The motor sector’s COR has deteriorated due to headwinds such a rampant claims inflation, but could inflation be about to ease?

By Matt Scott

The UK motor market has had some difficult times of late, with a number of pressures pushing the aggregate combined operating ratio (COR) up above the 100% breakeven point.


Matt Scott

Analysis of the latest Solvency and Financial Condition Reports (SFCRs) by Insurance DataLab revealed motor insurers across the UK and Gibraltar reported a COR of 111.1% for 2022/23, up from 97.4% for the previous year.

Rampant claims inflation has been one of the key drivers of this deterioration – net claims incurred jumped by almost than 17% during 2022/23 – while supply chain issues and regulatory changes, to name just a few, have all played their part in piling the pressure on motor insurers.

These conditions have created what some may call a perfect storm of challenges for motor insurers to grapple with, but is the market about to turn a corner?

Inflation easing?

Alongside rising claims inflation, motor premiums have also experienced a surge of late, rising to record rates this year as insurers look to plot a route back to profitability for their motor books.

And then inflation itself, which has been the biggest cause of concern for many insurers, could be about to ease.

Indeed, Axa UK and Ireland chief executive Tara Foley revealed as much herself when she said inflation was starting to drop and the business was therefore anticipating a “positive impact” on its COR.

Inflation is still inflation, however, so pressures will continue – there is also the lag effect to consider as premiums and newer claims associated with these policies take their time to filter through to insurer results.

This means that the next set of SFCR returns covering 2023 are not expected to show a significant enough improvement in underwriting results to push the market back into profitability.

Beyond that, however, there are certainly more favourable conditions appearing on the horizon. And that will certainly be welcome news for motor insurers as they look to set their strategies for the coming year.