ILC ARTICLE

Motor insurers under pressure as costs rise again

12th July 2022

Article supplied by Insurance DataLab

Gross claims incurred rose to just under £8bn for 2021

The UK motor insurance market is coming under increasing pressures as rising claims costs continues to hurt profitability.

Gross motor claims incurred for 2021 rose by more than 12% to just under £8bn. This compares to gross claims incurred of £7.1bn the previous year as insurers fell back to an underwriting loss following a profitable 2020.

That year, of course, benefitted from a significant drop off in claims as a result of the restrictions and stay-at-home measures introduced in the wake of the Covid-19 pandemic.

Indeed, gross motor claims for 2020 were down some 21% on 2019 when motor insurers faced claims totalling more than £9bn.

This helped drive motor insurers to a profitable 92.6% combined operating ratio (COR) for 2020 – comfortably the best underwriting performance of the last five years – sitting in the middle of two loss-making years in the form of a 104.4% 2019 COR and most recently a 100.1% COR for 2021.

In addition to the inevitable rise in claims as the country bounced back from the pandemic and cars returned to the roads in growing numbers, insurers have also been facing a number of other inflationary pressures.

Supply chain issues continue to dog the industry, with part shortages and repair delays driving up costs as well as increasing hire times and associated credit hire charges.

The cost-of-living crisis and the ongoing war in Ukraine is also adding its own upward pressure to the cost of repairs, while the shortage of second-hand cars is leading to increased costs for total loss settlements, with some used commercial vehicles selling for more than they cost to buy new.

All of this has led to upward pressure on the cost of motor insurance, with figures from Consumer Intelligence revealing a 5.1% increase in the average cost of motor insurance over the 12 months to the end of May 2022.

Insurers may well respond to this by paring back the cover available under their policies, resulting in lower priced premiums to entice new business but at the cost of drastically reduced cover.

This, of course, will have its own impact on the repair network that supports insurers with these claims, but it remains to be seen what effect this will have on profitability.