Motor insurance premiums in the U.K. are set to increase further over the remainder of 2017, analysts say.
An AA survey shows the average U.K. motor premium has risen by 39% over the last two years, and motorists could a further increase of "more than 10%" in the remainder of 2017, according to an RBC Capital Markets study.
An analysis by EY puts the anticipated increase in U.K. motor premiums in 2017 at 9.0%. At the end of the first quarter, the average motor insurance premium was £462, according to the Association of British Insurers.
The increase has been driven by claims inflation, a hike the insurance premium tax to 12% from 10%, and changes in the way that personal injury payouts are calculated.
The government's decision to lower the discount rate used to calculate personal injury payouts — the "Ogden rate" — to negative 0.75% from 2.5% caused losses of £3.5 billion for U.K. motor insurers, according to EY's study.
Among the worst hit were Aviva Plc, Direct Line Insurance Group Plc and Admiral Group Plc, U.K.-focused insurers with a very large exposure to motor.
The increase in prices will likely stop in 2018, RBC Capital Markets said. A re-evaluation of the Ogden rate will probably lead to the rate being increased, partially reversing the losses suffered by motor insurers. The uncertainty created by the general election in which the Conservative Party was returned to government with a reduced majority could cause some delay, however, to the reforms.
Changes to the way that whiplash claims are treated should also contribute to stopping the increase in premiums, RBC Capital Markets said. The Prisons and Courts Bill, set to go into law in 2018 at the earliest, could ban offers or requests to settle claims without seeing medical evidence.
A driverless future
But the short-term boost to motor insurance premiums "will pale into insignificance compared to the future effect on the sector of driverless cars," Barrie Cornes, an analyst with Panmure Gordon, wrote in a note.
"We believe that advances in technology will bring driverless cars to our roads faster than currently anticipated and this will result in substantially lower insurance premiums."
He said share prices of motor insurers are likely to fall dramatically. "It's only a matter of timing," he said.