Motor insurers are accelerating after signs of an increase in rates.
Bad news for drivers of course, but the latest AA insurance index showed a 2.8% quarter-on-quarter rise in comprehensive rates and a 6.6% increase in third party rates, the first rises for two years.
This has helped Direct Line climb 8.2p to 279.3p, Admiral add 28p to £12.71 and esure rise 11.1p to 233p. But Eamonn Flanagan at Shore Capital was still negative on the companies:
On the face of it, the latest AA Insurance Index, for the third quarter of 2014, offers a potential glimmer of hope for the beleaguered UK personal motor insurance, with both comprehensive and third party rates reporting a quarterly increase for the first time in two years. However, this glimmer is quickly extinguished, to us, on reading the commentary from AA Insurance which states that “claims pressure is pushing premiums up”. The report goes on to indicate that claims farmers and law firms are finding ways to get around the LASPO [legal aid, sentencing and punishment of offenders act] measures whilst many insurers have reported a “surge” in the number of lower-value ‘cash for crash’ claims which has led to an increase in whiplash and other soft tissue claims.
This confirms our view that the increase in motor rates is actually a lag indicator of claims experience, with the third quarter 2014 rate increase necessary to begin to compensate for adverse trends developing in both claims frequency and average claims amounts. As a consequence, although the initial positive stock reaction of the quoted motor insurers to this news... may be understandable, we believe it to be premature. The worsening claims data (both frequency and amounts) can only depress margins, whilst we remind readers of the ongoing FCA review of add-ons. As a result, we reiterate our sell recommendations on each of Admiral, esure and Direct Line.
