Briefing: Why insurers need to embrace Labour’s motor insurance taskforce

By Matt Scott

It’s no secret that car insurance has been getting more expensive and for many drivers, it’s getting harder to keep up with these rising prices at a time when a cost of living crisis continues to put strain on the nation’s purse strings.

The new Labour government, elected in July 2024, has stepped into the breach this month (October 2024) by creating a motor insurance taskforce to “crack down on spiralling costs” by bringing together representatives from across the market to tackle this problem.

Some stakeholders have criticised the inclusion of insurers in this process, however.

For example, Matthew Maxwell Scott, executive director at the Association of Consumer Support Organisations (ACSO), described it as “strange” that trade body ABI is involved in a process set to investigate “its own members’ pricing behaviour”.

For me, it would be downright ludicrous for insurers not to be working with the taskforce – how can real change be achieved if those with the greatest influence over pricing and customer outcomes are not involved in the process?

I’m sure there will be tough questions for insurers to answer as part of the taskforce’s action – and rightly so – but insurers definitely need to be a key part of those conversations given their role in setting the premiums that drivers pay every year.

Striking a balance

However, it is also worth mentioning that insurers are not solely to blame for the rising cost of insurance. There are some serious mitigating circumstances that have forced insurers’ hands to varying degrees – even if consumers don’t necessarily see that.

Several factors – such as claims inflation, accident frequency and ongoing supply chain interruptions – have all pushed premiums higher and Insurance DataLab’s analysis of insurer regulatory returns shows that the UK’s motor insurers have failed to make an underwriting profit in each of the last three years.

This cohort has only reported a profit once in the last five years. The aggregate motor insurance combined operating ratio for 2023/24 was a highly unprofitable 119%.

Despite these pressures, insurers have a responsibility to keep premiums as affordable as possible – whether that means using technology to drive efficiencies, developing new products, or creating pricing structures that enable the most vulnerable in our society to access cover in an affordable way.

Not only do these types of action make good business sense – reducing costs and opening up new avenues of distribution for an underserved area of the market – but it is also good for the industry’s reputation.

Insurers have long been tarnished because of the rising cost of insurance and a perceived reluctance to pay claims, but engaging with the government’s taskforce and embracing the process to deliver real change could help to ease the negativity that persists in consumers’ eyes.

And while the taskforce is certainly a step in the right direction, meaningful change will require collaboration between insurers, the government and consumers.

Premiums need to come down, but not at the expense of the insurance industry’s ability to function effectively.

A balance must be struck between affordability and sustainability. The key to achieving this lies in reform. If insurers can be part of the solution, rather than being painted as the problem, it will go a long way towards restoring trust in the sector and easing the financial burden on motorists.