UK motor insurers delivered their worst performance in a decade last year, new data has revealed, as inflation radically jacked up the cost of claims.
Car insurers’ net combined ratio (NCR), which shows claims and costs as a proportion of premiums, hit 109.5 per cent in 2022, according to new data from EY released today.
Motor insurers have been hit hard by rising claims costs, as the cost of second-hand cars, parts and labour have all risen, eroding insurers’ margins.
With inflation expected to remain high for the foreseeable future, EY said it expects losses to continue in 2023, and forecasts an NCR of 108.5 per cent this year.
As a result, it expects premiums to rise sharply by 16 per cent in 2023, up to £74 extra per policy on average, with a further 11 per cent rise in 2024, to £59 extra per policy on average.
“The profitability achieved during the pandemic, when car usage and claims were low, was quickly reversed by the impact of pricing reforms, high inflation, supply chain issues and changing driving habits,” Rodney Bonnard, UK insurance leader at EY, said.
“Last year was an undeniably difficult year for the sector and headwinds look set to continue throughout 2023, so it will be vital that motor insurers continue to manage their costs carefully while also looking for new avenues of growth,” Bonnard added.
Direct Line’s chief executive, Penny James, was forced to step down in January after the firm issued multiple profit warnings.
Those pressures on the firm haven’t subsided. The FTSE 250 firm said last month that the motor segment of the business would continue to “put pressure” on earnings, with acting chief executive Jon Greenwood warning that the earnings outlook for the year “continues to be challenging”.
