The auto insurance industry in the UK – Is it friend or foe to policyholders?

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by derailedcapitalism
Thursday, Sep 03, 2020 - 12:10

In times of distress, like many of us are facing today, it’s nice to know that your insurance company has your back. Historically, insurance products served as a soothing assurance that, if (when) things go wrong, you have a partner that shares the pain with you. Today, auto insurance companies in the UK will typically disarm clients and prospective customers with catchy taglines like "Auto Insurance on your terms” or “Your dependable partner”. But when push comes to shove, do rate payers really have a reliable partner working for them, or are they (insurance policy holders) rigidly subjected to the terms laid down by the provider?


U.K. auto insurance landscape  


With everything going on in the world today, there are significant financial headwinds awaiting the UK’s auto insurance industry. In some industries, the dominant players step in and work with all stakeholders, especially clients, to redefine the industry and leverage those headwinds to turn them into opportunities. Sadly, the impending headwinds in the auto insurance industry spells bad news for policy holders.


Although general insurance industry revenue is expected to rise by 0.8% in 2019-20, to £70.1 billion, overall, an assessment of the 5-year trend of the industry, commencing from 2015, indicates that revenue is expected to decline at a compound annual rate of 4.7%.



Specific to auto insurance, an estimated £14 billion industry by gross premiums written (GPW), there’s almost a monopolistic situation, with the top-10 companies accounting for almost 80% in GPWs of £11.1 billion. The top-3 auto insurers, with double-digit GPWs, are Admiral Group (15.2%), Direct Line Group (11.9%) and Aviva (11.8%). Between 2018 and 2023, analysts estimate that GPW will have risen by 23%, increasing at a steady clip of roughly 4% compounded year-over-year.


Growing pressures on providers and policy holders


While the insurance companies have done well thus far, auto owners haven’t fared that well. The annual Consumer price Index (CPI) of insurance in the UK has steadily climbed, clocking 117.4% (base year 2015) in 2019. In 2016, the typical British household spent £9.1 weekly on auto insurance. That weekly amount climbed to £11.2 at the end of 2019.


Sadly, it might be that policy-holder pressures are just beginning to pile up. The industry may be facing new challenges to their growth and existence, and that might put even greater pressure on already squeezed premium payers. These industry headwinds will manifest themselves in a number of domains, including regulatory frameworks, customer switching, car sharing, proliferation of online insurance products, trade wars and Brexit pressures.


There’s already evidence that COVID-19 is taking a swipe at the UK motor insurance industry. Statistics indicate that there were 200,000 fewer new car registrations in March 2020 – a 40% decline year-over-year. This fact alone could see UK auto insurers pile up losses in premium revenue to the tune of about £98m. And, given that lockdowns are likely to be around for a while – in some shape or form – premium revenue losses may just continue to increase for the foreseeable future. 


No respite in sight for weary policy holders


Typically, in the face of industry-wide adversity, component companies extend a helping hand to customers to arrive at win-win solutions. Yet, it is unlikely that the challenges that the UKs auto industry are about to face, will see car owners getting the better as a result of impending industry changes. If anything, big insurers will find novel ways to increase auto insurance premiums.


A case in point: As older drivers phase out of the driver pool, and younger drivers move in to take their place, young driver insurance premiums will increase. In Q2 2020, while drivers aged 65+ paid an average of £282 in premium, those aged between 17 and 19 paid £777 on average. With young people making up an ever-expanding pool of auto owners, the premium grab will only increase in the coming years.


Yet another reflection of the dark side of the financial underbelly of the auto insurers was recently revealed through the pandemic. A survey of over 2,000[10] drivers across the U.K. indicates that almost half of them (46%) saw premium rates increase, at the time of auto renewals, by an average of £47 between April and June of 2020. This indicates that, despite the ongoing crisis of pandemic nature, not all British auto insurers are prepared to give their policy holders a break – which doesn’t bode well for premium payers.


And there’s more bad news that awaits the unemployed policy holder - a number that could cross 2.7 million individuals according to the Office for Budget Responsibility (OBR) – or those made redundant as a result of the corona virus. As their employment statuses are updated into their car insurance risk profiles, insurers could drive their premiums up by a staggering 30%.


Due to no fault of their own, loyal policy holders are about to receive a double-whammy if ever there was one!


With “partners” like these…!


It’s clear then that the so-called “partnership” between car insurance providers and policy holders is essentially only a shallow slogan. There’s no hope that car owners will ever see premium rates adjusted based on their (owners’) terms.

Even as Britain’s auto insurers battle to reinvent themselves, in the face of multiple external pressures, they continue to explore every opportunity to push the cost of that battle onto the shoulders of already stressed individual policy holders. And that means higher auto insurance premiums are on the horizon for UK car owners.