UK motor insurers to rebound from their worst 12 months on report, EY says | USAEMALL.com

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UK car insurers are set to swing back into profit in 2024, recovering from their worst year on record, after falling inflation and claims helped stabilise company balance sheets, according to new analysis.

A report by accounting and consulting firm EY, based on financial results of motor insurers, said the sector was recovering from a “difficult” few years after the Covid-19 pandemic, when high inflation drove up vehicle repair costs and depressed their margins

“High claims, material and labour costs, alongside premium rates sitting below claims inflation levels, meant 2022 and 2023 were particularly difficult years for UK motor insurers,” EY said in its Motor Insurance Results report to be published on Monday.

The sector had since benefited from a drop in inflation, improvements in claims frequency — a measure of the number of claims submitted during a specific reporting period — and premium increases in the second half of 2023, EY said.

UK motor insurers paid out 93p in claims and expenses for every £1 they collected in premiums this year, down from £1.13 in 2023, EY estimated. The firm said this would lead to motor insurers returning to profitability this year, although this was likely to be short lived.

The slowdown in inflation would also provide relief for consumers who had endured sharp price increases after the pandemic, EY said. It forecast a 2 per cent drop in the cost of an average policy in 2025, compared with a 12 per cent rise this year.

The medium-term outlook for motor insurers was less rosy with a slowdown in premium growth in the first six months of 2024 expected to push the sector back into a slight loss in 2025.

Next year “will again be a balancing act for firms, as they continue to support customers, carefully manage costs, keep pace with regulatory change and pursue sustainability and tech transformation”, EY said.

The forecasts come just as competition in the sector is likely to come under more scrutiny in the wake of the proposed tie-up between two of the country’s leading motor insurers, Direct Line and Aviva.

The £3.6bn takeover of Direct Line by Aviva, if approved by Direct Line shareholders, will create a combined group with more than 20 per cent of the motor insurance market.

Some analysts expect the deal, announced this month, to be reviewed by competition authorities because it will create a player with about 20 per cent market share.

“For this reason, and the concept that this is a consumer market, it is very possible that the Competition and Markets Authority decides it wants to look closely at this transaction,” MKP Advisors said in a note this week