Some thoughts from William Balfry, member of the Forum of Insurance Lawyers’ Motor SFT, and Senior Associate and Professional Support Lawyer at DWF Law, on the 2025 outlook on Motor Insurance;
Taskforce to drive industry cooperation and premiums to drop
The government has initiated an 18-month programme to review the cost of motor insurance in the UK, to be known as the Motor Insurance Taskforce. This taskforce comprises industry bodies such as the FCA, CMA, MOJ, ABI, and the MIB. Consumer groups, including Which? and Citizens Advice, are also represented. This initiative promises to conduct an in-depth analysis of the components of motor insurance premiums, focusing on those most at risk from particularly high premiums – the young, the elderly, and those residing on low incomes.
The press release also highlighted potholes as a significant issue, with assurances that addressing these would be a key priority. Although it is early days with only one meeting so far, we anticipate the taskforce will examine the costs associated with credit hire, repair, personal injury, and fraud. The most challenging cost to reduce may be repair costs. As vehicle technology advances, skill gaps emerge – figures suggest that only around 25% of engineers are qualified to work on EVs.
This should be a temporary situation for the industry, and as it catches up and as safer cars appear on our roads, the cost base should decrease. Currently, we have a hybrid car parc, with many older cars on the roads and newer, heavier cars gradually replacing them. The growth of leased EVs through work schemes will also alter the car parc composition in the UK.
The discount rate moving to +0.5% should play a part reducing costs for insurers and consequently premiums, which are already decreasing over recent quarters. In credit hire, industry data collated by Whichrate suggests that there have been nine consecutive quarters of deflation in basic hire rates and that the year ended 34% lower than 2023 overall.
Government to move forward with Automated vehicles again and potentially e-scooters as well?
It is fair to say that, so far, the automated revolution has been slower than expected. The Sunak government, when passing the AV Act in May 2024, predicted automated vehicles on our roads by 2026; this may prove ambitious. While companies such as Oxa and Wayve are advancing as quickly as possible, infrastructure remains an issue, and primary legislation requires follow-up secondary legislation.
One clear obstacle and threat for insurers will be the mixed composition of roads with automated and non-automated vehicles operating simultaneously, along with data and cybersecurity concerns. Consultations on these issues and the broader topic of modern transport are expected in 2025. Looking at the broader micro mobility picture, will e-scooters finally be legalised and regulated after years of trials?
AI growth and usage to continue
While insurers and insurance law firms experimented with AI during 2024, 2025 could see it truly take off as part of processes for claims handling and underwriting procedures. AI can perform complex tasks with minimal human intervention, meaning that claims processes such as determining liability decisions could be automated, governance issues notwithstanding. The government is likely to consider all avenues that could reduce motor premiums.
Just this week, we have seen the new Chinese AI chatbot DeepSeek AI enter the market, causing a significant drop in the value of US tech companies overnight. This area is likely to expand and change rapidly over the coming year, even over the coming months. The Forum of Insurance Lawyers has formed several sub groups to look at emerging issues, including how AI will work in practice in law firms and also ethics and standards. There may be a battleground between regulators wanting to ensure data protection remains robust and the UK government, which has said it wants to tread a different path to the EU in terms of AI regulation.
Fraud to become even more technologically advanced
Following on, AI will likely continue to impact the motor fraud arena to a greater extent. Application fraud may increase as faked documents become easier to create and more widely known. Ad spoofing may continue to be an issue, including the use of chatbots to report accidents online, which may pose a greater risk than telephone ad spoofing. The issue of taking out fake policies via ghost brokers may also persist. Further battles with Credit Hire Organisations around non-party costs orders in cases run without merit or for the benefit of the hirer are also anticipated.
Insurers to return to Loss-making net ratio in 2025 but premiums to continue to fall
While the 2024 figures have not yet been announced, Ernst & Young has suggested that a net ratio of around 93% is expected, marking the best year for motor insurers since 2020. This is not likely to continue in 2025, as a small loss is expected with slightly more paid out in claims than premiums received. This may or may not underestimate the savings brought by the discount rate change, and we will have to see how close to breakeven the market can reach. If savings from process automation can be realised and supply chain issues ease due to the global situation (Middle East/Ukraine), this is not impossible. Motor premiums have dropped for the last couple of quarters, albeit by a few percentage points each quarter. This trend is expected to continue in 2025 due to governmental pressure and increased market competition, plus the aforementioned discount rate change. An interesting year lies ahead.
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