The cost of motor insurance will not come down for at least two years – even if the government forges ahead with whiplash reforms, according to a leading credit ratings agency.

Fitch Ratings says insurance premiums will continue to rise because the levels of reserve releases that have supported profitability in recent years are ‘unsustainable’ in the long term.

‘Premium rates are still below 2012 levels and we believe more rises are inevitable,’ says a Fitch report.

In 2015 the government announced proposals designed to reduce false whiplash claims. 

The Ministry of Justice is preparing a consultation based on George Osborne’s autumn statement, which proposed a ban on general damages for soft-tissue injury and increase in the small claims limit.

Fitch added that even if the proposals are implemented, insurers will be ‘reluctant to pass savings on to consumers before seeing evidence of reduced claims costs’. It added: ‘We do not expect the reforms to significantly affect prices before 2018.’

The reduced cost of premiums is a key element of the insurance industry’s strenuous lobbying efforts for further reform. Last November, Association of British Insurers director general Huw Evans promised that in a ‘highly competitive motor insurance market, insurers will continue to pass on savings to customers’.

The MoJ has said the proposed changes will lead to a cut in annual insurance premiums by around £50, although only two companies have publicly committed to such a reduction.

The government has also admitted it has no intention of intervening to force insurers to pass on savings.