The profitability of UK home insurance companies is expected to fall in 2018 due to the financial impact of severe weather events such as February’s cold wave, Storm Eleanor, and May’s flash flooding, according to analysts at EY.
In 2017, home insurers posted one of their best Net Combined Ratios (NCR) in two decades at 92.1%, but EY forecasts this will deteriorate to 101% as the bad weather in H1 2018 cuts into profitability.
By 2019, analysts predicted that the NCR would weaken further to 101.4% as premium rate reductions begin to affect profits.
“Despite a good 2017, home insurers face a much more challenging year, with further setbacks on the horizon for 2019,” said Tony Sault, UK General Insurance Leader at EY.
“Continued downward pressure on written premiums caused by a soft market and consumers looking to switch providers, will impact overall profitability,” he explained. “Adverse weather in the first half of the year, combined with an increase in subsidence notifications, will also affect underlying profitability meaning the market looks set for a loss in 2018.
“The outlook for next year looks equally gloomy, with anticipated rate reductions hitting at the same time as claims inflation which is set to continue to run at an estimated 3.9%.”
A ‘super complaint’ issued by Citizens Advice that questioned why long-standing home insurance customers were being charged more for some financial services products has also resulted in an FCA market study that could impact insurers and keep premiums low.
“The super complaint and subsequent FCA Market Study is likely to be a key focus for the industry next year and comes at a time when competition has never been higher,” Sault continued.
“It’s now more critical than ever for insurers to look at how they can differentiate their propositions utilising some of the latest technological innovations. Those that do this the best, will be the ones who survive and thrive in this new digital world.”
