Impact of Inflation on United Kingdom (UK) Personal Lines Insurance Market
This report provides an overview of some of the leading macroeconomic trends driving inflation in the UK economy, as well as those set to affect future inflation and GDP growth rates in 2023 and beyond.It analyzes how insurance consumer behavior has changed in the past 12 months and how it will continue to change in the future, with specific analysis of the motor, household, pet, and travel insurance sectors.
The report also looks at the UK economy heading into 2023 and how insurers can be best prepared to deal with the trials and tribulations the coming years may bring.
In October 2022, the inflation rate in the UK was 11.1%. This rapid rate of price increases is causing huge strain on businesses’ and consumers’ finances, leading to a cost-of-living crisis in the UK. Q3 2022 Consumer Survey suggests that over 85% of consumers are worried, to some extent, about their current financial situation. Many factors have coalesced in creating this economic situation, including global issues such as the COVID-19 pandemic and related supply-chain problems as well as domestic issues such as Brexit and economic mismanagement. Across all four of the primary personal lines of business (motor, home, pet, and travel), consumers have canceled policies, with more considering taking such action. Other consumers are looking to adjust their policies - either cover levels, excess, or both - while others have looked to switch provider in search of better value for money.
- 85.3% of UK consumers are, to some extent, concerned about their current financial situation, according to insights from Q3 2022 Consumer Survey.
- Over 40% of former consumers in the home, pet, and travel lines indicated that they canceled their policy as a cost-cutting measure due to the cost-of-living crisis.
- A further two in five current policyholders in the pet and travel lines indicated they have considered switching or canceling their policy, with over one in five consumers in the home and motor lines indicating similar.
Reasons to Buy
- Understand the extent and underlying drivers of inflation and the subsequent economic downturn facing the UK economy.
- Discover why consumers are canceling their insurance policies and how to reduce these actions.
- See how and why consumers are adjusting their policies and switching their providers in 2022.
- Determine the effects of inflation on premium prices and changes in demand for policies.
- Ascertain how long-term trends in consumer behavior may be affected by the economic situation in the UK.
Table of contents
1. Executive Summary
1.1 Market overview
1.2 Key findings
1.3 Critical success factors
2. Inflation Has Been Growing Since Mid-2020
2.1 Inflation indicators have been rising for two years
2.2 Macroeconomic trends
2.3 Consumers are highly concerned about inflation
3. Changing Consumer Behavior
3.1 Cost-cutting and home working are driving cancellations
3.2 Consumers are also looking to make policy adjustments
3.3 Shopping is more frequent, but switching is more difficult
4. Changes in Premiums and Demand
4.1 Motor premiums have risen rapidly in the year
4.2 Home premiums and policies written have fallen in 2022
5. The UK Economy Going Into 2023 and Beyond
5.1 The UK is forecast to enter recession by Q4 2022
5.2 Longer-term changes to behavior and insurance
5.3 Technology can mitigate the future impact of inflation
6.1 Abbreviations and acronyms
6.3 Secondary sources
6.4 Further reading
List of Figures
Figure 1: Inflation in the UK economy has been accelerating since the start of 2021
Figure 2: The difference between real and nominal wages has been growing since the start of 2021
Figure 3: Rising interest rates will increase costs for homeowners, businesses, and government borrowing
Figure 4: The Russia/Ukraine conflict has led to spiraling and highly volatile oil prices
Figure 5: The UK has become less attractive to foreign investment in H2 2022
Figure 6: Over 85% of UK consumers are concerned about their current financial situation
Figure 7: Home energy bills and household budgets are the most concerning aspects to UK consumers
Figure 8: 38.7% of consumers put the cost-of-living crisis in their top three financial concerns
Figure 9: Travel and pet insurance policies were the most frequently canceled in 2022
Figure 10: Home working has contributed to over a third of motor cancellations in 2022
Figure 11: More than one in 10 motor, home, and pet customers used premium finance in 2022
Figure 12: More than 33% of pet and travel customers have considered switching or canceling their policy
Figure 13: Single-trip travel policies have become more attractive to consumers in 2022
Figure 14: Some motor customers are reducing their cover to cut costs
Figure 15: Many consumers are combining a reduction in cover with a reduction in excess
Figure 16: UK consumers are generally shopping around more often in 2022 than in 2021
Figure 17: Cheaper premiums and better cover limits are driving most insurance provider switches
Figure 18: The ABI estimates that the average motor insurance premium has risen by 5.3% in 2022
Figure 19: Home insurance premiums have been quite stagnant since the start of 2020
Figure 20: The number of contents-only policies written has been declining year-on-year since Q1 2021
Figure 21: The UK is forecast to enter a recession in Q4 2022
Figure 22: Mortgage approvals have generally declined since the end of 2020
Figure 23: The cost-of-living crisis is delaying some household purchases
Figure 24: Within five years, over a third of consumers expect to move to EVs
Figure 25: The cost-of-living crisis is having a mixed effect on the shift to EVs
Figure 26: Almost 50% of consumers would be willing to pay more for instant payouts in their travel policy
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