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UK home insurance prices are set to keep rising this year and next, according to an industry forecast, as insurers seek to stem persistent losses on their underwriting.
Supply chain pressures, the rising number of payouts and inflation in claims costs meant home insurers posted a net combined ratio — claims and expenses as a proportion of premiums — of 118 per cent in 2023, according to data from consultancy EY.
A figure above 100 per cent represents a loss on insurers’ underwriting, which is one of the major contributors to their profitability, alongside investments.
That was only a small improvement on the 122 per cent net combined ratio recorded in 2022, the sector’s worst performance in decades.
Martina Neary, UK insurance leader at EY, said 2024 was set to be “another difficult year for both firms and customers”.
The average home insurance policy, covering buildings and contents, hit £396 in the second quarter of the year, up nearly a fifth on the same period in the previous year and a nominal high. Adjusted for broader consumer inflation, it was still below levels reached in 2017.
EY is expecting the average premium paid by homeowners to rise by 19 per cent over the course of 2024 and a further 7 per cent in 2025.
Analysts observed that insurers were slow to increase their premiums when inflation surged two years ago. Some have attributed this to a desire among companies to remain competitive on price following a sweeping regulatory reform that forced them to treat new and existing customers who present the same level of risk equally.
That then led to a sharp rise in premiums in 2023, said Neary, who expects premiums to keep rising in 2024 “as firms navigate persistent high inflation and supply chain challenges”.
Ever-higher insurance prices have been a significant factor in the rising cost of living for millions of UK households.
It has created a similar challenge for home insurance that companies have faced for car insurance in recent years, where surging underwriting losses pushed insurers to raise prices sharply higher, sparking a backlash from consumers and politicians.
The UK’s financial watchdog this month said it would investigate whether people were being overcharged when they paid monthly for their home and car insurance.
The Financial Conduct Authority launched a market study into the so-called premium finance that underlies this option. It is also joining a new task force investigating rising car insurance prices.
EY forecast that the sector’s net combined ratio would improve to 108 per cent for 2024, still representing an underwriting loss, before insurers break even in 2025.
https://www.ft.com/content/cd7ae470-6c9f-4cb2-a1df-2992b1c557f0
