Challenging Times for Motor

Chief Actuary - Andy Goldby - June 23rd, 2023

traffic driving past pedestrians

Suffice it to say 2022 was a tough year for UK insurers. According to E&Y’s latest review of the motor market’s reported results the total premium has grown by around 4% (from £16.1Bn to £16.7Bn) but it would appear that the market generally has under-anticipated the effect of the ‘new normal’ after the pandemic and the premium increases have in no way made up for the increased claims costs leading to a combined ratio of 109.5% (up from 96.8% in 2021 and 90.9% in the pandemic stricken year of 2020) … in simple terms during 2022 insurers lost £9.50 for every £100 they took in premium.

Expenses have increased a little bit, but the main cause has been claims. Claims frequency has increased, but not by as much as had been expected, since our data shows that despite traffic volumes returning to pre-pandemic levels overall, the flexible working patterns that began in 2020 are continuing, resulting in extended but less congested rush ‘hours’. This reduced traffic density has a direct and beneficial ‘knock-on’ effect on claims frequency.

However, the major driving factor of the poor 2022 result has been large increases in average claim sizes on all forms of damage and there is no sign of it ending, with E&Y predicting that claim costs in 2023 will be some 40-60% higher vs pre-pandemic levels in 2019.

These impacts have hit insurers to varying extents, but it seems that in an effort to return to profitability all insurers are now implementing, or talking about, double-digit premium increases (a fact I noticed to my chagrin in my own renewal price this month). However, these increases will take some time to filter through to results, as large increases tend to cause increased shopping behaviour and the consequent switching to the cheapest player in the market. Feel free to Google ‘insurance + winner’s + curse’ to understand the impact of this!

Insurers are also busy introducing new products, either digital or low cost and therefore with lower expenses and less cover (although the benefits of these to their bottom line will only come once they reach a suitable scale) or tailored products for new niches (e.g. ElectriX by LV= for, perhaps unsurprisingly given the name, electric vehicles only).

Despite all this change, E&Y predict Combined Ratios at 108.5% this year (2023) before improving to a marginal profit in 2024.

In a hard market such as we are currently in, anything that helps insurers differentiate or grow profitably is most welcome. Telematics not only serves to provide additional data to lessen any winner’s curse effect but also helps to self-select good drivers, assist customers to improve, identify and reduce fraud and streamline the claims service, providing up to a 17% Combined Ratio improvement.

If you would like to know more about how The Floow can help you implement a low – cost, fast to market, telematics solution, you can come and see our demonstration at DIA in Barcelona on the 28th June 2023, or contact 

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