Earlier this month the Confused.com/Towers Watson motor insurance price index revealed that motor premium rates had fallen just 1.2 per cent during the fourth quarter of 2013 - the smallest quarterly decline since rates turned sharply down in 2012. That helped deliver a modest share-price boost for esure (ESUR), Direct Line (DLG) and Admiral (ADM) but, despite that, there's still plenty of challenges ahead for the motor insurers.
To begin with, it's still too soon to conclude that firmer pricing is on the cards. While motor rates have fallen 25 per cent below the peak pricing seen in 2011's second quarter, rates remain fairly high by historic standards. In fact, rates are still 30 per cent above 2009's levels. Insurance analyst Peter Eliot of Berenberg reckons that while the cycle may be flattening out, there's "little pressure for large price increases" and he doesn't "expect a return to rates seen in recent years".
Competition is another potentially negative pricing factor. "We have seen no sign of companies reporting large losses or weak reserving positions," notes Mr Eliot - which suggests the sector remains well capitalised. But that also means they can afford to cut prices to protect market share and "there have been few cries of wanting to lose market share", says Mr Eliot.
The Competition Commission's impending report into the sector also adds uncertainty. It has been investigating the motor market since early 2012 and some sector analysts think its findings could lead to a ban on fees charged for replacement vehicles for crash victims.
But last April's ban on legal referral fees for personal injury claims could mean good news. Ministry of Justice figures reveal that road traffic accident claims volumes fell 10-15 per cent year on year between August and November. That, reckons insurance analyst Nick Johnson of Numis Securities, points to a "slowdown in claims inflation", suggesting that medium-term reserve releases at the motor players could yet "surprise on the upside" - potentially good news for earnings.
