11 August 2017Insurance

Demand for general insurance set to slow in the UK

Demand for general insurance in the UK is set to weaken as household disposable income declines, according to the latest EY ITEM Club outlook for financial services.

Strong inflation combined with subdued pay growth will lead to falling real earnings and lower household disposable incomes, which is likely to dampen demand for general insurance, according to the report.

“Even modelling for a Brexit transitional deal, the outlook for 2018 remains tough for financial services as the impact of higher inflation is felt by households up and down the country,” said Omar Ali, EY’s UK financial services managing partner. “Business lending, mortgage lending and general insurance look set to be the hardest hit.”

Freddy Macnamara, CEO of pay-as-you-go car insurer Cuvva, said: "With so many households struggling against an undercurrent of slow wage growth and high inflation, it makes absolute sense that the tolerance for rising insurance premiums is at breaking point. In the last three years, the average car insurance premium has risen by more than 40 percent and this will be hurting a lot of people financially."

The UK insurance sector continues to be confronted by a challenging macroeconomic climate. Weak earnings growth combined with higher inflation is set to depress demand for big ticket purchases and have a knock-on effect on associated non-life insurance products. Car registrations are forecast to drop from a record 2.69 million in 2016 to 2.58 million this year and 2.42 million in 2018, whilst annual growth in housing transactions is predicted to average 2.6 percent from 2017 to 2019, compared to the 7 percent average of the previous five years.

General Insurers will also face policy headwinds. June’s rise in Insurance Premium tax (IPT) from 9 percent to 12 percent represents a doubling of the rate in 18 months. Legislation to reduce whiplash claims has been postponed because of the recent general election and the timing of the review into the Ogden discount rate for personal injury claims may also be delayed. The need for increased transparency – since April, insurers have been required to include the price of the previous year’s policy on each renewal quote – is also likely to impact insurers.

At the same time, premium levels have risen to offset some of these factors. The price of car insurance rose by 11.6 percent in the three months to May compared to a year earlier, the fastest increase in six months and more than four times the rate of overall consumer price inflation. The EY ITEM Club outlook for financial services predicts that non-life premium income will grow by around 3 percent in 2017 and 2018, compared to 2.6 percent in 2016.

Get the latest re/insurance news sent to your inbox every day -  Sign up to our free email newsletters

Today’s stories

Schinnerer Group snaps up Lloyd's property MGA ICAT

QBE appoints Chubb exec as new Malaysia CEO

Munich Re, Gen Re strike reinsurance deal with Australia’s AMP

Alesco taps Willis Towers Watson energy specialist Choppen

2017 hurricane season has potential to be 'extremely active'

Navigators names new leader of energy/engineering business

Don't miss our insurtech email newsletter - sign up today

Already registered?

Login to your account

To request a FREE 2-week trial subscription, please signup.
NOTE - this can take up to 48hrs to be approved.

Two Weeks Free Trial

For multi-user price options, or to check if your company has an existing subscription that we can add you to for FREE, please email Elliot Field at efield@newtonmedia.co.uk or Adrian Tapping at atapping@newtonmedia.co.uk

More on this story

27 June 2017   Existing EU insurance policies should stay in place after Britain leaves the bloc because the process of dividing them into British and EU contracts would be too complex, Lloyd's CEO Inga Beale told Reuters in a June 26 interview.