Vehicle insurance premiums predicted to increase by 10% in 2024

Insurance premiums are expected to rise next year as insurers adjust pricing to reflect the impact of inflation, new analysis from EY suggests.

The professional services firm predicts that consumer premiums will have increased by 25% over the past year (2023) and will rise a further 10% in 2024.

Fleets have also been hit with high premiums, particularly for electric vehicles (EVs), with the Association of Fleet Professionals (AFP) calling on the insurance industry to better understand the fleet risk. 

The EY analysis, in its latest UK Motor Insurance Results, suggests that the UK motor insurance market is expected to record its worst performing year since 2010, this year.

A net combined ratio (NCR) of 114.6% is now forecast for motor insurers in 2023 – up from 108.5% forecast in June – despite premiums rising by 25% over the course of the year.

The losses, it says, are driven by high inflation and rising material costs having a more determinantal impact on balance sheets than initially anticipated, and more frequent claims.

Cost pressures and high damage claims levels are expected to continue into 2024, with insurers likely to face another challenging year.

However, premium rate increases this year should start to make a material difference, and EY predicts an NCR of 100.4% next year.

David Borland, EY UK and Ireland automotive leader, said: “Insurance premiums rising amid ongoing cost of living pressures could present a challenging headwind to the auto sector’s bid to ramp up consumer demand.

“The industry’s recent growth has been underpinned by fleet sales, with private demand faltering, which could be exacerbated by the rising cost of insurance.

“Whilst managing these pressures, insurers should be mindful of the transformation in the auto industry, including the transition to alternative forms of powertrain, new technology and lower residual values creating new risks to navigate.”

Martina Neary, UK insurance leader at EY, argued that the past two years have been amongst the most difficult the motor insurance sector has faced in recent times.

“The culmination of high inflation, growing material and labour costs, supply chain issues, pricing reforms, and changing driving habits post-pandemic has resulted in the sector recording consecutive years of losses – with 2023 recording the highest loss in over a decade,” she said.

“While economic challenges are expected to ease in 2024, headwinds for both insurers and consumers will remain. This means 2024 will be a balancing act for UK insurers.”

Consumers will have seen their premiums rise by up to 25% over the course of this year – a rise of £118 on average per policy. A further rise of 10% is forecast in 2024 (£58 per policy on average).

Neary said: “While many consumers expected premiums to rise, the level and pace of the increase is much higher and sharper than many expected.

“The current economic environment is of course difficult for both consumers and for firms but as inflation starts to fall back, conditions for consumers and insurers alike should improve.”