UK motor insurers achieved a profitable Net Combined Ratio (NCR) in 2021 of 96.6% as the lockdown and low commuting levels led to reduced claims; this followed the peak 2020 result of 90.3% NCR
The industry is, however, expected to return to the red in 2022, with a predicted 113.8% NCR due to underlying inflation and premium rate falls
For consumers, premiums reduced in early 2022, and are expected to incur a 2% (£8) rate rise this year, but this is small compared to 2023 predictions, which will see rates jump 18% (£81) due to inflation
The UK motor insurance market achieved an underwriting profit in 2021, largely due to post-pandemic factors, including low levels of commuting resulting in fewer claims. Motor insurers last year recorded a Net Combined Ratio (NCR) of 96.6%, according to EY’s latest UK Motor Insurance Results, which followed a NCR of 90.3% in 2020 – the industry’s best ever result.
However, profitability is likely to be short-lived. Inflation, which had already been growing over the past couple of years due to supply chain issues affected by COVID-19, is expected to climb even higher in 2022 as materials, labour and energy price rises feed through into claims costs. In addition, premium rates are currently sitting at a low level following the implementation of the FCA’s pricing reforms, with rates having fallen sharply in Q1 2022 by 5%.
EY predicts that the Net Combined Ratio (NCR) for 2022 will be a loss-making 113.8% and 111.1% in 2023.
Premiums set for small 2% (£8 per policy) rise in 2022 but predicted to rise by 18% next year (£81 per policy) due to inflation
Premiums remained relatively low over the course of 2021 and fell even further in the first quarter of 2022, prompted by a decline in renewal pricing as the FCA pricing reforms came into effect.
Looking ahead, however, premiums are expected to rise sharply next year as inflationary pressures feed through into claims costs.
EY expects consumer premiums to rise by a marginal 2% (£8 per policy) over 2022, with a much larger increase forecast next year, leading to an 18% (£81 per policy) increase for 2023.
Rodney Bonnard, UK Insurance Leader at EY, comments: “The sector has had a good couple of years, but the profitability achieved during the pandemic is largely masking the underlying impact of inflation amid an increasingly soft market. Going forward, motor insurers will need to continue to very carefully manage their cost challenges while developing a platform for growth.”
Richard Reed, UK General Insurance Market Lead at EY, concludes: “2021 was another profitable year for motor insurers. Big shifts in working patterns during the pandemic resulted in reduced commuting and rush hour traffic, leading to fewer accidents and claims. Separately, the new whiplash claims process has reduced legal costs and compensation levels.
“Looking ahead, there are significant challenges on the horizon. Consumer premium rates have remained fairly low and are far below the level needed to keep pace with inflation and the return to more normal traffic levels. This means the 2022 and 2023 environment will be tough, even if the market is able to increase rates rapidly over the second half of this year.”