Subsidence fears allayed as home insurers end six years of losses

The household insurance market surged into profit in 2003 after six years in the red, according to the latest Datamonitor report.

A 16% drop in claims costs coupled with a 7% rise in premium rates was credited for the estimated £778m underwriting profit enjoyed by household insurers in 2003. The turnaround was achieved despite a £390m bill for subsidence claims, double the previous year's total.

Datamonitor financial services analyst Andrew Birkett said: "2003 was a fantastic year for home insurers as there were fewer storms and flood claims than in recent years.

"However the UK weather is becoming more volatile in the long run and therefore consumers can expect to pay more for their household insurance."

Increases predicted by Datamonitor will see premiums continue to rise by 7% this year, driven up in part by a continued rise in subsidence claims. But, the main driver behind the decrease in claims was the otherwise benign weather conditions. Claims from storm damage fell by just over 70% in 2003.

The performance of individual insurers up to 2002 was dominated by Churchill, which registered a three-year increase in gross earned premium of 70%. The increase represents a 1.7% rise in market share, driven largely by winning the Nationwide account. Lloyds TSB, Zurich and Royal & SunAlliance (R&SA) also saw their market shares increase, while Norwich Union, AXA, Prudential, Allianz Cornhill and CIS all lost ground.

The figures do not take into account the loss by R&SA of the £400m Halifax account.

Other significant movers in the household market included supermarkets such as Tesco and Sainsbury's, taking their market share from 3% in 2001 to 10% in 2002.

The mid-net worth market experienced a significant increase in activity, with Zurich, Hiscox, Folgate and MMA all strengthening their offerings. Datamonitor is predicting a further increase in this area with the number of individuals with onshore liquid assets valued between £30,000 and £200,000 rising from 5.4 million to seven million by 2007.

In conclusion the report states: "Datamonitor expects that underwriting profits will continue to increase, peaking in 2006. "