Home insurers back in underwriting profit after tough 2018

The UK home insurance market has returned to underwriting profitability after reporting its worst combined operating ratio (COR) this decade in 2018.

Research from EY revealed that home insurers reported an aggregate COR of 100% last year, the worst for eight years as the Beast from the East and Storm Eleanor hit hard, but is expected to report an improved 96.3% ratio for 2019, as long as the UK avoids any further weather or wind catastrophes before the end of the year.

Tony Sault, UK general insurance leader at EY, said: “2018 was a very challenging year for insurers with a high volume of weather-related claims. 2019 is expected to fare better, despite the recent flooding that is still causing huge problems to people’s lives, homes and businesses.

“Insurers are now better prepared than ever to help affected policyholders deal with flood impact as quickly as possible.”

Profitability is, however, predicted to slip back into the red in 2020, with written premiums expected to struggle to keep pace with claims inflation. EY is forecasting the 2020 COR to be 102.4%, with claims inflation predicted to be 2.9% in both 2019 and 2020.

And Sault said insurers were facing a number of other crucial challenges as we head towards 2020.

“The FCA Market Study into fair pricing will have a huge impact on the industry,” he said. “That, coupled with intense competition in the market, will likely serve to keep premiums low over the next 12-18 months at least. Climate change and the PRA’s scrutiny into how firms consider the impact of climate change on their businesses will be an increasing focus, and moving forward insurers will need to ensure they’re accurately assessing the cost of climate change.

“Insurers will also need to decide how they’re going to differentiate their propositions in such a competitive arena. How well they respond to all of these issues will determine their future success.”