The Personal Motor Insurance Market – Challenging Times
The UK motor market has seen month-on-month premium rate increases over the last few months as Ernst and Young (EY) tell of insurers experiencing their “worst performing year in a decade in 2022”.
This is due to:
In addition, Willis Towers Watson’s (WTW) latest Car Insurance Price Index (of 19 July 2023), revealed the fastest quarter-on-quarter rise in average car insurance premiums since the index began – with the average price rising by 18% (£119) in Q2 2023.
The index showed that over the last 12 months, comprehensive car insurance premiums have risen by 40%, with motorists now paying an average of £776.
Insurers’ reaction
Insurers are suffering dwindling margins or, worst case, underwriting losses – and find themselves with two choices: to up premium rates or adapt their underwriting appetite. Some are even deciding to leave the market altogether – citing no short or medium-term possibility of returning to profit.
Recent insurer announcements have been:
RSA
RSA Insurance announced in March of this year, following a “thorough review of its business”, that it would exit the UK personal lines motor market. In a statement, the insurer commented that the motor market was competitive and required “significant scale to drive meaningful outperformance”.
The decision, while expected to represent the loss of around £120m of annual premium for the firm, was received as sound judgement – the firm’s motor segment was operating at a combined operating ratio (COR) significantly above 100%, meaning the lost premium does not represent an operating loss.
In recent years, RSA had been sitting near the bottom of the top 10 UK personal lines motor insurers, and the business said that the annual premium being offloaded was around £120 million. This is viewed as small change for Intact, their ultimate owner.
Zurich
In July, Zurich UK released a statement detailing its plan to withdraw from regional and national panel broker distribution channels for its personal lines home and motor business, and to refocus efforts on the high net worth market. Zurich’s head of retail, David Nichols, echoed RSA in a statement that declared the UK personal lines market “intensely competitive”.
Covea
Covéa is no longer writing business in the executive motor space for high net worth. Personal lines director Sue Coffey said: “HNW [high net worth] remains core for us, but we are no longer writing business in the executive motor space.”
Home & Legacy
Allianz announced at the beginning of 2023 that it’s Home & Legacy, a specialist personal lines brand, would cease to trade and go into runoff.
Direct Line
Direct Line Insurance Group PLC made the shock announcement of cancellation of its final 2022 dividend, which set the tone for a difficult 2023 for UK nonlife insurers, particularly in personal lines.
The combination of £90 million of claims from freezing weather in the UK in December 2022, a further increase in third-party motor claims inflation and a fall in the value of its commercial property investments prompted Direct Line, one of the UK's biggest personal lines insurers, to cut its dividend. The company said these three things brought its solvency coverage ratio to the lower end of its preferred range of 140% to 180%.
Aviva
Aviva PLC also saw an increase in third-party damage claims in motor in the fourth quarter of 2022, which was one of the reasons that its measure of motor claims inflation increased to a range of 9% to 11% from 8% to 10% a quarter earlier.
Summary
The wider industry may not have to face the situation Direct Line dealt with, but it still faces a challenging year. EY forecasts that net combined ratios will be 115% in UK motor insurance and 116% in home insurance in 2022 - the worst results in well over a decade. The consulting firm expects a combined ratio of 114% for motor this year, meaning for every £1 in premium, it will cost between £1.14 in claims and costs – a loss.
UK insurers' main shield against claims inflation is to increase prices, but pricing power is being squeezed by competition and the higher cost of living is damaging policyholders' ability to pay. Insurers' flexibility on claims and price handling is also being strangled by regulatory pressures. There’s also the effect of the UK Financial Conduct Authority banning the charging of cheaper prices for new customers, and increasing them for renewing ones, resulting in "very large drops" in premiums in the first half of 2022.
"When you add up the economic pressures, plus what the regulator is expecting from insurers, it really gives you a difficult scenario," Kareline Daguer, insurance director at Deloitte's European Centre for Regulatory Strategy, said in an interview.
UK insurers are paying higher prices for more limited reinsurance cover following the recent renewal season. “Price increases were as high as 75% for property-catastrophe excess of loss cover,” Aviva CFO Charlotte Jones said.
While Aviva's own price increases were far less steep, structural changes to the cover meant Aviva had to retain more risk and accept more limited coverage reinstatements. Though the cover allows Aviva to continue its business as planned, "that is not necessarily the case across the market, so we could see some change in some [companies'] ability to trade," Jones said.
Some optimism
Amongst all the gloom, there are glimmers of brighter moments for at least some UK insurers.
“Price increases in motor should continue to be strong at the start of 2023, and claims inflation may end the year at 4% or 5%,” according to Berenberg analyst, Thomas Bateman. “While combined ratios will not come anywhere close to ‘normal levels’ this year, insurers that have not been heavily affected by the FCA's renewal pricing restrictions, such as Admiral Group PLC and Sampo Oyj-owned Hastings Group Holdings Ltd., should see their ratios normalise in 2024,” Bateman said.
For Direct Line, however, 2023 will be focused on finding a new CEO and rebuilding investor trust and capital levels. Following its profit warning, the company said it had bought a three-year, 10% quota share reinsurance cover that would boost its year-end solvency capital ratio by 6 percentage points. “But that deal is not a fix,” said Bateman, who thinks the company should be operating in the top half of its preferred solvency ratio range.
"They need to recapitalise, and they need to be clear on how they're going to do it rather than just muddling through," he added.
Ascend knows the market
As we have explored, there are testing times ahead, but Ascend is here to help!
Ascend Broking Group is across all the changes and challenges in the current personal motor insurance market and can offer you expert advice, whatever your situation, whatever your question. Please get in touch with us today and one of our expert team can guide you through everything you need to know.
