Analysts at EY are forecasting that UK insurers will see overall premium income grow by 3.4% over 2021, despite the economic impact of the pandemic, ultra-low interest rates, and the FCA’s pricing review.
Non-life premium income fell by 0.8% in 2020, but the latest EY ITEM Club for Financial Services Forecast predicts a turnaround this year, with non-life premium growth estimated at 2.7%, alongside a 3.8% rise in life premium income.
“COVID-19 has caused significant increases in claims related to event and travel cancellations, business interruption and losses to investment portfolios, and there is no expectation this will curb anytime soon,” said Rodney Bonnard, UK Head of Insurance at EY.
“At the same time, firms are operating in an ongoing low interest rate environment. General insurers will also likely have to overhaul their business and pricing models in response to the FCA’s pricing market review,” he continued.
“This will require them to offer existing customers the same price for renewal as they would offer a new customer. On the immediate horizon though there will continue to be lower motor claims due to fewer cars on the road during lockdown.”
National lockdowns in the UK have had a significant impact on new car sales, EY further noted, which has affected demand for motor insurance policies, which ended 2020 8.6% lower than a year earlier.
A similar trend was observed in the housing market which experienced deflation in 2020 as prices fell 4.1% year on year.
But the rise in the state pension age to 66 in October 2020, along with the projected increase in the UK population aged 65 or older, may mean more money flowing into pension products.
“COVID-19 has impacted almost all sectors, and insurers are certainly feeling their share of financial strain,” Bonnard concluded. “While the sector overall has weathered the pandemic, it is likely there will be mixed results for individual insurers, reflecting portfolio mix and effectiveness of individual response.”
“Looking ahead, the sector is facing strong headwinds as climate risk continues to create an increased risk of large weather events, business interruption cases bite and a continued low-interest rate environment persists, with the possibility of turning negative,” Bonnard continued.
“However, assuming a successful roll-out of the vaccination programme and a reopening of the economy, household income growth and demand for insurance products should increase this year, which offers something of a growing light at the end of the tunnel. At the same time, the fact that the pandemic has compelled insurers – like most industries – to expand digital ways of working should deliver cost savings in the longer term, once initial investment costs are absorbed.”
