At the end of October, the Financial Conduct Authority (FCA) wrote to insurers reminding them to ‘review the value of their products in light of the impacts of coronavirus’.
Let’s leave aside the fact that the regulator shouldn’t need to ‘remind’ big business of such basic matters as ensuring a fair deal for consumers. It is pretty clear that there is concern that harm could be caused to consumers where insurance products have not delivered the intended value to people during the pandemic.
Only the day before the FCA letter, a press release from the ABI boasted that the cost of motor insurance is the lowest it has been for four years. Premiums in the third quarter of 2020 were a whopping £8 lower, on average, than the same period last year.
In fairness, I sense a slightly rosy face from the ABI who went on to justify the unimpressive savings on offer by pointing out that ‘continued cost pressures including rising repair bills and the delay in introducing personal injury reforms’ were a factor.
But is this a reasonable position? Is it a cause for celebration for motorists?
Far from facing cost pressures, since lockdown last spring car insurers have seen a huge reduction in the number of claims which they have received and, in turn, the costs associated with these claims. Furthermore, while car insurance premiums have reduced, these reductions do not come close to reflecting these reduced costs fully.
For example, between the first and second quarter of this year, the number of injury claims notified to car insurers fell by 62 per cent, while the value of these claims fell by almost half (49 per cent). The 49 per cent reduction in the value of injury claims received by motor insurers represents a drop of a staggering £367 million. Over the same period, the average motor insurance premium fell by a meagre 3 per cent.
This £367 million drop in injury claims is likely to represent a bottom line in terms of the savings which motor insurers will make as a result of the pandemic. This is because the value of injury claims received in further quarters (e.g. quarter 3) is also likely to be significantly lower, as data from the CRU and portal shows PI claims remain well below their “pre-covid” level.
In essence, insurers are once again failing to ensure that reductions in injury claims are reflected in the car insurance premiums, despite spending years telling Government that lower premiums would result if personal injury reforms were followed through.
Let’s hope that by the FCA’s 3 December deadline for insurers to decide what action they will take that consumers will receive a bigger slice of the cake in time for Christmas.