’High inflation and rising costs have resulted in an extremely difficult couple of years for the UK motor insurance sector,’ says UK insurance partner
UK motor insurers saw significant underwriting losses in 2023 due to high inflation and claims costs.
That was according to EY, which said the motor insurance market experienced its worst performing year since 2011.
The firm’s UK Motor Insurance Results, which were published yesterday (15 July 2024), showed the sector recorded a loss-making net combined ratio (NCR) of 112.8% in 2023, up from 111.1% in 2022.
EY said the losses were a result of increased claims costs driven by sustained high inflation, rising costs of materials and labour and premiums that continued to track below claims inflation.
Mat Wheatley, UK insurance partner at EY, said: “High inflation and rising costs have resulted in an extremely difficult couple of years for the UK motor insurance sector.
“This was particularly the case in 2023, which also saw balance sheets impacted by the delayed reaction to required premium adjustments in 2022.
“2023 was also difficult for motor insurance consumers who have faced a sharp increase in premiums to bring them in line with claims inflation.”
Return to profitability?
However, with inflation now falling, EY expects a return to profitability for the motor insurance sector this year, forecasting an NCR of 96% in 2024.
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As the market returns to profitability, consumer premiums are expected to fall by -3.7% year-on-year in 2025.
”While there are positive signs that profitability for the motor insurance sector is within sight, macroeconomic challenges remain and there is a sense of uncertainty around the impact of the 2025 Odgen discount rate change,” Wheatley said.
”As ever, it will be vital that motor insurers continue to carefully monitor their costs, adjust to changing customer behaviours and support vulnerable customers while also looking for opportunities to innovate and grow.”
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