However, credit rating agency director believes ‘the pricing environment in the household sector’ will ‘remain weak’

Household insurers will benefit from ongoing pandemic-related claims trends in 2021, as increased homeworking has contributed to the “earlier detection and earlier notification” of claims said Graham Coutts, senior director and head of EMEA reinsurance at credit ratings agency Fitch Ratings.

Speaking on 27 January at the agency’s webinar ‘Ask the Analysts: UK Non-Life Insurance’, Coutts explained that although the “household sector is very competitive”, it “benefitted from reduced claims activity during the pandemic”.

He continued: “During the lockdown, and really throughout the year, significantly more people have been working from home and that has led to some earlier detection and earlier notification of claims, particularly damage from burst pipes or things that people might notice going on in their home, and being able to deal with it in a more timely manner than if they were in the office.”

Coutts added that he expected “insurers to benefit from this trend again in 2021”.

“In many cases, it is likely that working patterns may change permanently and that there might be greater emphasis on home working than there was pre-pandemic,” he said.

“That’s important because I think one of the key drivers of the rising claims costs in recent years has been escape of water claims and if people do follow these new shifts to working from home, then it’s likely that those will be detected earlier and also remedied earlier, causing less damage.

“We think that would more than offset any increase in the number of claims for any other form of damage. People are spending more time in their homes, so potentially [that] could be botched DIY jobs or other accidental damage, but I think overall it will be positive for the sector.

“The other segment that has seen a big reduction is theft. As more people are spending more time in their homes, there’s been a corresponding reduction in theft claims.

“Homes are occupied more during the day and less people are leaving their homes empty to go on holidays, hence just less opportunity for thefts to happen, so another positive trend for insurers.”

Weak pricing

Despite these “positive trends”, Coutts said the pricing environment for this line of business “does still remain weak”.

Alongside “high claims”, this “means that the household insurance sector is vulnerable to large weather losses”.

He continued: “The pricing environment does still remain weak. There were some small price rises in 2018 and 2019. Pricing [was] relatively flat in 2020 and we expect that trend to continue in 2021.

“That’s driven by a few things. One, a number of motor insurers have entered the household market – that’s increased the competition in the sector.

“And also, the distribution in the household market is changing. We are seeing aggregators gain further market share and that leading to greater price transparency and more intense competition. We do expect the pricing environment in the household sector to remain weak.”