Inflation is ‘not a surprise’, so the insurer has adopted a ‘cautious and prudent’ strategy to mitigate ramifications for brokers and consumers, says leadership

Insurer Aviva believes it is in “good shape” to reduce the effects of inflation on its personal lines business due to taking an “active” approach to pricing, utilising its size and scale and adopting other mitigating measures.

Addressing journalists in a media call about Aviva’s 2022 half-year financial results yesterday (10 August 2022), the insurer’s group chief executive Amanda Blanc noted that inflation is “not a surprise”, therefore Aviva had begun preparing for potential pricing ramifications back in November last year. This included pricing “ahead of inflation”.

“We’re seeing inflation anywhere between 8% and 12%,” she explained.

In turn, this has led to price increases of “around 12%, 12.5%” in the UK and Canada this year, Blanc continued.

Although emphasising that Aviva is in “good shape” currently when it comes to managing inflation-related price increases, Blanc added that “if the situation [around inflation] worsens, we will look to put more price into the motor and home product line”.

Within its half-year results, Aviva recorded that gross written premium (GWP) in its UK personal lines book reduced by 1% in the first six months of the year - moving from £1,213m in H1 2021 to £1,198m for 2022’s first half.

Adam Winslow, UK and Ireland general insurance chief executive, told Insurance Times that “clearly inflation is the big talking point” in personal lines at the moment, meaning that the insurer has sought to be “more active” around mitigating price increases for this book, while also being “cautious and prudent”.

He believes that although Aviva’s UK personal lines premiums have declined, there is still a positive story to be told.

He explained: “While [personal lines] premium is 1% down, actually the motor premium was 4% down. Motor is about 45% of our overall personal lines business.

“But we grew home and we grew travel. Home [insurance] growth is true growth, [whereas] travel is a Covid rebound.

“More people are travelling now, but we’ve been cautious and prudent about our approach in personal lines.”

Blanc added that customer retention for Aviva’s motor book and its home insurance book is around 7% to 8% at the end of 2022’s first half.

“The strength of the Aviva brand and [our] service delivery means we are in very good shape to be able to deal with the difficult position [caused by inflation],” she said.

Taking action

For Winslow, Aviva’s UK operations have a few strings in its bow when it comes to mitigating the effects of inflation, especially regarding “the supply chain and the claims process”.

Firstly, he explained that Aviva benefits from wholly owning a repair network – Solus Accident Repair Centres – because “owning garages means we can control labour costs more easily than in the wider market”.

Secondly, the insurer’s “size and scale” means it can obtain “volume discounts in white and brown goods because of the amount that we’re buying”.

“We often procure services on multiyear deals, rather than year by year. So, depending on when those deals were last struck and when they renew, there’s probably some benefit there,” he added.

Furthermore, Aviva’s low cost car and home insurance proposition, Quotemehappy – which provides “a lower level of cover for a lower level of premium” – can help “customers solve for inflation in the sense of giving them a more affordable value proposition”, Winslow explained.

Blanc agreed: “What we’ve definitely seen over the last few months is customers looking to buy more of the value-based products, the essential products as opposed to the products that have got more bells and whistles. That is what we would expect in a cost of living crisis.”

Commercial lines distinction

Blanc added that commercial lines should not be tarred with the same brush as personal lines when it comes to understanding the impact of inflation, however.

She explained: “In commercial lines, pricing is largely helped by the fact that commercial lines policies are indexed, so effectively they are indexed for inflation – it already takes into account the inflation number.

“And of course, we are very well balanced between personal lines and commercial lines – our commercial lines business is very profitable.”

Aviva’s UK commercial lines book has improved by 12% year-on-year, according to its half-year financial results. UK commercial lines GWP for H1 2022 is £1,430m, compared to £1,280m for the same reporting period in 2021.