UK motor insurance premiums were 5.9% higher in July month-over-month, and the market now looks to be in a pricing surplus, relative to pre-pandemic margins.
Jefferies’ UK motor insurance tracker shows that premiums are also now +53% higher YoY.
Following another month that witnessed strong rate increases in UK motor insurance premiums, Jefferies calculates that the market is now in a pricing surplus position. On a GAAP/reported basis, where there is a lagged impact on premiums, a large deficit remains (28%).
According to Jefferies, for the deficit to be eliminated on a reported basis, insurers will need to price in line with claims inflation for at least another 12 months.
In addition, Jefferies’ claims inflation assumptions are based on previous commentary from insurers in the UK motor market.
The firm said: “We assume average claims inflation of +8% in 2019-2021, before increasing to +12-13% on average in 2022, then moderating to c.+10% overall in 2023. Our claims frequency assumptions are largely driven by UK traffic data, plus an additional haircut to account for other impacts such as whiplash reform.”
However, given that market pricing has failed to keep up with elevated claims inflation, as well as higher levels of claims frequency compared with both 2020 and 2021, motor insurers have reported a significantly higher combined ratio in 2022.
But, the damage has already likely been done to 2023F margins too.
Jefferies estimates that the UK motor insurance market’s combined ratio will improve to 117% in 2023FY and 98% in 2024FY, compared with 119% in 2022FY, respectively.
This mostly comes down to the favourable impact of positive pricing having a lagged effect on insurers’ results in 2023, before fully earning out in 2024, combined with a moderation in claims costs.
