The UK motor insurance market experienced its worst performing year since 2011 last year, recording a loss-making Net Combined Ratio (NCR) of 112.8%, according to EY’s latest UK Motor Insurance Results.
The 2023 losses – which followed a weak performing 2022, when the sector recorded an NCR of 111.1% – were the 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.
However, with inflation now falling and premium increases in the second half of 2023, EY expects a return to profitability for the motor insurance sector this year, forecasting an NCR of 96% in 2024.
Mat Wheatley, UK Insurance Partner at EY, commented: “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.
“It has been a hard time for the sector, but hasn’t just been challenging for firms; 2023 was also difficult for motor insurance consumers who have faced a sharp increase in premiums to bring them in line with claims inflation. However, with inflation now falling and claims costs easing, better news is on the horizon for both insurers and consumers, and we expect to see the motor insurance sector return to profitability this year.”
Premiums rose by a over a quarter in 2023 (£544 per policy) and will rise further in 2024, but should begin to fall in 2025
In 2023, premium rates rose by 25.2% year-on-year (£109 per policy on average) as firms adjusted premiums in line with inflationary pressures. This correction will continue to drive up premium rates into this year, with consumer premiums expected to rise by a further 15.9% year-on-year in 2024 (£87 per policy on average). However, as the market returns to profitability, consumer premiums are expected to fall by -3.7% year-on-year in 2025 (-£23 per policy on average).
Mat concluded: “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. 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.”
