Impact of Inflation on United Kingdom (UK) Personal Lines Insurance Market

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Impact of UK Personal Lines Insurance Market Overview

This rapid rate of price increase in the UK is causing a huge strain on businesses’ and consumers’ finances, leading to a cost-of-living crisis. Many factors have coalesced in creating an economic situation that has consumers concerned about their current financial situation. These factors include global issues such as the COVID-19 pandemic and related supply-chain problems as well as domestic issues such as Brexit and economic mismanagement. Across all four primary personal lines of business (motor, home, pet, and travel), consumers have canceled policies, and more are considering taking such action.

Furthermore, other consumers are looking to adjust their policies, either cover levels, excess, or both, while others have looked to switch providers in search of better value for money. Cancellations have been most common in the pet and travel lines. The cost of claims is rising across all lines of business, forcing insurers to raise premium prices to cover these costs. This could drive further cancellations as consumers are increasingly unable to absorb any extra costs that come their way.

The UK Personal lines insurance market inflationary impact insights report provides an overview of some of the leading macroeconomic trends driving inflation in the UK economy, as well as those set to affect future inflation and GDP growth rates in 2023 and beyond. It analyzes how consumer behavior has changed in the insurance industry in the past 12 months and how it is expected to change in the future, with specific analysis of the motor, household, pet, and travel insurance sectors. The report also looks at the UK economy heading into 2023 and how insurers can be best prepared to deal with the trials and tribulations the coming years may bring.

UK Inflation Indicators

UK Inflation Indicators

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UK Personal Lines Insurance Market – Key Findings

The most pressing concern of UK consumers in Q3 2022 was the rising energy bills. Furthermore, over 40% of former consumers in the home, pet, and travel lines indicated that they canceled their policy as a cost-cutting measure due to the cost-of-living crisis. A further two in five current policyholders in the pet and travel lines indicated that they have considered switching or canceling their policy, with over one in five consumers in the home and motor lines indicating similarly. More than 80% motor insurance customers and more than 73% home insurance customers have switched providers for a lower premium. Additionally, more than 35% of pet and travel customers switched because their new policy offered better cover limits.

UK Consumers with Cancelled Policies

UK Consumers with Cancelled Policies

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UK Personal Lines Insurance Market – Critical Success Factors

As consumer finances are increasingly squeezed, many will seek cheaper alternatives to their current policy. Therefore, offering a cheaper policy with lower cover limits will enable insurers to retain business as a growing number of consumers seek value for money and low-cost alternatives. Many leading insurers offer alternative policies, with others looking to follow suit as business dries up. Also, many insurtech brands offer consumers highly customizable and tailored policies, allowing consumers to pay only for the exact cover they need. These forms of policy are likely to grow in popularity soon as consumers look to stretch their incomes as far as possible and get cover for exactly what they require.

Allowing consumers an element of leeway in the way the providers structure the repayments for their insurance policy is likely to help many consumers stay covered. Offering credit finance to some of these consumers can be a useful tool for covering short-term shortfalls in disposable income. Not only will this help insurers retain business during inflation, but it is also likely to drive an element of brand loyalty going forward, in turn driving better retention rates in the future.

Reasons to Buy

  • Understand the extent and underlying drivers of inflation and the subsequent economic downturn facing the UK economy.
  • Discover why consumers are canceling their insurance policies and how to reduce these actions.
  • See how and why consumers are adjusting their policies and switching their providers in 2022.
  • Determine the effects of inflation on premium prices and changes in demand for policies.
  • Ascertain how long-term trends in consumer behavior may be affected by the economic situation in the UK.

Aviva
Direct Line
LV=
RSA
ManyPets
Wapp Travel
Getsafe
Arma Karma
Urban Jungle
Quotemehappy.com
Compare the Market
Confused.com. GoCompare
MoneySuperMarket
Root
By Miles
insurethebox
American Family
Nationwide
Hiscox
Ondo InsurTech
PitPat
Zesty.ai
Lemonade
Allianz

Table of Contents

  1. Executive Summary

1.1 Market overview

1.2 Key findings

1.3 Critical success factors

  1. Inflation Has Been Growing Since Mid-2020

2.1 Inflation indicators have been rising for two years

2.2 Macroeconomic trends

2.3 Consumers are highly concerned about inflation

  1. Changing Consumer Behavior

3.1 Cost-cutting and home working are driving cancellations

3.2 Consumers are also looking to make policy adjustments

3.3 Shopping is more frequent, but switching is more difficult

  1. Changes in Premiums and Demand

4.1 Motor premiums have risen rapidly in the year

4.2 Home premiums and policies written have fallen in 2022

  1. The UK Economy Going Into 2023 and Beyond

5.1 The UK is forecast to enter recession by Q4 2022

5.2 Longer-term changes to behavior and insurance

5.3 Technology can mitigate the future impact of inflation

  1. Appendix

6.1 Abbreviations and acronyms

6.2 Methodology

6.3 Secondary sources

6.4 Further reading

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Figures

List of Figures

Figure 1: Inflation in the UK economy has been accelerating since the start of 2021

Figure 2: The difference between real and nominal wages has been growing since the start of 2021

Figure 3: Rising interest rates will increase costs for homeowners, businesses, and government borrowing

Figure 4: The Russia/Ukraine conflict has led to spiraling and highly volatile oil prices

Figure 5: The UK has become less attractive to foreign investment in H2 2022

Figure 6: Over 85% of UK consumers are concerned about their current financial situation

Figure 7: Home energy bills and household budgets are the most concerning aspects to UK consumers

Figure 8: 38.7% of consumers put the cost-of-living crisis in their top three financial concerns

Figure 9: Travel and pet insurance policies were the most frequently canceled in 2022

Figure 10: Home working has contributed to over a third of motor cancellations in 2022

Figure 11: More than one in 10 motor, home, and pet customers used premium finance in 2022

Figure 12: More than 33% of pet and travel customers have considered switching or canceling their policy

Figure 13: Single-trip travel policies have become more attractive to consumers in 2022

Figure 14: Some motor customers are reducing their cover to cut costs

Figure 15: Many consumers are combining a reduction in cover with a reduction in excess

Figure 16: UK consumers are generally shopping around more often in 2022 than in 2021

Figure 17: Cheaper premiums and better cover limits are driving most insurance provider switches

Figure 18: The ABI estimates that the average motor insurance premium has risen by 5.3% in 2022

Figure 19: Home insurance premiums have been quite stagnant since the start of 2020

Figure 20: The number of contents-only policies written has been declining year-on-year since Q1 2021

Figure 21: The UK is forecast to enter a recession in Q4 2022

Figure 22: Mortgage approvals have generally declined since the end of 2020

Figure 23: The cost-of-living crisis is delaying some household purchases

Figure 24: Within five years, over a third of consumers expect to move to EVs

Figure 25: The cost-of-living crisis is having a mixed effect on the shift to EVs

Figure 26: Almost 50% of consumers would be willing to pay more for instant payouts in their travel policy

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