Impact of Inflation on United Kingdom (UK) Insurance Market

PUBLISHED: February 29, 2024

PAGES: 50 Pages

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This report presents an analysis of the UK's economic situation and how it has affected consumer and business confidence. It then examines how this has changed the behavior of insurance consumers, identifying key opportunities for insurance companies going forward. Finally, it discusses how the dynamics of several major insurance markets have been affected by the myriad of economic and political challenges thrown at them in the post-pandemic era.

Insurance policies have been canceled frequently over 2023, notably pet and travel of the key personal lines. According to GlobalData's 2023 UK SME Insurance Survey, over a quarter of UK SMEs considered making a change to their policy (canceling or switching provider) in 2023 for 15 of the 16 products surveyed. Over 80% of these considerations have been driven, at least in part, by the cost-of-living crisis. The crisis is driving consumers and businesses to seek better value from their insurance products. Over 60% of consumers switched provider in 2023 for a lower premium. For SMEs, pricing consideration, cover levels, and risk management services all played a role in the decision to switch provider.

Scope

In 2023, UK inflation dropped from 10.4% in January to 4.0% in December. Economic growth flatlined in the year, with the economy falling into recession in Q4 after two consecutive quarters of negative GDP growth.
The top three financial concerns for UK insurance consumers are paying monthly bills, the overall impact of the cost-of-living crisis, and saving for a comfortable retirement.
Almost 10% of pet and travel insurance policies were canceled by UK customers in 2023 due to the cost-of-living crisis. Over 80% of UK SMEs' considerations for making a change to a policy were driven by the cost-of-living crisis.

Reasons to Buy

Understand the challenges faced in the UK due to slow economic growth and disinflation in 2023.
Discover why consumers are canceling their insurance policies and how to reduce these actions.
Determine the effects of inflation on market dynamics across key personal and commercial lines.
Ascertain the impact on claims and expenses across major lines of business.

Product Code: GDFS0481IA

1. Executive Summary

1.1 Market overview
1.2 Key findings
1.3 Critical success factors

2. UK Macroeconomic Trends

2.1 Debt, disinflation, and deterioration: 2023 in the UK
2.2 Deep recession fears allayed, but many costs will stay high
2.3 Concerns among consumers and businesses are high

3. Changing Customer and SME Behavior

3.1 Cancellations have been regular in 2023
3.2 Finding cheaper providers is a key priority for many
3.3 Consumers and business are relying on credit to pay for cover

4. Market Dynamics

4.1 The motor market is facing a major challenge as costs spiral
4.2 Property premiums are rising to help cover escalating losses
4.3 Travel premiums rose due to higher demand and claim costs
4.4 Pet insurance subscribers and premiums are growing
4.5 Cyber premiums may be cooling, but risk is sky high
4.6 Liability premiums have risen, but demand has been fairly flat

5. Appendix

5.1 Abbreviations, acronyms, and initialisms
5.2 Methodology
5.3 Secondary sources
5.4 Further reading
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Product Code: GDFS0481IA

List of Figures

Figure 1: Disinflation has characterized 2023, but prices are still squeezing consumers
Figure 2: The UK economy entered a recession in Q4 2023
Figure 3: Bank Rate has increased dramatically since December 2021 to 5.25% in December 2023
Figure 4: Unemployment rose then fell in 2023 as the employment market loosened
Figure 5: Food and energy prices were among the culprits for squeezed consumer and business incomes
Figure 6: Consumers harbor considerable concern over energy bills and household budgets
Figure 7: Top concerns are for paying monthly bills, the impact of the cost-of-living crisis, and saving for retirement
Figure 8: Many SMEs are worried about inflation, recession, and generating enough revenue to stay afloat
Figure 9: Almost 10% of pet and travel insurance customers canceled cover due to the cost-of-living crisis in 2023
Figure 10: Cancellations were most frequently performed as a cost-saving measure
Figure 11: Over one in five home and motor customers have considered making a change to their policy
Figure 12: SMEs mostly considered canceling or switching motor-related policies
Figure 13: The cost-of-living crisis contributed to over 80% of policy cancellation or provider-change considerations
Figure 14: Roughly one in three consumers who shopped around found a new provider in the home and motor lines
Figure 15: Price and better cover limits are comfortably the most frequent reasons given for switching
Figure 16: SMEs look to compare prices in compulsory or heavily demanded products
Figure 17: Price, cover level, and risk management services are often the most important factors for SMEs to switch
Figure 18: Many home, motor, and pet insurance customers are paying for their cover through premium finance
Figure 19: Lines of credit are vital for SMEs in helping pay for business insurance
Figure 20: Demand for motor policies declined after 2022 following an increase over 35% in the average premium
Figure 21: Average claim costs and gross claims paid have escalated since the pandemic
Figure 22: Despite more reinsurance cession, a failure to address back-end expenses is costing motor insurers
Figure 23: Over a third of UK motor insurance customers expect to transition to an EV in the next five years
Figure 24: Demand for property cover has declined for years, but premiums are starting to rise due to claims costs
Figure 25: Over half of UK SMEs are paying higher premiums for the same or lower cover levels after renewal
Figure 26: Gross claims paid increased by over 60% in commercial and domestic lines since the start of the pandemic
Figure 27: The combined operating ratio in the property line of business reached 123.0% in 2022
Figure 28: Rising interest rates have been discouraging home purchases, which has brought down house prices
Figure 29: Over 40% of renters intend on purchasing a home in the next five years
Figure 30: Premiums for both single- and multi-trip policies increased significantly over the pandemic
Figure 31: The average cost of medical expense and cancellation claims markedly increased in 2022
Figure 32: International travel by all forms of transport started to recover after pandemic restrictions lifted in 2022
Figure 33: Monthly payment options are enabling more subscribers to afford pet insurance
Figure 34: Gross claims incurred for cat and dog claims increased by over 20% in 2022
Figure 35: Veterinary care costs increased massively over the pandemic, while the UK pet population is still growing
Figure 36: More than 50% of UK SMEs reported their cyber insurance premiums increased at renewal
Figure 37: More than 50% of medium companies have cyber cover, but uptake decreases with business size
Figure 38: Uptake of liability products remains strong despite sizeable premium hikes in the past five years
Figure 39: Insolvencies in the UK are volatile but have been on the rise since the start of 2021