Briefing: A bright future, or momentary relief for the motor market?

The nationwide lockdown introduced across the UK to fight the spread of the Covid-19 pandemic earlier in the year slashed the number of miles being driven across the country.

This in turn drove down claims volumes and reduced the total amount being paid out by insurers despite the upward pressure on costs as a result of supply chain interruptions and reduced capacity in repair shops.

Since then, however, driving miles have increased and with the government so far resisting calls for a second lockdown for the whole of the UK, it seems as if at least some semblance of normality is returning to the motor market.

But this normalising of claims volumes will also lead to the return of the perennial problems that UK motor insurers have been wrangling with for years, and have only been masked by the impact of Covid-19 and the ensuing lockdown restrictions.

Chief among these is the high level of claims inflation that have continued to dog insurers, with increasingly expensive replacement parts fuelled by the continued advancement of driving technology one of the main drivers of this inflation.

This is only expected to get worse as a result of the seemingly inevitable departure of the UK form the European Union without a deal, with reports of lorry parks across Kent and other parts of the UK in order to deal with customs delays doing little to alleviate insurers’ fears of further delays to supply chains.

Add to that a fragile economy faltering in the wake of the Covid-19 pandemic that will have an undoubted impact on insurers’ repair networks, and it is easy to see why EY is forecasting a return to underwriting losses for the UK motor market in 2021 and beyond.

Public opinion is also working against insurers, with many consumers believing that more insurers should have offered premium discounts or a rebate as a way to compensate drivers for the reduced miles they logged during the UK’s lockdown.

Combining that with a seemingly profitable 2020 means that rate rises, while needed, will be hard for many, and although a slightly hardening market is anticipated, this is not likely to offset the claims inflation hitting insurers across the board.

This spells bad news for motor insurers, and many in the market will once again be finding it hard to turn a profit once the short-lived benefits of the lockdown begin to evaporate to reveal the true nature of motor insurance in the UK.