New figures show that UK motor insurers have endured substantial underwriting losses for the second consecutive year in 2023, leading to significant premium increases for consumers already facing financial strain.
According to consultancy EY, car insurers’ net combined ratio — the percentage of claims and costs relative to premiums — hit 112.8% in 2023, the worst performance since 2011. This figure, up from 111.1% in 2022, indicates that insurers are paying out more than they are earning in premiums.
The analysis shows that the premiums charged have not kept up with the escalating costs of claims, driven by soaring prices for parts and labour. Mat Wheatley, UK insurance partner at EY, told the Financial Times that the industry has had two of its worst years for underwriting results “for a long time.” He noted that the sector is grappling with the cumulative effects of the pandemic, inflation, and regulatory changes introduced in 2022, which prevent insurers from charging existing customers higher rates.
“Any one would have been massively challenging to the industry,” he said. “They had all three, pretty much on top of each other.”
Motor insurers have raised their prices significantly to counteract the rising cost of claims, pushing premiums to unprecedented highs. EY data reveals that premiums increased by 25% on average last year, with a projected further rise of nearly 16% this year before potentially decreasing in 2025.
Despite the sharp increase in premiums, the number of bodily injury claims has decreased significantly. Figures from the Compensation Recovery Unit (CRU), analyzed by the Association of Consumer Support Organisations (ACSO), show a 47% drop in bodily injury claims from 667,377 in 2018 to 352,230 currently.
These CRU figures are crucial as they reflect the number of car crash cases where insurers are liable for significant bodily injury claims requiring NHS treatment or government benefits. Matthew Maxwell Scott, ACSO’s executive director, told thisismoney.co.uk that the data contradicts insurers’ claims that rising premiums are due to claims costs.
“Insurers have put the blame squarely on claims inflation, yet the number of claims has fallen by more than a quarter since the advent of the Civil Liability Act, which insurers lobbied hard for, and continues to fall year on year,” Scott said.
The 2018 Civil Liability Act aimed to reduce whiplash payouts by streamlining claims through an Official Injury Claim portal, which was intended to cut legal costs. However, about 90% of users still engage lawyers. The Act also introduced fixed tariffs for whiplash claims and eliminated the ability to bundle legal fees into claims.
Mark Shepherd, head of general insurance policy at the Association of British Insurers (ABI), explained that premiums have had to increase to cover the rising costs of repairs, replacement vehicles, and theft, in addition to inflation-linked expenses. Shepherd stated: “The largest element of what the pool of a motor insurance premium pays for is the cost to compensate injury to other drivers, passengers, or pedestrians. Serious collisions can result in life-changing injuries, with compensation sometimes running into the tens of millions of pounds.”
Even though the number of injury claims from road traffic collisions has decreased, the average cost of a bodily injury claim has risen significantly due to an increasing number of whiplash claims accompanied by additional physical injuries, resulting in higher damages awards. Any search for average bodily injury claims on Google results in a veritable smorgasbord of lawyers offering estimates from the thousands of pounds to the millions of pounds in an attempt to woo lucrative litigation clients, and detract from carriers’ bottom lines.
A recent report by EY found that car insurers are losing money on underwriting, paying out £1.12 in claims for every £1 received in premiums in 2023, compared to £1.11 in 2022. However, this does not include investment returns, which can substantially bolster insurers’ revenues. For instance, Admiral, the UK’s largest car insurer, reported a pre-tax profit of £597 million in 2023, with £111.8 million attributed to investment returns.
The market has contracted since 2018 when it was worth £23.6 billion, to the current figure of £19.9 billion.
Some insurance commentators suggest that high car insurance premiums are partly due to a lack of competition. Although there are nearly 200 car insurance brands in the UK, the top 10 control 70% of the market through various sub-brands.
The UK car insurance market comprises 195 providers as of September 2022, with the top 10 accounting for roughly 70% of the market share. Here are the largest insurers by market share in 2023:
Investors are closely watching the timeline for insurers to return their motor policies to underwriting profitability. EY forecasts that this should occur this year, with the sector’s net combined ratio expected to fall to 96% due to the insurance premium hikes. Rodney Bonnard, UK insurance leader at EY, described 2023 as a “crossover year,” where premiums began to align with inflation, but existing loss-making policies will delay the sector’s improved performance until 2024.
This sustained period of underwriting losses, coupled with rising premiums, continues to be a point of contention for customers, consumer groups, and politicians. The new Labour government has pledged to address the “soaring cost of car insurance” as part of its manifesto. However, insurers maintain that the increases are necessary to counteract the significant losses they have incurred.
