According to the latest EY ITEM Club Outlook for Financial Services, UK insurers are expected to experience a slowdown in premium income growth in the years 2024-2026. After sharp increases in premiums due to high inflation in recent years, the easing of cost pressures is projected to lead to a decrease in premium growth rates.
Income from non-life insurance premiums is forecasted to decrease slightly to 7.9% in 2024, 5.1% in 2025, and 4.5% in 2026. Similarly, income from life insurance premiums is expected to grow at a slower rate of 6.2% in 2024, 4.0% in 2025, and 2.9% in 2026.
Despite these forecasts, there are positive signs for the insurance industry. Strengthening household income and consumer confidence are expected to support the demand for motor and home insurance policies. As interest rates fall and wages increase, the demand for these policies is expected to remain strong.
In the motor insurance sector, there are signs of recovery in the private car market as supply chain issues ease. New car registrations have grown by 3.3% year-on-year between January and October 2024, which is likely to boost the demand for motor insurance. Similarly, home insurance premiums are expected to see a decrease in sharp rises experienced in recent years, with non-life insurance premium income projected to grow at a slightly lower rate of 7.9% in 2024.
Looking ahead, if inflation stabilizes, interest rates continue to fall, and supply chain issues ease, non-life insurers may lower consumer premiums further. The EY ITEM Club anticipates non-life insurance premium income to grow at a rate of 5.1% in 2025 and 4.5% in 2026, just above the average rate recorded between 2010-2019.
On the other hand, life insurance premium income growth is expected to slow over the next three years. While there is healthy income growth and falling interest rates to support demand for life insurance products, the EY ITEM Club forecasts a decrease in growth rates to 4% in 2025 and 2.9% in 2026.
Martina Neary, UK Insurance Leader at EY, highlighted the challenging macroeconomic environment in recent years and the sharp increase in insurance premiums to balance cost pressures. With inflation and interest rates on the decline, Neary expects the rate of premium increases to ease, bringing premium income growth to more normal levels in the future. She also emphasized the importance of balancing costs, supporting customers, and advancing innovative transformation programs to ensure the competitiveness of insurance firms in the future.
In conclusion, while there are challenges and risks ahead for UK insurers, there are also opportunities for growth and adaptation in response to changing economic conditions. As the industry navigates these changes, it will be crucial to prioritize customer support, cost management, and innovation to stay competitive in the evolving market.
