Briefing: Where next for personal lines?

By Insurance DataLab cofounder Matt Scott

My analysis of the performance of commercial and personal lines insurers in the Top 50 Insurers 2023 report, released today (4 October 2023), based on data from Insurance DataLab, revealed a bleak picture for the UK’s personal lines market.

True, personal lines insurers were only marginally in loss-making territory with a combined operating ratio (COR) of 100.1% for 2022/23, but with the ratio climbing by almost 10 percentage points over the last two years, this is still a worrying trend.

Rising claims inflation has been one of the main driving factors behind this deterioration, with the aggregate personal lines loss ratio climbing significantly over the last two years to 64.1%.

Reserve strengthening has also been required across many insurers’ books of business and these significant pressures on underwriting profitability have led several firms to reconsider their position in the market.

Indeed, the likes of Vitality and Zurich have already withdrawn from certain segments of the personal lines market.

And insurer giant RSA announced in March 2023 that it was withdrawing entirely from the personal motor marke, with rumours persisting of a total exit from personal lines in the near future.

Rising premiums will, of course, help ease the pressure as insurers are able to draw in greater premiums to cover their risks – but rising prices will also lead to greater competition.

This means that delivering good customer outcomes will become increasingly important, particularly in the age of Consumer Duty and fair value – insurers must be cognisant of how they are performing across a myriad of metrics.

Brokers will undoubtedly be doing so when placing their risks and insurers that do not take due note of the importance of these metrics could find themselves struggling to win new business.

Down for the count?

But despite these pressures, the personal lines market is far from dead.

Indeed, Acromas, the underwriting arm of over-50s specialist Saga, recently took itself off the market in expectation of an upturn – put simply, it did not want to go through all that pain just for someone else to reap the benefits once the market turned in insurers’ favour.

Telematics – which has long been touted as a solution to climbing loss ratios – could still become a more prevalent product given the enduring cost of living crisis and the need for consumers to reduce their household bills.

And in household insurance, technology is increasingly being used to monitor and mitigate risks.

Technology and the rise of artificial intelligence is also expected to help in a number of ways, including reducing claims leakage, improving turnaround times and driving down operating costs through greater efficiency.

The Bank of England is forecasting that inflation is expected to fall over the coming year, which will be welcome news to those across the insurance industry.

The bank’s latest forecast expects inflation to fall to 5% by the end of the year, before continuing to fall over the course of 2024 and finally hitting its long-term target of 2% sometime in the first half of 2025.

So while the picture may look bleak, there is some light on the horizon.

It just remains to be seen how long it will take for the sun to rise on personal lines insurers once again.