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UK Motor Insurance Sector Facing Worst Year Since 2010 Amid Rising Costs and Claims

The UK motor insurance industry is headed for its poorest performing year since 2010, warns a new report from EY. The combination of high inflation, supply chain disruptions, changing driving habits and more frequent expensive claims have created a perfect storm of challenges for insurers.

EY predicts the insurance sector will see a net combined ratio (NCR) of 114.6% for 2023. This key metric of profitability reflects the ratio of claims and expenses to premiums - a figure above 100% indicates an underwriting loss. The 2023 NCR forecast is significantly higher than the 108.5% ratio predicted back in June.

What’s behind this deterioration in motor insurer finances?

Rising Costs

High inflation and surging material, labour, and vehicle repair costs have exceeded initial expectations. These cost pressures, along with a jump in claims frequency and severity are hammering insurer bottom lines.

Premium Growth Unable to Keep Pace

While insurers have rapidly increased premiums, with the average policy now costing consumers 25% more than last year, it hasn’t been enough to offsetclaim costs and inflationary pressures.

Challenging Conditions to Persist

EY believes the tough operating environment for motor insurers will continue into 2024. However, there are some glimmers of hope. Moderating inflation and the lagged effect of premium hikes could see profitability stabilise. EY forecasts an improved but still unprofitable NCR of 100.4% next year.

What Does This Mean for Consumers and Businesses?

Consumers have faced sticker shock with average premiums up £118 this year alone. The rapid pace of increases has outpaced many expectations. With further rises projected, price pressures will strain household budgets.

Insurers Walking a Fine Line

Insurers face a delicate balancing act - tracking claims costs and pricing accurately, while avoiding placing too much pressure on consumers. Investment in technology and sustainability initiatives also remain key priorities looking ahead.

While economic headwinds persist, the insurance sector will continue responding and adapting to market dynamics in 2024. Maintaining customer service and trust will be critical during this period of turbulence and change.


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