’This is undeniably a tough time to be a motor insurer,’ says business management consultant firm

The motor insurance market in the UK is predicted to exceed a combined operating ratio (COR) of more than 100% in what is forecast to be a “tough” 2023.

In a statement released yesterday (12 June 2023), Oxbow Partners said claims inflation would remain elevated during the year and predicted an overall market COR of 106%.

The business consultancy company also warned that overall profitability was expected to be around 26% lower than pre-Covid levels.

”This is undeniably a tough time to be a motor insurer,” the firm said.

“Shareholders and boards will be asking questions around where all the profit has gone.”

Better than 2022?

Oxbow Partners made the predictions using its Motor Market Model tool, which used publicly available data, interviews with market participants and the firm’s own insight.

Despite the forecast for 2023, Oxbow Partners said there was some improvement for motor insurers compared to 2022.

The firm said that the market COR increased by over 15% points to 109% last year, when economic headwinds impacted profitability across the insurance sector.

Obstacles included a weak pricing environment, increased weather-related home claims and motor claims reverting towards levels seen pre-Covid.

Oxbow Partners said profitability in 2023 would be better than last year, with it expecting a market operating profit of £1bn – 25% higher than 2022.

“The pricing cycle remains hard with premiums increasing faster in the first quarter than many had expected,” the firm said.

“Motor insurance customers will have seen increased prices both from their existing insurer at renewal and when searching for the best deal from other providers.

“This will ultimately put the industry in a better position once the new rates earn through.”

2024 prediction

Looking ahead to 2024, Oxbow Partners said the market was likely to improve further.

It predicted that the market would get back to break even and the earn-through of 2023 premium increases would offset ongoing claims inflation.

It said this would result in a lowered market COR of 100%.

“Those who have the capacity to invest can grow market share during one of the hardest markets we have seen,” Oxbow Partners added.

“The market will return to pre-Covid levels of profitability by 2024, but the distribution of that profit could be quite different from 2019.

“Companies with lower expenses should be the natural winners here as they should be able to offer the best prices while still remaining profitable.”