Impending action by the FCA on pricing practices, combined with the post lockdown impact on claims, will herald a period of price fluctuation for motor and home lines as insurers adapt their business models to address issues such as ‘price walking’, according to analysts at Pearson Ham.
Data from the firm’s latest Quarterly Market Price Index shows that both personal lines motor and home insurance premiums saw marked price reductions in the first quarter of 2021.
Motor pricing in 2020 dropped overall by around 5%, as price reduction followed on from a significant fall in the number of vehicles on the roads and a shift in the mix of use by drivers.
And during the first quarter of this year, motor insurance prices also have reduced by 5%, the same level of reduction as was seen for the whole of 2020.
“At the beginning of 2020 prices had started to rise following reductions at the end of 2019, and it began to look like the start of an uplift in the cycle – and then the pandemic hit,” said Stephen Kennedy, Director, Insurance Pricing at Pearson Ham.
“Reductions have continued against a backdrop of intense competition with many insurers chasing the same volume of business at the same time. However, price reductions did not drive the levels of volume insurers were expecting.”
On home insurance pricing, Pearson Ham found that combined buildings and contents premiums reduced by 1.4% over the first three months of 2021.
But there was a more marked reduction in the pricing of contents only cover which dropped by 4% in the quarter.
While Covid-19 is viewed as the main driver for pricing reductions throughout 2020 and into the start of 2021, analysts also believe that the FCA’s pricing remedies will influence pricing dynamics as throughout 2021.
According to Pearson Ham, the implementation of the new rules and its governance and reporting frameworks will see a period of pricing fluctuations that are expected to last into and beyond 2022.
“Up until September 2021 we expect to see insurers jockeying for position using ‘land grab’ price reduction strategies to drive business acquisition ahead of the new rules,” Kennedy continued.
“During the summer, if we are in a position where restrictions and lockdowns have eased and claims level start to increase, we expect there to be a levelling off in pricing,” he explained.
“Then, from September when some of the initial price remedies governance frameworks are introduced, we expect insurers to make final refinements to their models as they digest how their peers and the market is responding. The moves to rebalance new and renewal business pricing will see increases starting to be implemented from October onwards.”
“Moving into 2022, we will see the scale of variances in premiums that will inevitably impact on retention levels and increased shopping around by customers. It may not be until 2023 before we see more pricing stability.”