While many insurance companies are taking a hit from the COVID-19 outbreak, motor insurers are set to continue benefiting from it and premiums. Having experienced a fall in claims, average premiums are now set to rise.
Back in 2019, GlobalData’s UK Insurance Consumer Survey found that accidental damage to individuals’ own vehicles accounted for 33.5% of all personal motor insurance claims. Damage to another person’s vehicle was the third most common reason for making a claim, representing 17.8% of the total.
As a majority of vehicles have been housebound due to the lockdown, motor insurers have been able to save on claims costs. Price comparison site Safe estimates this figure to be £1.3bn since the lockdown began in March through to June 2020. Despite motor insurers being able to benefit from the lockdown, the average cost of premiums is set to increase.
The increase in price will be driven by an increase in risk: the number of drivers on the road will be higher than before the coronavirus outbreak. Many customers will favour their personal vehicles over public transportation due to concerns of contracting the virus.
In the longer term, the increasing number of vehicles will also change customer behaviour. GlobalData forecasts that both the increased cost in premiums and number of policies will lead the UK’s private motor insurance market to reach £15.5bn by 2024, representing a compound annual growth rate of 3.4% between 2019 and 2024.
During the initial stages of the COVID-19 pandemic, there were concerns that there would be a drop in new vehicle registrations or a surge in motor insurance policy cancelations, translating into a decline in gross written premiums.
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However, the decline in claims has counteracted the negative financial implications for the sector and has even changed the way that consumers view their commute to work, with many prioritising their health over concerns with commuting costs. This makes the motor insurance industry one of the few insurance segments to benefit from the COVID-19 lockdown and the spread of the virus.