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Law360, London (March 19, 2021, 1:44 PM GMT ) Auto insurance companies have benefited from the pandemic as cars across the U.K. were largely taken off roads during government-ordered lockdowns, Fitch ratings agency has found.
Fitch said that the majority of British non-life insurers reported an improvement in their underwriting results for 2020 amid the COVID-19 pandemic. But the biggest winners were car and motor insurers, which posted "substantial improvements" in their financial results in 2020.
"Reduced claim frequency on the motor business as a result of the lockdowns helped improve U.K. non-life insurers' 2020 earnings," the report, published on Thursday, said.
Commercial and household insurers posted more moderate improvements, Fitch said, with some showing deteriorating performance, due to higher pandemic-related losses on business interruption and travel claims. Losses from serious weather events, such as the floods that hit Britain in late 2019, also damaged insurers' results.
The report also showed that the longer-term outlook for general insurers in Britain is worsening. The ratings agency said that new rules being introduced by the Financial Conduct Authority on insurance pricing may lead to volatility in the market.
The financial watchdog has proposed so-called fair-pricing rules that will force insurers to charge new and existing customers the same price for car and home insurance premiums. The rules are expected to come into force by the end of the year.
The FCA said in September that the new rules are being introduced amid worries about insurers raising prices every year at renewal — a widespread practice described variously as dual pricing, price walking or the loyalty penalty.
Fitch said that its worsening prognosis for the industry is also connected to the fact that motor claims inflation remains high and premium rates are falling.
Insurer Willis Towers Watson said in January that motor insurance premiums fell in 2020 but stabilized toward the end of the year, an indication that prices are coming under pressure because of the FCA's proposed policy changes on market pricing.
The average cost of motor insurance fell for four consecutive quarters, with drivers paying 6% less than they were in early 2020 for premiums, according to analysis by the insurance broker and a price comparison site, Confused.com. Motorists are paying £52 ($72) less than they were a year ago.
A consumer watchdog also warned in January that consumers are struggling to pay premiums amid the pandemic.
The study, conducted by Which? in November, surveyed more than 2,300 people with car, home or private medical insurance about the impact that the coronavirus outbreak had on their cover. It found that 14% of car and home insurance customers, and 29% of private medical insurance clients, struggled with their premiums during the crisis.
--Additional reporting by Irene Madongo and Martin Croucher. Editing by Joe Millis.
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