Car insurers set to return to profit following record losses
UK car insurers are expected to return to profitability in 2024, bouncing back from their heaviest year of losses on record.
A report from accountancy giant EY estimates car insurers paid out 93p in claims and expenses for every £1 made in premiums in 2024, compared with £1.13 for ever £1 the prior year.
The change was driven by falling inflation, an increasing number of claims and hikes to consumers’ premiums and will see the the motor insurance market record its highest level of profitability since 2020.
However, the recovery won’t be enough to avoid a loss-making 2025, EY noted, with the sector expected to report a Net Combined Ratio (NCR), an industry measure of profitability, of 101.6 per cent next year as premium income grows more slowly than claims inflation.
Consumer premiums are expected to rise 12 per cent in 2024 to around £68 per policy, but fall again in 2025 by around two per cent, leading to an average customer policy of £7.
Motor insurers have grappled with high inflation over the last two years, which has bumped up the cost of repairs to the point British drivers have been forced to shell out record amounts for cover.
The likes of Admiral and Direct Line have come under fire for overseeing such a huge increase in premiums. In August, shares in Admiral soared to the top of the FTSE 100 after its motor insurance segment drove a more than third jump in half-year revenue and profit.
“2022 and 2023 were challenging years for motor insurers, who had to contend with significant losses, and for consumers, who faced sharp premium increases,” Mat Wheatley, UK Insurance Partner at EY, said.
“But this year, falling inflation, easing claims costs and stabilising balance sheets mean the sector is expected to return to profitability in the short-term, and customers should see lower premiums in 2025.”
Wheatley added: “Overall, uncertainty around the geopolitical environment, heightened regulatory scrutiny, and the impact of the 2025 Odgen [personal injury] discount rate change are the biggest challenges for motor insurers.
“This means 2025 will again be a balancing act for firms, as they continue to support customers, carefully manage costs, keep pace with regulatory change and pursue sustainability and tech transformation.”