UK home insurance market experienced its worst performing year, according to EY’s Analysis.
A loss-making Net Combined Ratio (NCR) of 122% was recorded for 2023, with further losses forecast across 2024 as market headwinds persist.
As a result, consumers are expected to see premiums rise by over a third (36%) over the next two years.
- A loss-making 122% NCR was recorded over 2022, driven by major weather events and high inflation
- While improving year-on-year, losses are expected in 2023 and 2024, with NCRs of 114% and 104% forecast respectively
- Subsequently, consumer premium prices are set to rise 17% this year (on average £43 per policy), and a further 16% in 2024 (£44 per policy)
According to EY’s UK Insurance Market Outlook, sustained inflation and cost pressures are likely to continue to strain insurers’ overall balance sheets, and premium income growth is expected to slow into 2024 and 2025.
UK home insurers’ balance sheets were heavily impacted by major weather events, sustained high inflation, supply chain pressures, and an increased claims frequency.
UK home insurance market in 2024 will poised for a dynamic phase, influenced by economic recovery, regulatory changes, technological advancements, and evolving consumer needs.
In addition, the Financial Conduct Authority’s General Insurance Pricing Practices (GIPP) reforms in early 2022 – which led to a rebalancing of what new and existing customers paid – impacted premium levels; in many cases holding rates below the level needed to keep pace with inflation.
FCA has sounded the alarm over the soaring insurance premiums that are burdening drivers and homeowners, exacerbating the cost of living crisis.
In a review of 11 home and motor insurance firms, the FCA found a concerning trend of rising premiums and a higher rate of rejected claims.
The watchdog also noted that customers, faced with lengthy waiting times, were abandoning their claims.
The FCA’s review, covering a four-month period from August to November 2022, revealed a 16% increase in car insurance premiums over the past year.
Insurers attributed this surge to the escalating cost of repairs, including a staggering 300% rise in energy bills for car repairers and a 16% increase in the cost of paint and parts. Home insurance premiums have also experienced an upward trajectory.
While premiums are now increasing, many challenges remain, and UK home insurers are expected to continue in loss-making territory, albeit to a lesser degree, with an NCR of 114% forecast for 2023 and 104% in 2024.
Home premiums set to rise by 17% in 2023 – adding £43 per policy . Continued inflationary pressures are expected to impact premium rates, and EY forecasts premiums will increase by 17% in 2023 (adding £43 to an average policy) with a further 16% increase forecast in 2024 (adding another £44 on average per policy).
2022 was undoubtedly a challenging year for UK home insurers, with firms incurring unprecedented losses. While other poor performing years were driven almost entirely by adverse weather, 2022’s result was also impacted by challenging market conditions.
2023 is expected to perform slightly better – in part due to benign weather for much of this year – yet many of the challenges, such as claims frequency and inflation, remain, and unfortunately the data to date indicates that this year is still likely to be one of the worst in recent times.
Richard Reed, Head of UK General Insurance at EY
Consumer premiums have risen over the course of 2023, and we expect levels to rise further for the remainder of the year and into 2024 as insurers look to balance inflationary and cost pressures.
“Looking ahead, it will be important for UK home insurers to review their operating models to ensure they are best positioned to achieve profitability in a competitive market over the coming years. To do this, firms will need to navigate sustained inflation and uncertainty around the future cost of weather claims, alongside other critical growth areas, including ESG and digital transformation”, Rodney Bonnard, UK Financial Services Markets Leader at EY, concludes.
The UK home insurance market forcasts
The UK home insurance market is undergoing significant changes, influenced by various factors such as regulatory reforms, market dynamics, and economic pressures.
- Market Size and Growth: The market size of UK Home Insurance is projected to reach approximately GBP 5.30 billion in 2024. It is expected to grow at a compound annual growth rate (CAGR) of 2.11%, reaching around GBP 5.88 billion by 2029.
- Premium Increases: The sector experienced its worst performing year on record in 2022, primarily due to major weather events, high inflation, and increased claims frequency. Consequently, home insurance premiums are set to rise significantly.
- Net Combined Ratio (NCR): The NCR is forecasted to remain above 100% in the coming years, with predictions of 114% for 2023 and 104% for 2024, reflecting continued operational losses.
- Online Sales and Consumer Behavior: Over 40% of UK home insurance policy sales are now conducted online, with price comparison websites being a popular pre-purchase activity. This highlights the importance of competitive pricing and coverage in the industry.
- Industry Trends and Innovations: Insurers are increasingly focusing on risk prevention services to reduce claim incidents. The integration of smart home technology into insurance packages is also becoming more common. The industry is also adapting to new challenges by re-engineering offerings and embracing digital transformation.
- Competitive Landscape: The UK Home Insurance Market is highly competitive, with major players like Aviva, Direct Line, LV/Liverpool Victoria, Halifax, and AXA leading the market.
These trends and forecasts suggest that the UK home insurance market is evolving to adapt to new challenges and customer needs while navigating a complex and dynamic economic environment.
