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Motor insurers — and their investors — have been pondering existential questions recently: with the impending arrival of self-driving vehicles, will car insurance even exist 20 years from now? Recent updates in the UK, however, were a reminder that there is a more mundane present-day problem: making money from cars that are currently on the road.
FTSE 100 group Admiral was one of the first insurers to try forecasting the spread of self-driving cars over the next decade, predicting they would account for only about 4 per cent of the UK market by 2035. Amanda Blanc, chief of Admiral’s larger rival Aviva, said she didn’t expect widespread adoption until 2040.
That is good news for insurers who make money from protecting humans from the cost of their driving mishaps. But the business, even if it has a few decades of life left in it, isn’t going so well. Scale helps the biggest players, but collectively the sector’s core underwriting business has lost money for three of the past four years.
The UK’s 100-odd motor insurers paid £1.01 in claims and expenses for every £1 in customer premiums they received last year, according to EY. In industry jargon, that is a “net combined ratio” of 101 per cent. Income from investments and other business lines may keep insurers in the black overall, but EY expects the ratio to worsen to 111 per cent this year.
That might sound shocking to outsiders whose main exposure to the sector has been watching their own premiums soar. The average annual cost of comprehensive motor insurance rose more than 40 per cent between 2021 and 2024, according to the Association of British Insurers, before falling back 9 per cent last year.
The problem is, insurers’ costs accelerated even faster, thanks to a combination of skills shortages, supply chain issues and more complicated modern cars. Regulation designed to stop them ripping off loyal customers didn’t help, though they presumably expect little sympathy on that point. Conflict in the Middle East could add further inflationary pressures.
Admiral and Aviva were clear that the main response to this will be more price increases. It takes time for them to feed through to insurers’ bottom line, however — hence EY’s pessimistic industry forecast for 2026, and analyst forecasts for a 7 per cent fall in pre-tax profit at Admiral’s motor division, according to Visible Alpha.
There’s not much insurers can do about global conflict, or the popularity of cars full of over-engineered gadgets. One lever they can pull is pursuing economies of scale through consolidation.
The UK market is much more concentrated than it was after Aviva’s £3.6bn takeover of Direct Line and Ageas’ £1.3bn deal for Esure, but there is still a long tail of dozens of smaller businesses around. Many will have been driven off the road by the time autonomous vehicles take over.
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