Professional services firm predicts that the UK motor sector’s net combined ratio will be loss-making in 2022 and 2023 and that the ‘environment will be tough’

Premiums for motor insurance in the UK are set to increase by 2% - around £8 per policy – this year ahead of an inflation-driven 18% premium uptick in 2023, which will see around £81 added to each motor policy.

These figures form part of professional services firm EY’s latest UK Motor Insurance Results, published today (4 July 2022).

The report confirmed that although motor insurance premiums have remained low in 2021 and 2022, thanks to the Covid-19 pandemic and the impact on renewal premiums from the FCA’s pricing reform, motor insurance costs will rapidly escalate next year as inflation affects claims costs.

Rodney Bonnard, UK insurance leader at EY, said: “The sector has had a good couple of years, but the profitability achieved during the pandemic is largely masking the underlying impact of inflation amid an increasingly soft market.

“Going forward, motor insurers will need to continue to very carefully manage their cost challenges while developing a platform for growth.”

Short-lived profits

Amid these rising premium predictions, EY also believes that the UK motor market is set to become loss-making this year – despite achieving an underwriting profit in 2020 and 2021, with a net combined ratio (NCR) of 90.3% and 96.6% respectively, thanks to the post-pandemic environment.

Citing inflation, supply chain issues caused by Covid-19 and the resultant impact on claims costs and the FCA’s pricing reform as key drivers for tumbling profitability, EY estimated that the UK motor market’s NCR for 2022 will be 113.8%.

In 2023, EY predicts the motor market’s NCR will be 111.1%.

Richard Reed, UK general insurance market lead at EY, added: “2021 was another profitable year for motor insurers.

“Big shifts in working patterns during the pandemic resulted in reduced commuting and rush hour traffic, leading to fewer accidents and claims. Separately, the new whiplash claims process has reduced legal costs and compensation levels.

“Looking ahead, there are significant challenges on the horizon. Consumer premium rates have remained fairly low and are far below the level needed to keep pace with inflation and the return to more normal traffic levels.

“This means the 2022 and 2023 environment will be tough, even if the market is able to increase rates rapidly over the second half of this year.”