In the coming years, UK insurance companies are projected to report steady yet slowing premium income growth; a trend that is expected to persist throughout 2024, 2025, and 2026 as consumer premium increases return to average levels, according to a recent EY report.
After experiencing significant premium increase due to high inflation in the last couple of years, the UK insurance industry is anticipated to experience a decline in premium increases as cost pressures start to ease.
As a result, income from non-life insurance premium growth is forecast to fall slightly to 7.9% in 2024 (down from 8.8% in 2023), 5.1% in 2025 and 4.5% in 2026, EY ITEM Club Outlook for Financial Services, report stated.
At the same time, it also forecasted income from life insurance premiums to grow 6.2% in 2024 (down from 6.9% in 2023), 4.0% in 2025 and 2.9% in 2026.
EY analysts also expect demand for home and motor insurance policies to remain strong as household income strengthens thanks to interest rates falling, wages growth and consumer confidence increase.
“UK motor insurers are continuing to see signs of recovery in the private car market as supply chain issues ease, with new car registrations growing by 3.3% year-on-year between January and October 2024 – supporting demand for associated motor insurance,” analysts stated.
Adding: “Falling inflation and easing supply chain issues mean the sharp rises in both home and motor insurance premiums in recent years are beginning to ease, and non-life insurance premium income is expected to grow 7.9% this year – a small decline from 8.8% in 2023.”
Non-life insurers may reduce consumer premiums further if favourable economic conditions persist. Factors such as stabilised inflation, falling interest rates, easing supply chain problems, and slower price increases for replacement parts could contribute to this reduction, according to the report.
As a result, the EY ITEM Club forecasts that non-life insurance premium income will grow by 5.1% in 2025 and 4.5% in 2026. This growth rate would slightly exceed the average annual growth rate of 4.0% recorded between 2010 and 2019.
EY’s report also concluded that healthy income growth and falling interest rates should help support demand for UK life-insurance products and an increase in workplace pension take-up.
Overall, the EY ITEM Club expects life insurance premium income to grow 6.2% in 2024 – down slightly from 6.9% in 2023.
However, over the next two years, a gradual slowdown in household disposable income growth is anticipated. This is likely to have a modest negative impact on overall demand for goods and services.
As a result, the EY ITEM Club expects life insurance premium income growth to fall to 4% in 2025 and 2.9% in 2026.
Martina Neary, UK Insurance Leader at EY, commented: “The macroeconomic environment has been very challenging in recent years, and insurance premiums increased sharply to balance cost and inflationary pressures in 2023 and much of 2024.
“With inflation and interest rates now falling, we appear to be turning a corner, and we expect the rate of premium increases to ease if cost pressures continue to lower – bringing premium income growth to more ‘normal’ levels over the coming years.
She added: “While the promising signs of economic recovery will be welcome news for both firms and customers, ongoing geopolitical tensions and unpredictable weather events present downside risks to the growth forecast.
“As ever – the challenge for UK insurers will be to carefully balance costs, provide support to customers – especially those most vulnerable – and accelerate innovative transformation programmes to ensure firms remain competitive into the future.”
