Shares in insurance provider Hastings (HSTG) tumble 14% to a three month low of 188p after the firm reports lower than expected revenues for the quarter to 31 March and warns that its full year loss ratio may be at the top end of estimates.
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While customer numbers and gross written premiums were up in the quarter, net revenues were 1% lower at £183m as the company cut prices to improve its retention rate and attract new business.
BATTLING COMPETITION
The trading statement makes repeated reference to the 'competitive market' for car insurance which suggests that even firms like Hastings, which is trying to differentiate itself by becoming increasingly digitalised, have had to give in on pricing if they want to keep their market share, let alone grow it.
Therefore last quarter it tested and rolled out new renewal models 'which amongst other initiatives have increased retention rates' by 4%.
PRESSURE ON PRICING
Pressure on renewal pricing will only increase going forward with regulators the Financial Conduct Authority (FCA) and the Competition & Markets Authority (CMA) both looking into whether existing customers get a worse deal than new customers when they come to renew their policies.
The other big issue facing insurers is claims inflation, in particular the cost of vehicle repairs due to rising prices for parts and labour and increases in third party property damage costs.
Hastings has appointed Vizion Network, Enterprise Rent-A-Car and Autoglass BodyRepairs as new claims service partners on what it calls 'improved commercial terms' and is monitoring claims inflation, especially in third party property damage costs which it says 'remain high across the industry'.
However it warns that 'if the current market premium and claims dynamics continue through the year the group loss ratio would be expected to move towards the higher end of the 75% to 79% target range.'
