UK insurers are expected to close this year reporting strong overall premium income growth, according to the latest EY ITEM Club Outlook for Financial Services, 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% (up from 3.9% in 2022), and income from life insurance premiums is forecast to grow 6.6% in 2023 (revised from a 2% contraction forecast in February, though down from 8.8% in 2022). However, 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.
Uplift in new car sales supports demand for non-life insurance products
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. 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.
However, 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.
Improved outlook boosts consumer demand for life products in 2023
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, the EY ITEM Club expects life insurance premiums to rise 6.6% in 2023, with further, though slightly more subdued, growth of 5.7% in 2024 and 4.4% in 2025 forecast.
Martina Neary, UK Insurance Leader at EY, comments: “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.
“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.”
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