The UK motor insurance market is expected to record its worst performing year since 2010 this year, according to EY’s latest UK Motor Insurance Results.

A net combined ratio (NCR) of 114.6% is now forecast for motor insurers in 2023 – up from 108.5% forecast in June – despite premiums rising by 25% over the course of the year. The losses are driven by high inflation and rising material costs having a more determinantal impact on balance sheets than initially anticipated, and more frequent claims.

Cost pressures and high damage claims levels are expected to continue into 2024, and insurers are likely to face another challenging year. However, premium rate increases this year should start to make a material difference, and EY predicts an NCR of 100.4% next year.

Rising insurance premiums present potential further headwinds for consumer demand in UK auto sector

David Borland, EY UK & Ireland Automotive Leader, said:Insurance premiums rising amid ongoing cost of living pressures could present a challenging headwind to the auto sector’s bid to ramp up consumer demand. The industry’s recent growth has been underpinned by fleet sales, with private demand faltering, which could be exacerbated by the rising cost of insurance. Whilst managing these pressures, insurers should be mindful of the transformation in the auto industry, including the transition to alternative forms of powertrain, new technology and lower residual values creating new risks to navigate.”

Martina Neary, UK Insurance Leader at EY, comments: “The last two years have been amongst the most difficult the motor insurance sector has faced in recent times. The culmination of high inflation, growing material and labour costs, supply chain issues, pricing reforms, and changing driving habits post-pandemic has resulted in the sector recording consecutive years of losses – with 2023 recording the highest loss in over a decade.

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“While economic challenges are expected to ease in 2024, headwinds for both insurers and consumers will remain. This means 2024 will be a balancing act for UK insurers. However, the sector remains focused on doing the right thing, and will continue to support consumers while managing costs carefully. In addition, insurers should continue pursuing tech and sustainability transformation, and keeping pace with regulatory change – with IFRS17 and Consumer Duty being particular focuses into next year.”

Premiums increased by 25% in 2023

Cost pressures and sustained high inflation are driving an increase in premium rates, and consumers will have seen their premiums rise by up to 25% over the course of this year – a rise of £118 on average per policy. A further rise of 10% is forecast in 2024 (£58 per policy on average).

Martina Neary concludes: “While many consumers expected premiums to rise, the level and pace of the increase is much higher and sharper than many expected. The current economic environment is of course difficult for both consumers and for firms but as inflation starts to fall back, conditions for consumers and insurers alike should improve.”

Cost-of-living growing in concern for motor dealers