The property insurance market is being reshaped because consumers are unhappy with the service on offer....

Are storm clouds building for property insurers? The summer's nearly here, but is the future bright or gloomy? There are signs that should be causing some concern to intermediaries and insurers. Is it time for action, and, if so, what should it be?

The worries? First, look at the trend in claims: down not up. Falling claims are good news initially, but soon lead to downward pressure on rates and tempt new entrants into the market.

Last year the cost of theft claims fell 5%, fire claims were down 2%, business interruption dropped 48%, weather claims fell 14% and domestic subsidence was 7% lower. Adding these claim figures together gives a 1999 total of £2,784m, against £3,104m in 1998. A drop of £320m or 10+%.

The 1999 industry underwriting results are awaited with interest. However, in 1998 an underwriting loss was made of under 7% with a claims ratio of under 70%; expenses were 36.4%. If the claims ratio did improve significantly last year, it might be close to 60% for the industry as a whole. In other words, it would mean just 60p in every £1 of premium went to paying claims. Put like that, expect policyholders to be none too happy.

The media are likely to focus more attention on the industry. In a leading property insurance article in the Daily Mail on 26 April it was asserted that "friction between insurers and their customers is on the increase."

The article went on to note "Rising premiums, service standards, concerns about fraudulent claims and the trend towards giving replacement goods, rather than cash to purchase new items, are the nub of the problem."

So far banks dominate the debate on financial exclusion, but at some point interest will focus elsewhere. The Government has already called for home contents insurance to be more accessible to the six million-plus households without a policy. The established industry may need to be fleet-footed if it is to avoid an image-bashing in the future.

It was significant that Marks & Spencer Financial Services announced in April that it was entering the household insurance market this autumn, with CGU underwriting policies.

In announcing the new venture, Simon Rushton, Marketing Director of Marks & Spencer Financial Services, said: "We aim to compete in every aspect of product, service, delivery and price. We are confident that our high street presence, brand and strong financial services base will provide the perfect medium to meet the needs of customers."

Others may follow. With mergers and acquisitions preoccupying major players, new entrants may believe easy market share is readily available. Intermediaries, already critical of established insurer service standards, may look for a wider base of companies from which to offer their customers policies.

And there is the internet. A range of instant purchase insurance internet sites already exist and more will follow. Who will gain from internet sales and who will end up dictating terms and conditions of policies?

How many existing insurers and intermediaries have a comprehensive internet strategy covering the next three years? Visit many current insurance sites and it seems, so far, a lot of money has been spent achieving relatively little.

  • Tony Baker was Deputy Director General of the Association of British Insurers and now runs his own consultancy. He can be contacted at Thetbaker@aol.com .