This is despite the country’s motor insurers recording their best underwriting profit since records began in 2020, with a 90.3% Net Combined Ratio (NCR) for the year.
For 2021, the industry is predicting a 103% NCR due to underlying inflation, with premium rate drops and rising costs associated with the FCA’s Pricing Review.
Tony Sault, UK general insurance market lead at EY, said: “The drop in claims last year meant insurers were able to pass on savings to their customers through reduced premiums in Q1 2021.
“As commuting patterns change, perhaps for good, we expect the downward shift in car usage and claims to continue – albeit not to the level seen in lockdown.”
He added: “We also expect lower premium rates to continue for the rest of this year as insurers price in these behavioural changes as well as the new rules on whiplash claims and focus heavily on retaining customers ahead of the FCA pricing reforms.
“While lower premiums is good news for consumers, the sector faces ongoing and significant underlying cost challenges – which were to a large extent masked by the lockdowns – and the rise in profitability in 2020 will likely be a blip.”
Rodney Bonnard, EY’s UK insurance leader, said: “There has been a great deal of disruption over the past year and the challenging market environment is set to continue, compounded by an increasingly soft market and a ramp up of regulatory requirements.
“In particular, while the drive by the FCA to deliver fair value to customers is welcome, it will require insurers to carry out significant work and bear the costs of implementing major changes in a tight time frame.”
He added: “As ever, making the necessary investments in innovation and digital transformation will prove crucial for firms to deal with the challenges head-on, not least as they battle for competitive advantage.”