Market conditions for UK home insurers have become increasingly pressurised, with profitability expected to fall this year and slip into the red in 2018, according to the latest EY analysis.
Claims costs are expected to rise by 3.7% this year and in 2018, leading to a Net Combined Ratio (NCR) forecast to reach a barely profitable 99% in 2017 with further deterioration into next year.
Tony Sault, UK General Insurance Leader at EY, said the outlook for the next couple of years “is looking challenging for home insurers – even if the UK isn’t hit with particularly damaging weather.
“While there is evidence of an increase in new business and renewal rates, competitive pressures are really impacting market premiums. This, combined with rising claims and expense inflation, means insurers’ profit levels are under increasing strain.”
Despite much of the UK avoiding the worst of the recent storms, insurers are expected to achieve a barely profitable 99% Net Combined Ratio (NCR) in 2017, assuming the year ends with no major weather events, and in 2018 the NCR could reach 101.7%
EY explained that home insurers have experienced continued rate deflation of -1% throughout 2017 alongside claims inflation at 3.7% year-on-year as they struggle to remain competitive in a low-interest rate environment with ever rising expenses.
Sault noted competitive pressures are not just coming from the traditional players; “New digital entrants are transforming the status quo with the latest tech innovations, forcing established insurers to adapt and adopt new technologies in order to remain relevant.”
He added that while increasing investment in InsurTech has an impact on the bottom line in the short-term, over the medium to long-term, it has potential to pay dividends.
