Solvency II & Beyond

PRICING FOR HOME AND MOTOR INSURANCE MAY FALL AS CHANGES TO REGULATION TAKE EFFECT

The cost of home and motor insurance may fall in 2021 as changing regulation, plus the ongoing pandemic, impacts on the cost of general insurance, causing significant downward pressure on premium rates across both personal and commercial lines.

For 2021, due to the economic impact of the pandemic and competition in the home and motor market, we are forecasting insurance premiums to drop by 5% - 10% for those who shop around for motor insurance and 4% - 8% for those who shop around for home insurance. Conversely, there may be greater reductions in renewal premiums for customers who have stayed with an insurer for a number of years. However, these estimates exclude the impact of the FCA reforms which may not be introduced in 2021.

New regulation from the Financial Conduct Authority (FCA) is expected to be introduced in late 2021 or early 2022. The new rules will require motor and home insurance prices to be the same for both new customers and those renewing. Traditionally, discounts on new business have been funded by increased pricing on renewal. As a result, under the new regulations, those that already shop around may see price increases, whilst those that have remained with an insurer for a number of years may see price drops. If the reforms on market pricing are introduced in 2021, the cost of the reduction in renewal premiums for customers who have stayed with an insurer for a number of years may be borne by those customers who use price comparison websites. This is because the renewal reduction will be funded by the abolition of discounts that are currently available to drivers who shop around each year. For example, some young drivers who try to take advantage of the discounts offered by taking out a new insurance policy, could see their premiums rise steeply by more than £200. As we go deeper into 2021, the economic impact due to the pandemic, especially on smaller businesses, who may have been relying on furlough payments and government loans, will force SMEs to decide whether insurance is necessary. This will then no doubt have a significant impact on commercial insurers targeting this sector and the price rises they are able to achieve. For example, commercial insurers targeting the very small end of the commercial lines market may only achieve price rises of 0% - 10% in the latter half of 2021.

by Mohammed Khan, General Insurance Leader, PwC UK