UK motor insurance inflation rises to 33% in Feb. in catch-up to claims

UK motor insurance policy inflation accelerated further in February 2023, rising an eye-opening 6.2 percentage points from the January reading to a 33.2% annual rate of increase, the UK's Office for National Statistics reported Wednesday.

Annual claims inflation is now consistently below that level, although catch-up began late. Second hand cars have seen their fifth month of deflation coming down from the heady price gains that peaked with over 30% inflation in early 2022. Parts inflation has hovered between 4 and 5% in recent months. Maintenance and repairs have ranged 7.1% to 8.5% since an upwards jolt in August 2022.

But the 22.8% increase in policy pricing since the end of 2019 pre-pandemic is a bit tighter squeeze to claims cost developments over that long haul. Spare parts, maintenance & repairs may yet lag at neighbourhood 15-16% growth over the period, but replacement second-hand car costs are up nearly 31%.

Motor insurance pricing had been further behind the curve. Policy inflation had been deflationary through-end 2021 when second hand car inflation was already approaching 30% and had been single digit as recently as June 2022. Since mid-year 2022, policy prices have grown each month at an average rate of 2.6%, including the 3.1% seen in February.

The 33.2% headline rate is the highest annual reading for motor insurance since a stretch in H2 2010 during a long-running inflationary bout after the financial crisis. The acceleration this time around has been sharper. The price spike has long since outclassed the 2016-2017 flirt with double digit annual inflation rates.

The UK's Consumer Prices Index (CPI) rose by 10.4% in the 12 months to February 2023, the sixth consecutive month of double digit annual readings, but down from an October 2022 peak.

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