic payment orders. PPOs are court orders that pay severely injured claimants over the course of their lives rather than traditional upfront lump sums.
Falling motor rates and an increase in the use of PPOs are mixed news for insurers. Lower premiums make it more difficult to make a profit but also mean happier customers, while PPOs present insurers with an uncertain ultimate payout because the ultimate claims bill depends on the life of the claimant.
The British government is planning to implement new measures to curb spurious personal injury claims, typically whiplash claims. The part of the planned reforms covering road accidents is expected to be introduced in April 2019. It is unclear when the increase to the personal injury discount rate, also known as the Ogden rate, will come into effect, although there are indications that it could be at the end of 2018 or early 2019.
"There are prospects for substantial decreases in car insurance premiums in the back half of 2018 if the government is able to carry through on its desire to introduce whiplash reform and change the Ogden discount rate," Stevens said.
"If [the Ogden] reform takes place, we would expect a £30 or £40 reduction in premiums." He added that the personal injury claim reforms could result in similarly sized reductions.
The CEO noted that the cut in the Ogden rate, which has boosted claims payouts, had made up-front lump sums relatively attractive and suppressed PPO use.
"The volume of PPOs in the market at 2017 was, I believe, substantially down," he said. "When the Ogden situation is clarified and it is between zero percent and 1%, we would expect to see some re-emergence of PPO as the preferred option for some claimants for whom it is a very relevant and interesting option."
Brexit plans 'well underway'
Along with its results, Admiral announced that it is planning to establish an insurance company and a broker in Spain so it can continue to serve its European customers if the U.K. loses its access to the single market through financial services passporting. CFO Geraint Jones told journalists that the process of getting a Spanish license is "well underway."
"Applications have gone into the regulator last month," he said. "We would expect [it to take] a few months for the regulator to look at the application, consider it and turn it around."
Jones added that Spain was attractive in part because of the potential for a quick setup.
"Spain was an attractive option for us partly because it has not been a hugely popular option for other insurers and so we don't think the regulator is overwhelmed with new license applications, and so hopefully they can turn around our application reasonably quickly," he said.
Admiral reported a 50.4% jump in profit after tax in 2017 to £334.2 million from £222.2 million. Despite an early boost, Admiral's share price was down 3.06% to £18.72 at 1.34 p.m. in London on Feb. 28.
