Premium income growth for UK insurers rises with real wages

09 November 2023 Consultancy.uk 3 min. read
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Premium income for UK insurers has seen strong growth in 2023, as policy prices rise and real wage increases also enable consumers to spend more on insurance. Beyond this year’s spike from pent-up demand, however, growth looks likely to slow in the coming two years.

The UK’s insurance market is experiencing a number of headwinds at present. EY research recently found that the country’s home insurance market experienced its worst performing year on record in 2022, for example, with further losses forecast across 2023 and 2024. Meanwhile, another study by Deloitte found life insurers are rethinking their strategies, business and operating models – as while profits are growing in defined contribution pensions, bulk annuities and drawdown, profits in other lines of business look set to shrink.

In spite of these challenges, however, a broader overview of the sector suggests that UK insurers are still on course for a healthy performance in 2023. According to the most recent ‘EY ITEM Club Outlook for Financial Services’, UK insurers are expected to close this year reporting strong overall premium income growth – thanks in part to sizeable premium increases, and improved household spending power.

Premium income growth for UK insurers rises with real wages

In the last two years, record levels of inflation have left many UK households more than £2,000 worse off. With other priorities such as the weekly shop taking precedent, this saw financial services customers regularly offset their purchase of products such as pensions or insurance. 

For companies covering the insurance segment beyond the life insurance segment, this caused lean times in 2022. Premium income growth in the sector sank to 3.9%. This was partially due to an automotive market facing a crisis of demand. With sales for new cars – typically more expensive to insure – down, there was a knock-on effect on the growth potential of non-life insurance providers.

With consumer sentiment improving, amid slowing inflation and rising wages – enabling them to very slowly recoup some of the spending power they lost in the previous year – this has changed over 2023. Private new car registrations reached over 650,000 in the first nine months of 2023, up from 639,000 in the same period in 2022, meaning the year is on course to deliver just the second year-on-year rise in registrations since 2016.

In turn, insurance premiums in the non-life segment look to have risen by 8.5%. This explosion of pent-up demand is likely to cool in the coming two years, according to EY – however, it will see growth remain above the levels seen at the low point of 2022.

Interestingly, the same does not seem to be the case for the life insurance market. While growth is still a healthier-than-expected 6.6% – revised from an expected 2% contraction predicted at the start of the year – that is a fall from 8.8%. The easing cost of living pressures from falling inflation and energy bills has supported consumer demand for life insurance products in 2023, however, there may also be less of a sense of urgency to buy life insurance policies now, as the Covid-19 pandemic gradually disappears from the headlines.

Martina Neary, UK insurance leader at EY, commented, “The economic environment is impacting different people in different ways, and it’s important the industry continues supporting customers to a high degree throughout this period. Insurers are expected to see growth in premium income in 2023, which wasn’t anticipated earlier in the year. However, the economic climate remains challenging, and growth – for both non-life and life insurers – is expected to slow next year and into 2025, making it essential that firms keep a careful eye on balance sheets.”