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Why Are Home & Motor Insurance Payouts Increasing in 2023?

Nov 28, 2023

Buyers of household and motor insurance will be discovering eye watering increases in premiums. This might not be very palatable, but it might help to understand why this is a fact and not helped further by the most recent storm Babet. We are fighting the good fight in helping customers to get the best deal available we can with almost every renewal we have being rebroked to see what alternatives are out there.

How Much Is Being Paid Out in Home and Motor Insurance Claims?

The latest figures from the Association of British Insurers (ABI) reveal that £782 million was paid out in home insurance claims in the second quarter of 2023. This represents an increase of 11% compared to Q2 2022.

Insurance payouts are outstripping premiums – not just in the home insurance market, but also in the motor insurance market. In this post we’ll discuss some of the underlying causes for this situation and explore the effect it’s having on the insurance market.

Why Are Home Insurance Payouts Increasing?

The ABI’s report cites that insurers paid homeowners £782 million to help them cope with fire, theft, weather, escape of water, subsidence, and accidental damage. The payouts amount to an equivalent of £8.6 million a day during the second quarter of 2023.

£54 million was paid out in subsidence claims alone, an increase of 21% on the £45 million insurers paid out in Q2 2022. The ABI cites 2022’s long summer heatwave as the reason for this rise in subsidence claims. We’re only now seeing the effects of the heatwave on home insurance payouts, as claims require a period of monitoring to correctly assess the scope of the damage while deciding on the right course of action.

Home Insurance Claims vs. Premium Increase

Overall, according to ABI figures, the value of the average claim paid out rose by 24% to £4,300 when compared to Q2 2022. Yet despite the level of payouts, the average premium customers paid for home insurers rose at a considerably lower rate. The Household Insurance Premiums Tracker shows that in the second quarter of 2023, the average premium paid for a combined buildings/contents policy rose by 10% to £329. In Q2 2022. The average premium stood at £299.

Insurers Help Customers Keep A Roof Over Their Heads

Mervyn Skeet, the ABI’s director of general insurance policy, said:

“Home insurance continues to do what it says on the tin – support customers when the worst happens. Not only being the roof over their heads and the family home, for most people their house is their most valuable asset which, without the protection of home insurance, could be at risk. These latest figures show that despite rising claims costs, insurers continue doing all they can to offer competitively priced cover to UK households.”

Waseem Malik, chief claims officer at Aviva UK General Insurance, said:

“Across the industry, premiums have been affected by rising costs and supply chain demands. But this latest data shows that insurers are fulfilling their promises to customers and supporting them in the moments that matter.“

Motor Insurance Payouts Overtaking Premiums

A similar story has been seen with motor insurance earlier this year, with premiums trailing behind payouts. Once again, ABI figures revealed that motor insurance payouts outpaced premiums through rising by 29%, up to £2.5bn in Q2 2023. As well as being a 3% increase on Q1 2023, the jump is apparently highest recorded since the ABI began collecting data in 2013.

Meanwhile, the cost of providing replacement cars during repair jumped 52% from £103m to £157m. This most likely stems from the fact that drivers now need replacement cars for longer due to extended repair times.

The ABI reported £602m of the total figure accounts for personal injury claims, which was down 6% on the Q1’s figure of £642m, and down 8% on the £651m paid in Q2 2022. This may be linked to the 2021 whiplash reforms, which aimed to streamline the personal injury compensation system.

Payouts for vehicle theft amounted to £196m for Q2 2023, an increase of 53% on the £128m paid in the same period last year. This may be a reflection of the inflated price of second-hand cars. Overall, the latest quarterly total equates to around £28m being paid every day by motor insurers.

Laura Hughes, the ABI’s manager for general insurance, said:

“Motor insurers continue to deliver when motorists and personal injury claimants need them the most. Despite facing sustained cost pressures, motor insurers remain totally focussed on supporting customers when the worst happens, and doing all they can to ensure competitively priced motor insurance.”

How Long Have Insurance Premiums Been Increasing?

2022 was actually the third year running in which home insurance payouts outpaced premiums. In 2022, for every £1 insurers received in home insurance premiums, they paid out £1.22 in claims and expenses. Similarly, for every £1 a motor insurer received in premiums, it paid out £1.10 in claims and operating costs.

Due to this situation, consultants EY described 2022 as “the worst year in a decade” for personal line insurance  providers.

The situation raises questions about profitability for the personal insurance line. The ABI’s latest motor insurance data comes after RSA exited the UK personal lines motor insurance market earlier this year in order to strengthen its combined operating ratio (COR). Meanwhile, Esure posted a £29.1m loss for 2022, which they attributed to significant claims inflation.

Esure chief executive David McMillan said:

“It has been a hugely challenging environment. Heightened claims and inflation are probably the worst we have seen in 50 years. The challenges were also exacerbated by the fact that we’ve had unsustainable levels of market pricing.”

The market is very tricky and is already forcing high profile insurers to abandon the personal line market. Zurich is the latest to announce the withdrawal from broker personal lines to focus on the high net worth customer. It will ultimately be consumers who pay the price for this situation, with reduced choice, less competition, and rising costs.

Worried About Your Home Insurance?

All of this market turmoil, and the rising prices, are coming right at the time when many homeowners might soon need to make a claim on their policies. October 2023 saw torrential rains and flooding across the UK, forcing a lot of homeowners to deal with leaky roofs, flood damage, and all the associated expenses.

If you’ve been affected by flooding, or you’re worried about future floods, get in touch with Flood Re.

Flood Re is a re-insurance Scheme aiming to make flood cover more widely available and affordable. It helps households at the highest risk of flooding while also providing information about taking action to reduce flood risk. Find out more.

If you’re worried about rising insurance costs, whether for your home or your car, we’re here to help. Get in touch with our personal insurance team and we’ll help you find insurance that meets all your needs, including your budget. Call us on 0208 290 9086 or email us at personal@anthonyjones.com.

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