Market to make underwriting losses in 2021, predicts top consultant
The UK home insurance market will scrape a profit in 2020 - before falling into the red next year, according EY analysis.
Home is predicted to make 99.2% net combined ration this year (2018: 106.1%) but then fall into the red to 102% in 2021.
Insurers had the wettest month on record in February, but overall claims inflation will fall 2.7% this year amid more people spending time at home during the lockdown.
Theft from home break-ins and water damage due to broken pipes or faulty home appliances has reduced significantly.
For example, in Q2 theft claims fell 68% year-on-year and water damage dropped 30%.
The bad news for insurers is that claims inflation will pick up 4.4% from the 2020 low, with little help from premiums which are forecast to remain flat.
Elsewhere, the FCA pricing crackdown will bring in a lot of uncertainty as insurers reset their pricing.
Tony Sault, UK general insurance leader at EY said: “While it is good news that the home insurance sector will achieve profitability this year, which it has done for almost all of the last decade, severe weather and property damage claims are really challenging the market.
”Coupled with the costs related to the regulator’s pricing review, it is almost certain that the sector will enter the red in 2021.
“COVID-19 lockdowns have altered recent claims patterns, and this year’s results will be unique to any other year.
”Through lockdown, as people have spent a lot of time in their homes, there has been a reduction in water damage claims due to households responding quickly to leaks, and a dramatic drop in claims relating to home break-ins and theft.
“Overall, there are a number of challenges that the home insurance market needs to overcome if it is to achieve sustained profitability over the long term.
”All of this at a time of political and economic uncertainty, as consumers and businesses deal with the impact of COVID-19 and difficult economic conditions.”