Home insurers' profits are set to slip into the red in 2018, and this is assuming there are no major weather events this winter, according to a report released today.
Profitability is to slide in 2017 with a home insurance sector average combined ratio – the proportion of losses and expenses as a proportion of premiums sold – of 99 per cent.
And such a ratio is set to rise to 101.7 per cent next year, analysis by accountancy firm EY revealed, meaning firms will begin to rack up average losses on every contract sold.
Home insurers are already grappling with falling premiums, with the average rate one per cent lower over the course of 2017, EY said. Last week, the gloss was taken off both Esure and Direct Line third-quarter results with poor home premium performance marring strong motor returns.
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EY general insurance leader Tony Sault said:
The outlook for the next couple of years is looking challenging for home insurers – even if the UK isn’t hit with particularly damaging weather.
EY highlighted competitive pressures, rising claims and expense inflation are cutting into home insurers' margins.
“Competitive pressures are not just coming from the traditional players either. New digital entrants are transforming the status quo with the latest tech innovations, forcing established insurers to adapt and adopt new technologies in order to remain relevant," said Sault.
"Increasing investment in insurtech whilst having an impact on the bottom line in the short term has the potential to pay dividends in the medium-long term.”
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