Profits have soared at one of the UK’s biggest motor insurers after the impact of this year’s discount rate change on personal injury compensation payments turned out to be less severe than feared.
Direct Line also boosted its half-year dividend to shareholders by 39% after personal injury claims costs also continued to ‘trend more favourably’ than expected, the company said in interim results published today.
The results will be cited by some solicitors as further evidence that the insurance lobby is crying wolf in calling for further reforms to the personal injury sector. In March this year, insurance bosses met chancellor Philip Hammond asking him to intervene after the then lord chancellor Liz Truss announced that the discount rate would be changed from 2.5% to -0.75%. Direct Line said at the time the move would wipe £215m-£230m off its pre-tax profits.
The change also triggered predictions from insurers that premiums for young drivers could rise by up to £1,000 a year and cost the NHS an extra £1 billion a year in compensation bills.
The result of a review of the discount rate, interrupted by the general election, is expected later this week.
In the first half of 2017, Direct Line increased motor premiums by 6.6% on the same period last year, pricing in the ‘Ogden discount rate’ change and general claims inflation, ’partially offset by underlying improvements to bodily injury cost trends’.
A 14% rise in first-half pre-tax profits to £341m - well ahead of City forecasts - was aided by the release of nearly £50m of reserves previously set aside for the discount rate change. The company said: ’Bodily injury claims continued to trend more favourably than expected. In addition, detailed case reviews conducted in Q2 of the additional costs arising from the lowering of the Ogden discount rate indicated a lower than expected increase to claims costs. This has resulted in a reserve release of £49m, leading to a total prior-year reserve release of £174.6m in the first half of 2017 (H1 2016 £134m). The Group continued to reserve prudently and assumes a minus 0.75% Ogden discount rate.’
Tom Jones, head of policy at claimant firm Thompsons Solicitors, said: ’The government is 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 - insurers claim there is a ‘compensation culture’ and a whiplash epidemic and the only way to lower prices for motorists is to restrict access to justice for anyone injured anywhere.
’But they are keeping quiet about the £8bn 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.’