Competition is a drag on GI premium growth, says ITEM Club forecasting group
The Financial Conduct Authority (FCA)’s series of thematic reviews of the general insurance industry is challenging insurers’ business models, a forecasting group says.
Competitive pressures are also putting a drag on premium growth, it added.
In its autumn review, accounting firm Ernst & Young (E&Y)’s ITEM Club said the FCA’s reviews of areas such as dual pricing and ancillary products could eat into profits.
E&Y’s head of UK insurance Mark Robertson said: “Many insurers and brokers will see an erosion of certain profit streams and need to focus harder on customer or risk specific value propositions, making full use of behavioural data for advice and underwriting.”
He added: “At the same time, they need to simplify their operating models and become more transparent to customers in order to secure long-term profitability.”
The ITEM Club said it expected general insurance premium growth to average 3.7% a year between 2013 and 2017, after growing 2.5%in 2012.
However, it pointed out that this slower than the 4.5% GDP growth it forecasts over the same period.
The review said: “Abundant capacity means that the price of insurance cover has remained fairly flat.
“Motor insurance prices are lower than a year earlier, and intense competition together with falling new business rates prevent providers from writing profitable business.
“Household contents insurance prices have fallen by 6.5%, and even in health insurance, where prices have risen by 9% in the past 12 months, rising costs have eroded most of the gains.”
On a positive note, the ITEM Club said both life and general insurers should benefit from the resurgence in the housing market. The forecasting group expects property transactions to be 12% higher in 2013 than 2012 and to rise a further 8% in 2014.
The review said: “This should boost demand for products, such as life cover, and create new opportunities for general insurers to increase the levels of buildings and contents insurance.”