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Aviva hiking price of insurance cover further as cost of claims surges

The boss of insurer Aviva has warned over further increases to the price of cover this year after double-digit rises in 2022 as it faces surging costs for repair bills.

Aviva increased insurance new business premiums on average by 20% for motor cover and 13% for home insurance as it saw the cost of claims rise by between 9% to 11% last year.

Group chief executive Amanda Blanc told the PA news agency that the group has already had to increase prices by 5% in the first quarter of 2023 with further price rises to come as inflation remains intense.

It comes as insurers across the sector have been impacted by surging motor repair, parts and labour prices, which have sent claims costs rocketing.

The industry has also been under pressure amid regulatory scrutiny on renewal rates and car damage valuations, while last year’s freezing weather and winter storms have also added to claims bills.

But Ms Blanc said she was “optimistic” that prices will start to come down.

“We are still putting price increases through,” she said.

“But we’re optimistic that prices will come down. New car prices are reducing and hopefully the supply chains will open up.”

In a sign of people cutting back amid the cost-of-living crisis, she said 30% of new customers for its online-only self-service site were choosing to buy its low-cost home and car insurance product that was launched last year, while others are dropping non-essential parts of their policies, such as windscreen cover.

The comments came as the group reported a 35% surge in annual earnings despite the pressure on its UK general insurance arm.

The group reported operating profits of £2.2 billion for 2022, up from £1.6 billion in 2021.

It revealed a 5% fall in earnings at its UK and Ireland general insurance division, to £338 million, as it was impacted by the rising cost of motor claims, increased payouts for severe weather and as claims began to return to pre-pandemic levels.

The firm’s move to increase prices meant that its personal lines business grew by just 2% over the year.

It said cost-cutting actions had helped offset claims inflation, with overall “controllable” costs down £83 million to £2.8 billion, while its diversified business – which also spans Canada – had countered the UK general insurance woes.

Aviva, which has until recently been in the line of fire from an activist investor, offered a boost for shareholders with the launch of a £300 million share buyback, an increased final dividend payout and upgraded its dividend outlook.

Ms Blanc said: “We are making excellent progress at Aviva.

“Operating profits and dividends are growing and we have strong trading momentum despite significant market volatility.

“We have radically simplified Aviva, we are financially strong and we are utterly focused on transforming and growing the business.”

Shares lifted 3% in morning trading on Thursday after the results.

The group has in recent years been under intense pressure from activist hedge fund Cevian, which had been pressing for the insurer to return more cash to shareholders.

Cevian sold down its stake in Aviva to less than 5% last month in what has been seen as a vote of confidence in Ms Blanc’s strategy.

Ms Blanc told PA that the move to increase shareholder payouts was “always part of our plan” under a strategy set out in 2020.

“I didn’t need any prompting to do that,” she added.