The UK motor insurance sector is set to make the largest annual loss in over a decade as a result of inflationary pressures.
Analysis published today by EY has forecast that net combined ratios will reach 115 per cent this year – the worst year since 2010 – going down slightly to 114 per cent in 2023.
Claims costs – already high due to pandemic-induced supply chain issues – remain on the rise this year as cost increases in materials, labour and energy feed through inflation.
“There are significant challenges on the horizon for motor insurers,” said Rodney Bonnard, UK insurance leader at EY.
According to the forecasts, personal motor premiums are set to remain largely flat in 2022, rising by only £1 year-on-year.
But in 2023, they are expected to increase by 15 per cent – or £66 per policy – as inflationary pressures feed through claims costs.
Nevertheless, the sector will remain largely loss-making also next year, Bonnard said.
“While consumer premium rates have risen since the changes to pricing rules earlier this year, they are still well below the level needed to keep pace with inflation,” he commented.
“This means that not only is 2022 almost certainly going to be unprofitable, but 2023 is also likely to be loss-making, given the business written this year has been on relatively low rates.”