House insurance prices forecast to fall further as competition thrives
The UK’s household insurers could swing to an underwriting loss within two years, despite recording an industry-wide profit of around £500m last year.
In a report released today, audit firm Deloitte warns that increasing competition pressures are forcing household insurance prices down. Relatively benign weather conditions over the past two years have also helped keep prices low.
While this is good news for consumers, insurers will take a hit to their balance sheets, and the household market could face reporting an underwriting loss for the first time since 2007.
Gross written premiums for household insurers stood at £6.6bn in 2014, down four per cent from 2013, when they were £6.8bn and Deloitte has forecast a further reduction in premiums over the next two years. The average price for a policy is expected to fall from £243 last year to £231 this year, and then fall further again to £224 in 2016.
Meanwhile, Deloitte expects headline net ratios to improve this year, to 90.3 per cent, but then deteriorate in 2016, coming close to topping 100 per cent at 98.3 per cent.
The advisory group said these movements suggest “potentially tricky times ahead”.
James Rakow, insurance partner at Deloitte, said: “The risk of the home insurance industry reporting an underwriting loss – without a large weather event – is at its highest for the last decade. This should be a wake-up call for the industry to react and stop eroding the underlying profitability by cutting premiums.”
He added: “Insurers will need to look beyond simple tailoring and flexing of their products to untapped segments of the markets. Insurers that get this right will be the winners in the year ahead.”