UK motor rates up, but well off pace to retain margins in new regime

Insurance premiums on UK new motor policies spent the first quarter of 2022 continuously accelerating growth under the new regulatory regime to offset some 16 months of uninterrupted rate declines, ending in the first quarter with a 6.4% y/y gain.

Motor premiums had broken back into positive inflation in January with a 5.0% reading ahead of a 5.7% annual increase in February and now a 6.4% reading in March, analysts at Jeffries said in a summary of the UK's first quarter under new regulatory pricing demands.

“We continue to believe the market needs to increase rates by at least +20% in financial year 2022 to return to pre-pandemic margins, following two years of elevated claims severity coupled with a subdued pricing environment and claims frequency beginning to return to more normal levels,” analysts at the Jeffries equity brokerage wrote in research to clients.

The pricing data are “heading in the right direction” but renewal premiums are still needed to confirm trends, they said.

Rates have gone under a microscope following a move by the British regulatory authority FCA to implement fresh rules against so-called price-walking effective at the beginning of 2022. Renewal prices must match new client offers to avoid loyalty penalties.

The UK's coterie of market-listed insurers are likely ahead of the larger field in terms of pricing discipline through the regulatory transition, Jeffries suggested.

The modest increase in new business premiums fell well short of car damage inflation, which Jeffries currently estimates in the double digits, at 10.3% in March or 14.2% when including the cost of used cars.

Damage inflation is exacerbated by the need for more technologically sophisticated car parts and a dramatic rise in the cost of second-hand cars, last seen up 31% year on year.

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