The UK motor insurance market experienced its worst performing year in a decade

The UK motor insurance market experienced its worst performing year in a decade in 2022, with further losses expected this year, according to EY’s latest UK Motor Insurance Results.

Following a profitable 2021 – when the sector recorded a Net Combined Ratio (NCR) of 96.6% – motor insurers entered into the red in 2022, recording an NCR of 109.5%, largely driven by high inflation and low premium costs.

The losses follow a period of profitability during the pandemic years, when car usage and therefore claim volumes were low. The past year, however, has seen inflation rise; the increase in the costs of materials and labour alongside a rise in energy prices have all impacted claims costs, and is expected to feed into future premium pricing.

With inflation expected to remain high for the foreseeable future, EY expects losses to continue in 2023, and forecasts an NCR of 108.5% this year. However, better news is on the horizon in 2024, and providing insurers make the necessary adjustments to premium prices to keep pace with the rate of inflation, the market should return to profitability, with EY predicting an NCR of 97.4%.

Rodney Bonnard, UK Insurance Leader at EY, comments: “The profitability achieved during the pandemic, when car usage and claims were low, was quickly reversed by the impact of pricing reforms, high inflation, supply chain issues and changing driving habits. Last year was an undeniably difficult year for the sector and headwinds look set to continue throughout 2023, so it will be vital that motor insurers continue to manage their costs carefully while also looking for new avenues of growth.”

Premiums set for sharp rise of 16% (£74 per policy) in 2023 and 11% (£59 per policy) in 2024

In 2022 premium rates rose 6.8% as inflationary pressures fed through into claims costs. Larger rises are expected this year and next to keep pace with the rate of inflation and mounting costs of materials.

EY expects premiums to rise sharply by 16% over 2023 (£74 per policy on average), with a further 11% rise in 2024 (£59 per policy on average).

Richard Reed, Head of UK General Insurance at EY, concludes: “Consumer premium rates have remained far below the level needed to keep pace with inflation and the return to more regular motor activity post-pandemic.

However, the need for the sector to address this and rebalance its books unfortunately means that consumers will face a sharp rise in their premiums. 2023 will undoubtedly be tough for consumers and insurers alike, but we expect these challenges to ease once inflation falls back.”