Competition in the household market is intensifying
The motor market is often cited as one of the most cut-throat sectors of the insurance market. But, according to Defaqto’s latest report, competition in the home insurance market is also becoming increasingly fierce.
New entrants are coming into the market and the growth of aggregator web sites are adding to price pressures.
In the first quarter of 2007, premium rates were relatively flat, according to the AA’s premium index. But this relative stability masked heavy discounting by some insurers, the AA said.
The AA’s next index, due to be published next month, will make interesting reading, showing whether aggressive pricing is dragging the market, as a whole, is down.
The issue for the insurers, as the AA and Defaqto both highlight, is that claims costs have been kept low by relatively benign weather conditions.
The storms that hit the UK in January were estimated to have cost insurers £350m, a significant amount of money, but still a fraction of the cost of more severe weather events in previous years.
The widespread floods in 2000 cost insurers £915m, while the hurricane force winds that wracked the south east of England in 1987 cost a massive £2bn.
A series of severe weather events could have a damaging effect on the household insurance market, now that keen pricing is keeping margins tight.
With the greater transparency that aggregator sites bring, increasing rates is a difficult step to take, particularly for companies that are concerned about the impact on their competitiveness and the potential for lost volume.
Tackling expenses will be high priority for insurers.
It’s perhaps no surprise that many insurers are looking at the less aggressive mid net worth and high net worth sectors.