It is set to be an interesting year for the car insurance sector in 2018 following on from a 2017 in which established and emerging names alike worked busily to negotiate numerous challenges.
For example, the early part of 2017 saw a change to the Ogden rate, a statistical table used by the government to calculate the size of personal injury claims pay outs; this cost the market approximately £3.5 billion. The rest of the year was no different and saw various rises in other kinds of insurance costs as the impact of insurance fraud and hikes in Insurance Premium Tax resulted in a number of insurance companies taking a hit to the pocket to such an extent that they needed to reframe their profit models, typically by passing on increased costs to the car insurance consumer.
However, it is anticipated that 2018 will be a more successful year, with insurers beginning to adapt both to these cost pressures as well as to some of the technological innovations that affect motoring in the UK – specifically, technologies such as telematics that have a direct bearing on the car insurance paradigm.
For example, the recent Autumn Budget made plain the government’s intention to embrace driverless vehicle technologies. However, this is not something that can be achieved without the right regulation and insurance provisions in place. As it stands, there are no sufficiently detailed definitions of automation, and it is anticipated that many of the earliest “driverless” vehicles will in fact fall into the grey area of being assisted rather than fully automated technologies.
But it is not only internal industry and technological factors that will influence the car insurance market in 2018. For example, it is quite difficult to predict just how much of a bearing Brexit will have on insurers and consumers; currently the market must abide by EU directives and offer products that reflect the UK’s status as an EU member.
Another aspect that insurers will have to take account of is terrorism. Tragically, 2017 has been a year in which vehicles have become weaponised – for example, the London Bridge attack – and this inevitably is going to be reflected in the insurance offering; ultimately, this may only have a limited impact on consumers, but it will occupy insurers right up to the upper echelons of the boardroom.
It is also anticipated that the government will draft new legislation introducing a discount rate of between 0% and 1% and that this will necessitate underwriters changing some of their car insurance algorithms; ultimately, this may result in increased insurer costs and these tend to be passed on to the most accident-prone driver groups – for example, young drivers and drivers with convictions for motoring offences.
The good news is that there is plenty of momentum already in place for the larger car insurance players and that this should be for the benefit of the consumer. Most established insurers enjoyed strong Quarter 3 performances. However, it would be a mistake to think the situation is the same right across the market; many of the smaller more specialist car insurance firms are beset with profitability challenges, and unless they can offer a strong identity and USP – for example, telematics insurance for young drivers – it is expected that any failure by these smaller players to embrace new technologies and new challenges in 2018 will prove punishing.
Whiplash claims are one key area of concern that is unlikely to impact the insurance market operations in 2018. This is because although whiplash reforms are due, they will not come soon enough to affect the price of premiums until 2019, and even once we reach this date there are no guarantees; it is not uncommon for insurance market reforms to have unintended consequences.
Get set for 2018. Hopefully it will be a good year for car insurance.