Aviva will ‘focus on long-term, consistent, stable pricing’ rather than ‘chase short-term blips’

Aviva plans “to focus on long-term, consistent [and] stable pricing and rating” for the second half of 2024, rather than “chase short-term blips or bubbles in the market”, according to Jason Storah, the insurer’s chief executive for general insurance in the UK and Ireland.

Speaking exclusively to Insurance Times following the publication of Aviva’s 2024 half-year financial results on 14 August 2024, Storah confirmed that the insurer’s UKGI division had achieved across the board growth during the first six months of the year.

This included a 23% year-on-year lift in operating profit and an 19% increase in gross written premiums (GWP), contributing to an undiscounted combined operating ratio (COR) of 92.8%.

More specifically, Storah’s part of the business reported year-on-year personal lines growth of 30%, commercial lines growth of 10% and a 6.5% year-on-year uplift for Aviva’s global, corporate and specialty (GCS) arm, which is also now handling £800m of premiums.

Storah explained that the drivers of Aviva’s year-on-year growth can be split neatly into two halves – rate fluctuations and attracting new business customers.

In personal lines, for example, Storah noted that new customers were drawn to the insurer’s eco-friendly insurance offering, Aviva Zero – which offsets the insured vehicles’ carbon emissions for the first 1,000 miles – as well as signposted to Aviva via price comparison websites (PCWs).

Since launching in March 2022, Aviva has written 800,000 Aviva Zero policies, Storah said.

“We launched a brand new proposition at a really good time in the market to be able to absorb a proposition like that,” he continued.

“We feel great that that’s really performed well for us. We’ve gone from number four to number two in the personal lines market in terms of where we are market share wise.”

In terms of commercial lines growth over the first six months of 2024, Storah attributed this to “strong retention in the mid-market space, as well as really good new business in specialty”.

Looking forward to H2

Looking ahead to 2024’s second half, Storah is keeping a close eye on rate changes – he predicted that Aviva’s pacey H1 growth levels will “taper off a little bit” come H2 because “we’re not putting through the same kind of rate increases now as we did 12 to 18 months ago”.

He explained: “It’s reasonable to expect that our growth levels will continue, but they will start to get to more normalised levels.

“We are going to focus on long-term, consistent, stable pricing and rating. We’re not going to chase short-term blips or bubbles in the market.

“We’re not now expecting over the next six months to be taking the same sort of rate increases as we did over the previous 12 to 18 months. On top of that, we have seen a bit of downward pressure on rates in the market.

“Our response to that is we’re going to maintain our pricing discipline with a long-term view – not look at short-term choppiness, if you like, from a rate perspective.”

Rate trends

Pinpointing specific rate movements, Storah observed that the rate environment in personal lines – and in particular, motor – had changed.

He deemed previous rate increases “appropriate” following the Covid-19 pandemic, however in “the long term, we would want rate increases in line with inflation, but wanting inflation to be more at the 2% to 3% normalised level”.

As for the home insurance market, “we do still think there’s more rate that’s needed in that market”, Storah noted.

He continued: “Everybody sees the volatility [in] weather events and there’s the supply chain and inflationary pressures [too]. So, [we will] probably still see a bit more rate momentum on the home side [compared to] motor. But we’re going to maintain our pricing discipline.”

On the commercial lines side, Storah ringfenced “volatility” in the rates for corporate, specialty and large commercial risks.

“In the mid-market space, we’re still seeing 8% to 12% year-over-year [rate] increases,” he explained. “But we’re expecting that there’s going to continue to be downward pressure on that rate going forward.”

Stephen Pond, Aviva’s chief financial officer, added: “We’re really, really pleased [with] where we are [after H1 2024], but we’re really excited for the second half of the year and [continuing] to build on the momentum that we’ve had during the first half.”

‘Lag’ in inflation

An important driver of insurance rates is the level of inflation. The Office for National Statistics (ONS) published its latest UK inflation rate – based on the Consumer Prices Index (CPI) – on the same day that Aviva revealed its half-year results.

The ONS confirmed on 14 August 2024 that the CPI rose 2.2% in the 12 months to July 2024, a slight uptick on the 2% inflation rate recorded in June 2024.

The CPI measures the overall change in consumer prices based on a representative basket of goods and services over time.

Storah warned, however, that “the headline numbers that you see in the CPI aren’t necessarily the numbers that apply to insurance”.

For example, he noted that although inflation rose steadily throughout and beyond the Covid-19 pandemic years – including an 11.1% peak in October 2022 – motor-related inflation was even higher thanks to “the price of new and used cars, the price of parts [and] supply chain pressures leading to delays in repairing vehicles”.

He said: “Even as overall headline inflation gets down to more normalised levels, I do think we’ll see a lag in terms of that playing through for both motor and home inflation levels.”

Storah said he plans to “really keenly” watch “what is happening in claims inflation” in 2024’s second half, to track where it is “trending relative to overall inflation levels”.