Press release

2 Dec 2019

The UK motor insurance market to record underwriting loss in 2019 following record-breaking year

Press contact

EY UK

Multidisciplinary professional services organisation

Related topics Insurance
  • 2019 is now predicted to have a Net Combined Ratio (NCR) of 105.7% (up 1% vs EY’s previous June forecast)
  • This is despite 2018 recording the best result since records began in 1985 with a NCR of 94.7%
  • The deterioration is due to premium reductions, continued high claims inflation and one-off reserve releases from the Ogden rate in 2018 being partially reversed in 2019
  • But premiums will fall by 2% in 2019 meaning consumers are paying around £8 less per policy

The UK motor insurance market is expected to record underwriting losses in 2019, according to EY’s UK Motor Insurance Results, despite having the best result in 2018 since records began. The Net Combined Ratio (NCR) for 2019 is predicted to be 105.7%, which is an 11% increase on 2018.

The worsening picture for 2019 reflects a number of key factors, including falling premiums and high claims inflation, which continues to run at around 6%, driven largely by damage inflation and the increasing cost of repairs due to the technology in new vehicles. The one-off release of reserves which contributed to the 2018 result is expected to be partially reversed due to the lower than predicted Ogden discount rate announced in July, impacting the market NCR by approximately 1%.

The prospects for motor insurers look similarly challenging the following year. NCR for 2020 is forecast to be 106.8%, although this will depend heavily on when the whiplash reforms - part of the Civil Liability Act 2018 – are introduced, and to what extent insurers cut rates in advance of the reforms taking effect. Based on the current level of uncertainty due to the General Election and Brexit, EY is anticipating the reforms will be delayed by around six months.

Motor insurers will also continue to face significant challenges to address the FCA’s concerns on pricing practices. Pricing policy and governance is under intense scrutiny with the GI Market Study, and the industry could face considerable disruption depending on the remedies the FCA adopts.

2% premiums drop in 2019

In 2018, personal motor insurance cost consumers £478¹ on average, with EY anticipating this will fall to £470 over 2019 and then rise slightly in 2020 to £474. EY expect premiums to increase over the next 9 months as insurers respond to high repair cost inflation and adopt a cautious stance given the uncertainty over the implementation date of the whiplash reforms. Later in 2020 EY expect the reforms, when ultimately delivered by the Government, to cause a marked reduction in premiums, resulting in an average saving of £30 per customer.

Tony Sault, UK General Insurance Market Lead at EY, commented: “While 2018 saw the best underwriting result since records began in 1985, the outlook for 2019 has markedly deteriorated and is expected to firmly enter into the red – and stay there for the next year at least. The market has softened at a quick pace, with falling premiums due to intense competition in the market. This is in spite of the continued high inflation on damage claims, brought on by the increasing cost of repairs on new technology-integrated cars.

“Looking ahead, 2020 is set to be year full of uncertainty. In addition to Brexit, underwriting losses are expected to be exacerbated, and the introduction of Whiplash reforms look likely to be delayed beyond next April. Insurers will also be paying close attention to the FCA GI Market Study and the extent of reforms and remedies imposed on the market.

“There’s a lot for the industry to contend with, but it’s crucial that insurers try and put themselves in the best position possible. They need to retain a focus on differentiating their propositions and using the latest technology to help drive down costs and improve their customer offerings.”

 

¹ Source: Association of British Insurers (ABI)