UK insurance market are expected to close this year reporting strong overall premium income growth driven by sizeable rises in premium prices and improved household spending power boosting demand for policies.
Income from non-life insurance premiums is forecast to rise 8.5%, and income from life insurance premiums is forecast to grow 6.6% in 2023
According to EY, sustained inflation and cost pressures are likely to continue to strain insurers’ overall balance sheets, and premium income growth is expected to slow into 2024 and 2025.
2024 UK non-life insurance Outlook
UK non-life insurance market in 2024 involves considering various factors, including economic trends, regulatory changes, technological advancements, and emerging risks.
UK non-life insurance market in 2024 will poised for a dynamic phase, influenced by economic recovery, regulatory changes, technological advancements, and evolving consumer needs.
Insurers will need to remain agile and innovative to navigate these changes and capitalize on emerging opportunities.
- Post-pandemic economic recovery could continue to influence the non-life insurance market. Assuming steady UK’s economic growth, we may see an increase in demand for non-life insurance products, potentially leading to higher premium income. This growth, however, could be moderated by competitive pressures and customer price sensitivity.
- The UK’s regulatory landscape, especially post-Brexit, is a significant factor. Changes in regulations, both domestically and in relation to the EU, could impact market operations. Compliance costs and the need for operational adjustments might influence market dynamics, including product offerings and pricing strategies.
- Increased frequency and severity of weather-related events could lead to higher claims in property and casualty insurance. Insurers will likely continue to refine their underwriting strategies and may adjust premiums to reflect the heightened risk.
The ongoing digital transformation in the insurance industry is set to continue. Insurers will likely invest more in technology to enhance customer experience, streamline operations, and improve risk assessment
- As cyber threats evolve, the demand for cyber insurance is expected to grow. This segment may see significant premium growth as businesses increasingly recognize the need to mitigate cyber risks.
- Changing consumer preferences and expectations will influence product development and distribution. There’s a trend towards more personalized and flexible insurance products. Insurers might focus on developing tailored solutions and leveraging data analytics for better customer segmentation and product customization.
- The level of competition in the UK non-life insurance market is likely to remain high. New entrants, particularly tech-driven companies, could disrupt traditional market structures. Incumbent insurers might respond by adopting more aggressive growth strategies or seeking strategic partnerships and mergers.
- As the long-term impacts of the COVID-19 pandemic become clearer, shifts in health and liability insurance are possible. This could include adjustments in coverage and pricing to account for new risk profiles.
Developments in the automotive sector, including the increase of electric vehicles and advancements in autonomous driving technology, could impact motor insurance.
Changes in vehicle technology and usage patterns may lead to adjustments in risk models and premium structures (see about Impact of Electric Vehicles on the Insurance Industry).
New car sales boosted UK non-life insurance
After a challenging few years, insurers have begun to see signs of recovery in the private car market, which has led to an increase in demand for associated motor insurance.
New car sales have been boosted by improved consumer sentiment and household spending due to falling inflation and rising real wages, as well as supply chain difficulties beginning to ease.
Consumer premium rates have remained far below the level needed to keep pace with inflation and the return to more regular motor activity post-pandemicRichard Reed, Head of UK General Insurance at EY
However, the need for the car insurance sector to address this and rebalance its books unfortunately means that consumers will face a sharp rise in their premiums.
Private new car registrations reached over 650,000 in the first nine months of 2023, up from 639,000 in the same period in 2022, meaning this year is on course to deliver just the second year-on-year rise in registrations since 2016.
2024 will undoubtedly be tough for consumers and insurers alike, but we expect these challenges to ease once inflation falls back.
With interest rates expected to remain high for some time and premium rates set to continue to rise to balance sustained cost pressures, consumer demand for both home and motor policies into 2024 and 2025 is expected to be subdued.
As a result, forecast growth of non-life premium income will slow to 5.1% in 2024 and 4.1% in 2025.
The losses follow a period of profitability during the pandemic years, when car usage and therefore claim volumes were low.
