UK insurers are expected to report steady but slowing premium income growth in 2024, 2025 and 2026, as consumer premium increases return to average levels, according to the latest EY ITEM Club Outlook for Financial Services.
Following sharp premium increases driven by high inflation in the last two years, easing cost pressures mean UK insurance premium increases are expected to begin to lower.
As a result, income from non-life insurance premium growth is forecast to fall slightly to 7.9% in 2024 (down from 8.8% in 2023), 5.1% in 2025 and 4.5% in 2026, and income from life insurance premiums is forecast to grow 6.2% in 2024 (down from 6.9% in 2023), 4.0% in 2025 and 2.9% in 2026.
Strengthening household income and consumer confidence to support demand for motor and home insurance
Demand for home and motor insurance policies is expected to remain strong as interest rates fall, wages grow and consumer confidence lifts. UK motor insurers are continuing to see signs of recovery in the private car market as supply chain issues ease, with new car registrations growing by 3.3% year-on-year between January and October 2024 – supporting demand for associated motor insurance.
Falling inflation and easing supply chain issues mean the sharp rises in both home and motor insurance premiums in recent years are beginning to ease, and non-life insurance premium income is expected to grow 7.9% this year – a small decline from 8.8% in 2023.
Non-life insurers are expected to lower consumer premiums further if inflation stabilises, interest rates continue to fall, supply chain issues ease and price rises in replacement parts slow as expected. As a result, the EY ITEM Club forecasts non-life insurance premium income to grow 5.1% in 2025 and 4.5% in 2026 – remaining just above the average growth rate of 4.0% recorded between 2010 – 2019.
Life insurance premium income growth to slow over the next three years
Healthy income growth and falling interest rates are expected to support demand for UK life-insurance products and an increase in workplace pension take-up. Overall, the EY ITEM Club expects life insurance premium income to grow 6.2% in 2024 – down slightly from 6.9% in 2023.
However, gradually slowing growth in households’ disposable income is expected over the next two years which is expected to weigh on overall demand slightly. As a result, the EY ITEM Club expects life insurance premium income growth to fall to 4% in 2025 and 2.9% in 2026.
Martina Neary, UK Insurance Leader at EY, said, “The macroeconomic environment has been very challenging in recent years, and insurance premiums increased sharply to balance cost and inflationary pressures in 2023 and much of 2024.
“With inflation and interest rates now falling, we appear to be turning a corner, and we expect the rate of premium increases to ease if cost pressures continue to lower – bringing premium income growth to more ‘normal’ levels over the coming years.
“While the promising signs of economic recovery will be welcome news for both firms and customers, ongoing geopolitical tensions and unpredictable weather events present downside risks to the growth forecast. As ever – the challenge for UK insurers will be to carefully balance costs, provide support to customers – especially those most vulnerable – and accelerate innovative transformation programmes to ensure firms remain competitive into the future.”
