EY predicts slowdown in premium growth as cost of living pressures bite

The experts forecast non-life growth of 4.5% in 2023, down from a projected 4.9% in 2022, slowing to 3.8% in 2024, before picking back up to 4.7% in 2025.

In November EY warned that UK motor and home insurers would make the biggest annual loss in 2022 for over a decade and forecast further losses for 2023

Across 2022, net combined ratios would be 115% in motor and 116% in home staying high this year at 114% and 109% respectively, EY predicted.

Last week Fitch Ratings concurred that the outlook for UK home and motor insurers’ profitability “remains pretty dire for 2023”.

High inflation

In its latest EY Item Club Outlook for Financial Services the specialists noted that high inflation and falling real incomes are expected to continue to hold back consumers from spending on big-ticket and insurable items, especially cars, in the first half of this year.

As for the housing market, a fall in activity will also negatively impact demand for non-life insurance, EY continued. Citing that with mortgage rates much higher than a year ago and affordability still stretched, residential transactions are expected to fall back this year, impacting insurance demand.

As previously reported by Insurance Age, motor rates shot up by 19% in 2022.

EY suggested that while recent price increases, along with rises in home insurance, should provide a boost to insurers the rate hikes partly reflected higher costs.

It predicted that the rate of premium price rises was “unlikely to prove sustainable given the financial strains facing households” however acknowledged that cost pressures should also fall back as inflation and supply chain pressures ease.

Challenging

Rodney Bonnard, UK insurance leader at EY, said: “Non-life insurers are braced for challenging conditions to continue for the foreseeable future.

With the wider economic environment forecast to report declining household incomes, rising cost of living pressures and an uncertain housing market, history tells us that insurance demand is among the first to be impacted.

Rodney Bonnard

“With the wider economic environment forecast to report declining household incomes, rising cost of living pressures and an uncertain housing market, history tells us that insurance demand is among the first to be impacted. Insurers will need to carefully manage their cost bases and look to innovative ways of finding growth and maintaining their current levels of capitalisation.”

He concluded: “Even with a difficult economic backdrop, insurers must not drop their focus on other priority areas such as achieving net zero, greening their products, services and supply chains, and carrying out digital transformation.

“There are green shoots on the horizon, and non-life insurers will be looking to the prospect of inflation easing back through 2023, conditions improving, and higher premium income growth kicking in from 2025.”

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