Home insurance premiums are also expected to decrease by 4% to 8%, says the professional services firm
Insurance customers who shop around can expect to see their motor insurance premiums fall by between 5% and 10% in 2021, while home insurance premiums are predicted to decrease by between 4% and 8%, according to professional services firm PricewaterhouseCoopers UK (PWC).
The firm attributed the upcoming decline in motor premiums to the ongoing coronavirus-related lockdown in the UK – this, in turn, leads to “lower than expected crashes on the road”.
However, PWC believes that the average cost of vehicle repairs is still likely to increase by between 7% and 10% “as car manufacturers increase the cost of car parts to make up for profits lost through the reduction in new car sales”.
In terms of home insurance, PWC noted that there is increased competition in this field as “many insurers look to grow in this segment”.
Despite home insurance claims, such as theft, decreasing in 2020 due to the effects of the Covid-19 pandemic, claims have now climbed once more due to the recent bout of bad, wintery weather and resulting burst pipes. The cost of repair materials is also increasing, added PWC.
Results of regulation
Customers are also likely to be affected by the introduction of new regulations from the FCA around dual pricing, which looks to level the cost of premiums between new and long-standing customers.
Speaking on this, Mohammad Khan, general insurance leader at PWC UK, said: “There may be greater reductions in renewal premiums for customers who have stayed with an insurer for a number of years. However, these estimates exclude the impact of the FCA reforms, which may not be introduced in 2021.
“If the reforms on market pricing are introduced in 2021, the cost of the reduction in renewal premiums for customers who have stayed with an insurer for a number of years may be borne by those customers who use price comparison websites.
“This is because the renewal reduction will be funded by the abolition of discounts that are currently available to drivers who shop around each year.
“For example, some young drivers who try to take advantage of the discounts offered by taking out a new insurance policy, could see their premiums rise steeply by more than £200.”
Commercial rate increases
On the commercial side, PWC forecasts “there will be a continuation of the rate increases seen in the second half of 2020 of between 5% [and] 20% depending on the line of business”. It said this is because “the average costs of claims on commercial lines has been rising over a number of years without increases in premiums - 2020 and 2021 is a correction to equalise this”.
Khan added: “As we go deeper into 2021, the economic impact due to the pandemic, especially on smaller businesses [that] may have been relying on furlough payments and government loans, will force SMEs to decide whether insurance is necessary.
“This will then no doubt have a significant impact on commercial insurers targeting this sector and the price rises they are able to achieve.
“For example, commercial insurers targeting the very small end of the commercial lines market may only achieve price rises of 0% [to] 10% in the latter half of 2021.”