Motor market’s profitability in 2020 will be short-lived

UK motor insurers achieved a 90.3% net combined ratio in 2020, following the unprofitable 100.8% recorded the previous year, according to consultancy EY’s latest UK Motor Insurance Results. But it predicts a return to the red in 2021 and forecasts a net combined ratio of 103% for the market. It expects this to deteriorate further in 2022 to 112%.

EY expects premiums to fall by 6% in 2021. It said this would be driven by changing car usage patterns, whiplash reforms and the need for insurers to protect market share in the face of the Financial Conduct Authority’s pricing reforms.

Tony Sault, UK general insurance market lead at EY, commented: “The drop in claims last year meant insurers were able to pass on savings to their customers through reduced premiums in Q1 2021.

“As commuting patterns change, perhaps for good, we expect the downward shift in car usage and claims to continue - albeit not to the level seen in lockdown. We also expect lower premium rates to continue for the rest of this year as insurers price in these behavioural changes as well as the new rules on whiplash claims and focus heavily on retaining customers ahead of the FCA pricing reforms.”

He added: “While lower premiums are good news for consumers, the sector faces ongoing and significant underlying cost challenges - which were to a large extent masked by the lockdowns - and the rise in profitability in 2020 will likely be a blip.

“Motor insurers continue to face the same repair inflation trends they have been struggling with for years, and now will have to factor in the higher compliance costs related to the FCA’s pricing rules as they re-balance the premiums offered to new and existing customers.”

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