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Car insurance premiums appear to fall, yet COVID-19 uncertainty clouds future claims and pricing trends

Prices fall by 5% to £770 in the last quarter – the largest quarterly drop since early 2018 - with drivers now paying £19 less than they were this time last year...

Comprehensive car insurance premiums have fallen by 5% (£39) in the second quarter of 2020, according to the latest Confused.com Car Insurance Price Index in association with Willis Towers Watson.

The average cost of car insurance is now £770, following a £19 (2%) decrease over the past year, according to the longest established and most comprehensive car insurance price index in the UK, which is based on price data compiled from almost six million customer quotes per quarter.

 Comprehensive Car Insurance - Quarterly Price Trends
 2019 Q22019 Q32019 Q42020 Q12020 Q2
Average Premium*£789£783£7815£809£770
% Change in Quarter*+3%-1%+4%-1%-5%
£ Change in Quarter*+£27-£6+£32-£6-£39
% Change Annually*+5%+3%+5%+6%-4%
£ Change Annually*+£36+£23+£41+£47-£19

Graham Wright, UK Lead of P&C Personal Lines Pricing at Willis Towers Watson, commented: “The sudden drop in traffic during lockdown and fall in accidents and claims inevitably put temporary downward pressure on the cost of premiums. However, a forensic analysis of the complex changes in customer quoting patterns in the last quarter reveals the impact of the pandemic on market dynamics was about more than just price.”

The in-depth research looked beyond price to both changes in the mix of types of people quoting – for example less young driver quotes were conducted because fewer newly qualified young drivers were coming onto the roads – and to changes in the type of quote that customers were requesting. The analysis noted that, for example, customers who might typically be 10,000 mile-per-year drivers were now seeking quotes at lower mileage levels.

The research also investigated changes in the mix of insurers quoting and, with some providers ceasing to quote for different periods, this further affected the composition of insurers making up the top five average price. According to Willis Towers Watson, all of this reveals that whilst insurers took pricing action over the quarter, not all of the surface level changes in market price are necessarily exactly as they seem.

Example trends from April analysis

Research by Willis Towers Watson of individual car insurance market segments revealed significant insights concerning the wider market, in particular during the most restrictive period of lockdown in April, including:

  • Dramatic fall in young drivers – A sharp reduction in new vehicle purchases during lockdown, furloughing of many young customers, and postponement of driving tests saw a drop in new drivers on the roads. In contrast, quotes for “mainstream” vehicles worth less than £18,000, owned for at least a year and for which the potential policyholder had multiple years of no claims bonus, made up 44% of April’s quote exposure. This same segment of quotes represented only 33% in March. The average of the top five quoted premiums for this business segment was £718 in April, down from £734 in March.
  • More cars kept at home during the day – Quote volume for this segment –relating to drivers who have held a licence for at least a year, requesting cover for annual mileage of between 4,000 and 6,000 miles and whose vehicle is kept at home during the day - increased from 23% of the total in March to 26% in April.
  • Fewer drivers in new cars – One segment of the market that saw its quote representation fall dramatically between March and April was recently purchased, previously owned vehicles, at least a year old, having an engine size of 1.5L or less, for policyholders having no NCD entitlement. This segment went from representing 15% of the total quotes in March to only 9% in April.

Graham Wright said: “This analysis showed that some of the initial market-level price reductions seen post-lockdown were driven more by the significant shifts in customer quoting patterns. And although quoting patterns reverted towards more normal trends towards the end of the quarter, the research has only highlighted further the need for insurers and intermediaries to look closely at how they price for the so-called new normal.”

Insurers are attempting to predict claims and adjust prices before the full impact of Covid-19 is known”

Graham Wright,
UK Lead of P&C Personal Lines Pricing at Willis Towers Watson

“Looking further ahead, as we emerge from lockdown and roads become busier, insurers are attempting to predict claims and adjust prices before the full impact of Covid-19 on both medium and long-term frequency and severity trends is known. Whilst there are trends that simultaneously point to both higher and lower levels of driving than before – such as less use of public transport balanced with more working at home - a further headache is estimating the impact on severity from broken repair supply chains, more cyclists on the roads and recessionary trends. These are just some of the moving parts that will make pricing risk correctly even harder than before the COVID-19 crisis – meanwhile all of the challenges from before such as whiplash reforms, inflation and Brexit remain.”

Steve Fletcher, Head of Data Services at Confused.com comments: “Insurers are under pressure to meet their policy targets with fewer customers available and this has resulted in an unusual drop in premiums. People declaring their vehicles SORN, younger drivers being driven off the road and lower mileage have all been factors at play. “Some of these behavioural and market trends will be short lived as lockdown eases and people start to use their cars as PPE over public transport. Others may linger around a little longer as the onset of a recession creeps upon us, and some may even be here to stay, such as fewer commuters as more companies adopt permanent working from home policies. The insurers that will win out are those who keep abreast of the situation and who anticipate that things won’t be going back to the way they were any time soon.”

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