Thompsons asks insurers to justify increase in profits as car insurance premiums continue to rise

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Thompsons Solicitors is demanding answers from Aviva and AXA, Direct Line, after the three insurance companies posted healthy profits in their 2017 first half interim results.

The firm says that the insurance companies are constantly “crying wolf” and saying that the UK’s “compensation culture” is driving vehicle premiums up. In reality, however, Thompsons says that price rises are to benefit shareholders and the companies’ bottom lines.

Aviva’s half year results for 2017 show that its overall operating profit rose by 11%, and that UK motor insurance premiums increased by 9% (from £530 million to £580 million). The dividend paid out to shareholders went up by 13%.

AXA also reported strong half year performance with a 4% increase in underlying earnings, and a 6% growth in revenue from UK motor insurance. AXA has confirmed in its results report that the UK motor insurance market was a factor in its overall growth in the first half of the financial year.

Direct Line reported a 9.5% increase in operating profits in its interim half year results for 2017. In early 2017, Direct Line increased its motor insurance prices to its customers by 6.6%, compared with the same time in 2016, blaming the increase on proposed plans to adjust the Discount Rate and on an “anticipated increase in claims inflation”.

However, in its interim results paper, the Direct Line Group has said that “bodily injury claims continued to trend more favourably than expected”, meaning that it has paid out less than expected. The insurer also said that its motor line continued to grow gross written premiums, which was up 10%, with Direct Line driving the growth.

Thompsons has said that Direct Line needs to justify its profit of £354.2 million – along with AXA and Aviva – at a time when the average cost of comprehensive car insurance cover is at a record high of £690 – an increase of 19.6% in a year.

Tom Jones, head of policy at Thompsons Solicitors, said: “[Insurers] haven’t missed a trick in blaming everything and everyone else for insurance premium rises – whiplash, fraud, insurance premium tax, the discount rate – but today we can see the real reason in black and white.

“Yet another boost in profits and yet more pay outs for their shareholders. They run a good line in shifting the blame but the facts speak for themselves – their whinging is to distract from what is really going on here, healthy profits and well feathered nests.”

Thompsons Solicitors has long called for motor insurers to be forced to be transparent about how it is calculating premiums, a call that has been given extra emphasis following a Daily Telegraph investigation which revealed that repair costs were being inflated by as much as 100%.

“This is yet another example of insurers delivering more for the bottom line and their shareholders than the customer,” said Jones.

“This is a consistent pattern over years and the Government needs to stand up to an industry that is unabashedly profiteering at the consumer’s expense. Motorists have no choice but to buy their products and the insurance industry is taking them for granted.”

He added that the Government was under pressure from insurers to change the law to make it more difficult for those injured on the roads or at work to make a claim for damages as they argue that this was the only way to lower prices for motorists, while keeping quiet about the profits they have made.

“But they are keeping quiet about the £8 billion they have saved in the last few years and they don’t mention that last year road accident claims dropped by 7% and workplace accident and disease claims by 21%. What we really have is fat cat insurers’ with an insatiable appetite for profit refusing to be transparent and no one in government prepared to call them out.”

In reply to Thompsons, a spokesperson from Direct Line Group said that the Discount Rate change in February had had a significant impact on its bottom line and pricing strategy.

“The change in the Ogden discount rate from 2.5% to -0.75% materially increases the cost of large bodily injury claims,” said the spokesperson.

“The additional cost for pre-existing claims now stands at £168m, representing the £217m figure we announced in our 2016 results, adjusted for the £49m release in our 2017 results, having done the detailed analysis of the 2500 affected claims. This cost has been taken as a cost to our profits and not passed on to customers.

“The impact of the Ogden discount rate change will take time to work through.  Meanwhile we have had to factor in the affect that the Ogden discount rate will have on costs, and we estimate that it adds about 7-8% to the cost of motor claims, on top of the c.5% underlying claims costs inflation we believe is being experienced across the market.

“Our 11% price increase over the first half of this year should be seen in this context.  Should claims costs fall, for example from the changes in Whiplash or from a subsequent revision upwards in the interest rate, we would expect customers to benefit from this with lower prices, as has happened previously in this highly competitive marketplace.”

 

 

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Marek Handzel

Marek Handzel is the editor of Claims Magazine. Marek welcomes articles, letters, or feedback from readers and can be reached by emailing marek.handzel@barkerbrooks.co.uk