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July 28, 2022

High inflation is set to increase switching in the UK motor insurance market

By GlobalData Financial

Motor insurance is being hit by the UK’s cost-of-living crisis. While most consumers paid under GBP400 per year for motor insurance in 2021 according to GlobalData, inflation is extremely high in the UK. This will put pressure on premiums going forward. Compare The Market found that the average cost of insuring the 10 most popular models of car leapt by GBP100 between March and May 2022 compared with the same period of 2021. This will be a concern for consumers who are already struggling with their finances.

GlobalData’s 2021 UK Insurance Consumer Survey found that 66.9% of UK consumers paid under GBP400 per year for motor insurance in 2021, while 78.6% paid under GBP500. While young drivers facing higher premiums is a long-running story, only 6.8% of consumers paid in excess of GBP1,000 per year for premiums in 2021. This will undoubtedly increase as inflation is hitting consumers in a range of different ways. While new Financial Conduct Authority regulations that prevent insurers to offer new customers cheaper prices than existing customers could reduce switching in theory, we expect to see consumers increasingly shop around as the cost-of-living crisis continues. They will ultimately prioritize value in this market.

This is likely to lead to an increase in switching at renewal, with more consumers using price comparison sites and searching for the best deals. The motor insurance line is very much driven by value. Since it is a compulsory purchase for drivers, many consumers do not look beyond the first page of price comparison sites. GlobalData findings show that 30.7% of motor insurance consumers switched insurers in 2021, of which 77.8% did so specifically because their new insurer offered cheaper premiums.

Therefore, we expect to see increased switching in 2022 – and switching explicitly because of value – as high inflation will impact the insurance markets. We could also see a rise in attempts to reduce premiums, such as increased uptake of telematics or even pay-per-mile insurance policies. These are generally offered by start-ups (such as By Miles in the UK), so this price pressure could be a good opportunity for challengers to establish a presence in the market.

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