UK home insurance rates set to rise after a disastrous year for insurers

According to a recent forecast, UK home insurance premiums are likely to increase by over a third in the next two-year period. This is because insurers will be responding to their worst underwriting year in decades by increasing rates.

Last year, home insurance losses were a result of a combination of weather fluctuations, high inflation rates and stressed supply chains. According to EY figures, the sector’s net combined ratio – a measure for claims and expenses in relation to premiums – was a lossmaking 122%. The worst trading period in 30 years was recorded, according to the consultancy.

The consultancy predicts that home insurance rates will rise by 36% over the next two years. This will add pressure to households, as the average policy is already a 10th more expensive than last year.

Rodney Bonnard is the UK Financial Services Market Leader at EY. He said that insurers were raising their prices in response to an increasing number of factors, including higher rebuild costs, increased reinsurance rates, and rising salaries.

He said: “It creates a very challenging environment for insurance companies where they have to recover all these costs.” “They can only recover these costs from the end-user.”

EY predicts that this sector will continue to lose money in both the current year and the next as inflationary effects, and an increase in claim frequency, continue to squeeze margins. The firm predicts that the sector’s net combined ratio will be 114 percent this year and 104 percent in 2024 as insurers raise premiums to keep up with claims costs. A ratio higher than 100 percent represents a loss in underwriting.

Home insurance has also been affected. The pricing regulations that were put in place in the first quarter of the year have stopped the practice known as price walking. This is where customers who renew their policies are charged higher premiums than a new client.

The Association of British Insurers (a trade association) provided a tracker that showed the average annual policy for home insurance — which covers building and contents in the second quarter — was £329 — up 10% from the same period last year.

The amount of claims paid during the third quarter increased by 11 percent, as insurers compensated for fires, thefts, weather, leaks and other incidents. A rise in subsidence payouts was another result of the heatwave last year.

Matthew Wheatley, actuarial partner with EY, stated that insurers are reevaluating their market presence due to a reassessment on long-term profitability following the price reforms and the difficulty in predicting weather losses in a climate of global warming. “A few people think. . . Is this a field we would like to be involved in?”

Last month, the ABI stated that insurers “are doing all they can” to provide competitively priced insurance to UK householders. The cost of car insurance is at an all-time high, due to the rising costs for parts, used cars, and labour.

Bonnard stated that home insurer executives are “in the eye of this storm” in terms of managing it. “I think that they hope the storm will calm down as rates come in, their profits stabilise and we’ll get back to [price hikes] more closely tied to inflation,” Bonnard said.