The insurance industry is facing a period where claims costs are outpacing premiums by a significant margin. In fact, according to the Association of British Insurers, underwriting losses have been steadily rising with £2.4Bn paid out for motor claims in Q1 of 2023 which is up 11% on the previous quarter and 14% on Q1 in 2022. Insurers have been significantly impacted by lingering supply chain issues and inflation which has driven up the cost to make policyholders whole following a claim. The increasing occurrence and intensity of weather incidents and other natural disasters is having a profound impact on the cost of property claims and the number of policyholders seeking compensation. The reinsurance renewal period in Jan 2023 was one of the most challenging for the UK insurance industry in decades according to brokers and reinsurers.
Despite having a solid grasp on the factors causing the issue, tackling the problem is proving elusive. Data collected from comparison sites such as confused.com, Compare The Market, GoCompare and MoneySupermarket show that the average premium has increased by 48% in the year leading up to June 2023, the highest premiums since the financial crash in 2018.
The culprits fuelling the rise include increased interest rates pushing up the cost of claims for both motor and personal injury along with increased pressure to price premiums fairly for both new and existing customers according to recent FCA legislation. Of course the cost of living crisis is driving more fraud, adding even more pressure. We have seen major industry players pulling out of motor lines for all of these reasons.
Globally, the situation is not much different. As such, insurers must look to both lower claims expenses and better manage loss payments, which have proven difficult in the face of these looming macroeconomic factors.
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