Motor insurance customers in the UK are not expected to see a drop in premiums, even as claims have fallen, according to GlobalData.
The market intelligence firm said motor appears to be one area of insurance that could even benefit from the coronavirus (Covid-19) pandemic, as more consumers look to drive to work to avoid the virus as lockdown comes to an end.
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, 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—£1.3 billion since the lockdown began in March through to June 2020, according to Safe.
And this has resulted in savings for drivers. Comprehensive car insurance premiums fell 5% (£39) in Q2 2020, as lockdown forced drivers off the road.
The latest Confused.com and Willis Towers Watson Car Insurance Price Index put the current average cost of car insurance at £770, following a £19 (2%) decrease over the past year.
Despite motor insurers being able to benefit from the lockdown and pass those savings onto drivers, the average cost of premiums is set to increase, according to GlobalData.
Jazmin Chong, insurance analyst at GlobalData, said: “The increase in price will be driven by an increase in risk. For instance, the number of drivers on the road will be higher than before the Covid-19 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 £15.5 billion by 2024, representing a compound annual growth rate of 3.4% between 2019 and 2024.
Chong added: “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 cancellations, translating into a decline in gross written premiums.”
“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.”