The past year, however, has seen inflation rise; the increase in the costs of materials and labour alongside a rise in energy prices have all impacted claims costs, and is expected to feed into future premium pricing.
With inflation expected to remain high for the foreseeable future, losses to continue in 2023, and forecasts an NCR of 108.5% this year. However, better news is on the horizon in 2024, and providing insurers make the necessary adjustments to premium prices to keep pace with the rate of inflation, the market should return to profitability, with predicting an NCR of 97.4%.
The profitability achieved during the pandemic, when car usage and claims were low, was quickly reversed by the impact of pricing reforms, high inflation, supply chain issues and changing driving habits.Rodney Bonnard – EY UK Financial Services, Insurance Leader and Markets Leader
Last two years was an undeniably difficult years for the sector and headwinds look set to continue throughout 2024, so it will be vital that motor insurers continue to manage their costs carefully while also looking for new avenues of growth.
2024 UK life insurance Outlook
2024 outlook for the UK life insurance market suggests a landscape influenced by ongoing economic recovery, technological advancements, changing consumer behaviors, regulatory shifts, and a focus on sustainability.
The UK’s economic climate will continue to influence the life insurance market. Factors such as inflation rates, employment levels, and economic growth can affect consumer purchasing power and willingness to invest in life insurance policies.
- Changes in regulatory frameworks, both domestically and in relation to international standards, could impact the life insurance market. Insurers will need to adapt to any new compliance requirements, which could affect product offerings and operational costs.
- The integration of technology in the insurance sector, including the use of AI, machine learning, and digital platforms, is expected to continue. These technologies can streamline processes, improve customer experiences, and offer more personalized products. Insurtech collaborations could be a key trend.
- An increased awareness of financial planning and security, partly driven by the pandemic’s impact, might lead to a higher demand for life insurance products.
The aging population in the UK might influence the life insurance market, with potential increases in demand for products catering to older demographics, such as annuities or whole-of-life policies. There could be a greater focus on flexible and tailored insurance solutions.
- Environmental, Social, and Governance (ESG) factors are becoming increasingly important. Insurers might focus more on sustainable practices and products, responding to both regulatory pressures and consumer preferences (see Insurers’ Survey about ESG Strategy & Climate Risk Modelling).
- The UK life insurance market could see further consolidation as companies seek to increase their competitiveness. This might involve mergers and acquisitions, as well as strategic partnerships with technology providers.
- Insurers are likely to continue innovating their products to meet changing consumer needs. This could include the development of hybrid products that combine life insurance with other features, like critical illness cover.
The role of digital distribution channels is expected to grow, but traditional channels like brokers may still play a significant role, especially in more complex product areas.
Insurers will need to adapt to these evolving conditions to remain competitive and meet the needs of their customers.
UK life insurance market expects to rise
The easing cost of living pressures from falling inflation and energy bills has supported consumer demand for life insurance products in 2023. As a result, life insurance premiums expects to rise 6.6% in 2023, with further, though slightly more subdued, growth of 5.7% in 2024 and 4.4% in 2025 forecast.
The economic environment has been extremely challenging for insurers and customers over recent years, and firms have had to raise product premiums to balance cost and inflationary pressures.Martina Neary – UK Insurance Leader at EY
For households, while cost of living pressures are beginning to ease, inflation remains high and rising premiums will be difficult for many to manage, driving a very real concern that some may stop making policy payments or go without sufficient cover.
The economic environment is impacting different people in different ways, and it’s important the industry continues supporting customers to a high degree throughout this period.
Insurers are expected to see growth in premium income in 2023, which wasn’t anticipated earlier in the year.
However, the economic climate remains challenging, and growth – for both non-life and life insurers – is expected to slow next year and into 2025, making it essential that firms keep a careful eye on balance sheets.
AUTHOR: Oleg Parashchak – CEO at Beinsure Media. QUOTES: Martina Neary – UK Insurance and FS Midlands Leader at EY, Rodney Bonnard – EY UK Financial Services, Insurance Leader and Markets Leader, Richard Reed – Head of UK General Insurance at EY