Car manufacturers have faced supply chain bottlenecks, which has impacted insurance
Insurers could be set for a “bumpy ride” next year as non-life insurance premium increases could slow down by 3.5% in 2022, according to research by professional services firm EY.
EY’s Item Club for Financial Services Forecast, published today (13 December 2021), attributed this trend to the momentum of the economic Covid recovery fading. Plus, the uncertainty around the Omicron Covid-19 variant presents an ongoing risk, found the forecast.
The EY Item Club is a UK economic forecasting group that produces quarterly economic UK forecasts, special reports and forecasts for Scotland and the financial services sector. It also delivers daily analysis on UK economic data.
This month’s forecast showed that insurers have shown resiliency during the Covid-19 pandemic - there could be some resulting economic gains this year, with non-life premium income forecast to grow by 8.6% in 2021, which is a marked increase on the 1.7% increase recorded in 2020.
This is, in part, due to the strength of the housing market and the purchase of associated insurance products.
For example, cost of living pressures as a result of rising inflation, higher energy costs and next April’s personal tax rises will all affect the demand for insurance, as will the end of the stamp duty holiday.
Anna Anthony, UK financial services managing partner at EY, said: “While uncertainty around the new Omicron Covid-19 variant and how it might affect families and businesses around the world is certainly not what anyone wanted as we head into Christmas and the new year, the UK financial system remains resilient and well capitalised, making it well equipped to continue to support consumers and firms.”
Supply chain bottlenecks
New car sales have struggled in recent months, noted EY, while manufacturers have also faced supply chain pressures. This has, in turn, influenced the demand for motor insurance policies.
New car registrations initially responded strongly to the reopening of car showrooms in April 2021, but supply bottlenecks have curbed this momentum.
For example, new car registrations in Q3 this year were more than 30% down compared to the same level a year earlier.
The EY Item Club forecasts a total of 1.77 million new car registrations in 2021 - which is around a quarter below the 2.3 million registrations seen in 2019.
However, the level of new car registrations should increase in 2022 once supply issues are addressed.
Anthony added: “Looking ahead to 2022, there are a number of different challenges facing UK financial services firms. From managing the spate of new regulatory requirements to turning sustainability pledges and net zero commitments into action and pressing hard on digital transformation, this coming year is set to be as demanding as the last.
“But the industry as a whole is in a strong position to meet the challenges head on and, post-Brexit, will continue to forge new international relationships and deals, ensuring it continues to command a leading role on the global stage.”