Tougher Times Ahead For Car Insurers, Says Bloomberg

Some insights into the Motor insurance sector from Bloomberg – are they right to predict tougher times ahead and thinner margins?

Direct Line’s new quota-share reinsurance arrangement announced to boost solvency by 6% and the resignation of the CEO highlight the challenges faced by all UK auto insurers, says new research from Bloomberg Intelligence.

The latest Confused.com price index reveals that 4Q average premiums rose 19% year-over-year, but are only back to their 4Q19 level – despite claims inflation averaging at least 5% a year since then, according to insurers. UK auto insurance prices need to rise a lot more if earnings declines are to be halted.

Kevin Ryan, BI Senior Industry Analyst (Insurance), comments: “Direct Line is confronting an increasingly challenging operating environment, with claims inflation running at 10% in auto insurance and UK regulators’ pricing-practices regime crimping flexibility while reducing the size of the new-business market. Volatile investment markets also may restrict returns.

“Earnings and dividend growth look unlikely for 2022, and there’s no reason to believe conditions this year will be any less hostile“

Aston Martin Insurance Still Similar to Skoda; UK Prices Weak

Following a 3Q hike, auto-insurance prices are 14% higher vs. a year ago, according to Confused.com, though following a double-digit surge in claims costs, margins at UK companies such as Admiral and Direct Line will still be squeezed. Overall prices remain cheap notes Bloomberg and thinks that inflation is bound to take a toll on claims going forward;

“Insurance pricing is rising for supercars but still fails to reflect either inflation or the expensive technology that’s boosting UK auto-claims costs for family automobiles and supercars. At end-3Q, our analysis shows an Aston Martin DB9 – worth £75,000 and parked on the street – can be insured by a 50-year-old living in central London for as little as £1,029 a year (up 36% year-over-year, 30% since July), according to Confused.com. Insuring a similarly valued Ferrari costs 1,136 (up 8% since July). A McLaren costs £1,046 (up 55% since July).

By contrast, a similarly aged Skoda Yeti, worth £10,000, can be insured for as little as £348 (average of 63 quotes, £763), a 4% fall since July, based on Confused.com data. This is no supercar, yet Warrantywise paid a £5,000 claim in 2018 to repair a faulty fuel system.”