UK motor policy inflation drives on, well past pandemic gap to claims

UK motor insurance policy inflation surged again, with average policy costs jumping an eye-opening 7.5% in June alone, bringing the annual inflation rate for drivers to a new all-time record of 47.9%.

The June surge puts the second quarter policy cost gain to 13.7%, still accelerating from the 10% in Q1 or the 7.7% in Q4, data from the UK’s Office for National Statistics indicated.

Average policy costs had only regained their pre-pandemic end-2019 levels by August 2022 ahead of the past year's massive rally.

Key automotive claims cost inflation metrics fell in contrast during June, including a 0.9% decline in maintenance and repair costs and a 1.9% decline in the still-volatile category of used cars. The annual reading on maintenance and repairs is down month to month, but still within a mid-term range. Spare parts rose marginally for the third straight month in June, but retain the lowest 12M price gain at a mere 3.1%.

But taken against pre-pandemic end-2019 levels, insurance policy cost gains only surpassed cost increases for spare parts in November last year, surpassed repair cost gains at end-2022, hospitalisation costs in February this year and just exceeded total used car inflation as of this past month.

Against an even blend of those four cost categories, premium growth from pre-pandemic levels has beaten aggregate claims cost growth for five months running, now by 22.3 percentage points.

The UK's broader Consumer Prices Index (CPI) rose by 8.0% in the 12 months to June 2023, down from 8.7% in the prior month reading. June gives the UK only its third straight month of single-digit headline inflation.

Falling prices for motor fuel rendered the largest downward contribution to the headline rate. Food prices rose at a lower rate than in the year prior period, also rendering downward pressure on the headline reading.

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