A recent report by Jefferies suggests new business premiums for motor insurance are up by 14% year over year (YoY), the first double-digit increase since March 2020, according to their UK premium tracker based on ONS data.
The report notes that pricing is likely to be lower than their data suggests. Whilst their tracker indicated that motor insurance premiums were up 9% in Q2 YoY, the ABI’s pricing tracker (which incorporates renewing premiums) reported that pricing was down 3%.
The reason for this delta, says Jefferies, is due to their tracker not including the impact of renewals, which they estimate broadly account for 60% of total premiums year to date.
Jefferies state that their tracker for new business implies that renewals were 10% lower in Q2 YoY, affirming that this is largely a result of the FCA’s pricing practices reform, which has resulted in falling premiums on renewal and rising new business premiums.
The report expects this difference to continue throughout 2022, implying that rate increases in July are still likely to be well below the 10-12% claims inflation reported by insurers.
Claims inflation remains elevated but cooling off, says the report, as the tracker suggests that car damage inflation was up 10% in July, with second-hand car inflation moderating but still high (+8.6% in July YoY versus +15.2% in June).
According to the tracker, inflation for the cost of repair, spare parts and car hire all remain high.
Whilst there are signs that new business premiums are now rising materially, Jefferies state that it is still too early to be positive on the UK motor insurance cycle given the lack of visibility on renewing premiums.
The report says that ABI is the only body to publish pricing data which includes both new business and renewing premiums, and so is the best indicator to judge pricing adequacy.
However, this is only published on a quarterly basis, with the next data set likely to be published sometime in Q4.
The report notes it could be a tall order for the market to achieve the pricing required to turn margins around.
Jefferies concludes that they are hesitant to take a more bullish view until it sees a sustained period where overall market premiums (both new and renewing) are at least +16% higher YoY.
