The UK’s motor insurers are set to enjoy a boost from the pandemic, according to forecasts, as reduced traffic and fewer accidents deliver a return to underwriting profit.
Motor insurers often make a loss at the underwriting level, which is compensated by income from other parts of their business such as administration fees and investment profits.
But there will be a one-off boost in 2020 owing to quieter roads as lockdowns kept people at home.
The combined ratio for motor insurance — a measure of claims and costs as a proportion of premiums — will be a profitable 93.8 per cent this year, according to consultancy EY. The figure was 101 per cent last year, meaning the industry made underwriting losses.
“Premiums for this year were set last year, so premium is being accumulated but not paid out,” said Tony Sault, general insurance market leader at EY.
Admiral promised to repay £25 per vehicle to customers earlier this year to reflect the fall in driving levels, but few rivals have followed with a similarly comprehensive offer. That is a contrast with the US, where motor insurers have offered customers billions of dollars of rebates.
Prices for car insurance have been falling this year. According to the Association of British Insurers, the average cost of motor coverage was £460 in the third quarter, £8 lower than in the same period last year.
But Mr Sault cautioned that for many companies higher profits from motor divisions would offset losses in other areas such as travel and were unlikely to lead to much lower prices.
“Next year I don’t think we’ll see too much of a softening in rates as we’ll see claims come back in,” he said.
Motor insurers are also weighing up two other developments that could influence the price of cover.
The first is a new system designed to cut the cost of whiplash claims, whose introduction has been pushed back from this year to 2021. Insurers have promised to pass any benefits from lower claims on to customers in the shape of lower premiums.
The other change is a move by the Financial Conduct Authority to stamp out the so-called loyalty penalty — the practice of charging existing customers far more than new ones for the same cover.
Rodney Bonnard, UK insurance leader at EY, described the new FCA rules as a “fundamental change”.
“It will have quite a few ramifications around the market,” he said.
Shares in Admiral and Direct Line, two of the UK’s biggest motor insurers, have outperformed the wider FTSE All-share over the past year. Admiral is up 45 per cent and Direct Line is up 11 per cent, while the FTSE All-share has fallen 11 per cent.
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