OREANDA-NEWS. Fitch Ratings says that UK motor insurance premiums will continue rising because the levels of reserve releases that have supported profitability in recent years are unsustainable in the long term. Prices have been rising since early 2015, reaching a 10% yoy increase in 2Q16, according to the Association of British Insurers (ABI). However, premium rates are still below 2012 levels and we believe more rises are inevitable.

In 2015 the government announced proposals designed to reduce false whiplash claims. However, even if and when the proposals are implemented, we believe insurers will be reluctant to pass savings on to consumers before seeing evidence of reduced claims costs, so we do not expect the reforms to significantly affect prices before 2018.

Fitch believes that the growing use of price comparison websites for household insurance will increase competition, keeping pricing under pressure. More than 50% of household insurance sales are now transacted through aggregators, compared with under 20% in 2009. ABI data showed a marginal yoy price reduction for 2Q16 despite a rise in Insurance Premium Tax and the introduction of a Flood Re levy.

Faced with low investment yields and intense competition, insurers are looking to technology, notably telematics, for a competitive edge. In 1H16 several companies reported double-digit growth in the number of telematics policies. Telematics provides a large amount of data on driver behaviour, enabling insurers to price for risks more accurately.