Opinion: Premium affordability on insurer and broker minds

Whether insurance customers can afford to buy certain covers, or purchase the level of cover they require, is a question firmly in the minds of insurers – as well as on the lips of brokers having to initiate conversations with their clients about premiums creeping up.

A recent report by third party administration business Gallagher Bassett – entitled The carrier perspective: 2024 claims insights, published in March 2024 – found that “the foremost challenges” facing UK insurers this year are “premium affordability and insurability”, as indicated by 25% of its respondents.

The research is based on a survey of 150 businesses conducted last year, across geographies including the UK, Australia, New Zealand and North America.

Owen Morris, managing director of personal lines at insurer Aviva, also observed the rising cost of premiums as a market-wide challenge, especially as the underlying reasons for price escalations are not always cut and dry.

“It has been quite a soft market and there’s been quite a correction, therefore that’s a difficult message to land with customers,” he explained when I spoke to him last month.

“It is very difficult to have those conversations with customers. There is not an easy way to do it.

“I’ve worked in pricing for a long time and [the reasons for premium rises] can be quite specific. So sometimes, there’s a clear explanation. And sometimes it’s just general inflation.

“When it’s just an increase because of overall performance in terms of higher claims and higher claims costs, it’s a more difficult message.”

The rate of inflation in the UK is coming down too, which could cause insurance customers to have hope that premiums will likewise fall.

Inflation reached a 41-year high back in October 2022 of 11.1%, while in the year to February 2024, the rate of inflation was recorded at a much reduced 3.4%.

However, consumers won’t see the benefit of this decreased cost of living immediately. Morris explained: “Inflation is obviously coming down, but that will take – as insurance always does – time to work through. You only get one price point each year, so it will take a renewal cycle to work through.”

This is where brokers come in – although telling clients that their premiums may remain higher than expected for a little while yet is not going to be a simple or necessarily well received conversation, at least clients can pose questions, improve their understanding and feel listened to if this discussion is conducted with a broker, especially in-person.

Insurers must communicate to brokers the trends and facts behind premium pricing to ensure these types of conversations are as smooth as possible.