Home insurance prices forecast to rise by a third as firms hike premiums
Home insurance prices are forecast to jump by more than a third in the next two years as the industry hikes premiums to keep up with the cost of claims, according to new research.
Insurers posted their worst net combined ratio – measuring claims and costs as a proportion of premiums – in three decades last year, with a lossmaking figure of 122 per cent, according to a report from consultancy EY, which was shared with the Financial Times.
The firm predicted that home insurance prices would increase by 36 per cent this year and next. Prices have already risen by 10 per cent this year, according to the Association of British Insurers.
The sector’s net combined ratio is expected to remain in the red as inflation and a surge in claims weigh on margins.
Rodney Bonnard, EY’s UK financial services market leader, said insurers were lifting prices in response to the rising cost of rebuilding, reinsurance and salaries.
“It really does create a very difficult environment for insurers where they are having to recover all of these costs,” he told the Financial Times. “The only place they can recover them from is ultimately the consumer.”
Home insurers paid 11 per cent more in claims during the second quarter. The industry has been hit with losses from extreme heat, high inflation and supply chain issues over the last year.
The sector has also struggled with new rules from the Financial Conduct Authority abolishing “price walking”, where insurers continually increased prices for renewing customers.
Bonnard added that industry executives were “in the eye of the storm themselves, in terms of managing this”.
“I think they are hoping the storm will quieten as rates come through, their profitability stabilises and we’ll be back to [prices] that are much more closely linked to inflation,” he said.