UK insurers forecast to post losses as costs and claims rise

The UK’s insurers are set for a tough 2020 as price rises for home and motor cover fail to keep pace with the rising cost of paying claims.

According to new forecasts from consultancy EY, both the home and motor insurance industries are set to make underwriting losses next year. That will put more pressure on the sector, which is already dealing with a regulatory probe into the way it prices policies.

“Pricing is not keeping up with the rate of inflation,” said Tony Sault, UK general insurance leader at EY, adding “there is a lot for the industry to contend with”.

EY forecasts that the combined ratio — a measure of claims and costs as a proportion of premium income — will worsen to 107 per cent for motor insurance and 102 per cent for home insurance next year. Anything over 100 per cent suggests that the industry will be lossmaking.

The industry is already struggling with its profitability. Last year was the worst year in home insurance for eight years. This year’s motor insurance results are expected to be much worse than 2018.

Column chart of Industry combined ratio - claims and costs as a per cent of premiums showing UK insurers struggle

Both parts of the industry are struggling with rising claims costs.

Home insurance is dealing with a growing number of claims for leaks. “There is a combination of factors, such as poor construction quality, colder winters which freeze the pipes, more plumbed appliances in the house and increased unoccupancy,” said Mr Sault, adding that building materials are also getting more expensive.

This year insurers will also have to pay out for the floods that hit many parts of the country this autumn. According to the Association of British Insurers, the industry will pay out more than £100m to cover the costs of flooding in Yorkshire and the Midlands.

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Motor insurers, meanwhile, are dealing with higher payouts to cover serious injuries following a government ruling earlier this year. Changes to the system for compensating whiplash injuries are also coming in, too. There has also been a broader increase in repair costs. Today’s cars, which are packed with technology, are more expensive to fix.

“What was a £150 job a few years ago is now a £700-£800 job,” said Mr Sault.

Meanwhile, data from the ABI show that prices for motor insurance have been flat over the past year while home insurance prices have risen by just 2.6 per cent.

The Financial Conduct Authority has promised to take action to stop the industry from charging loyal customers much more than new ones.

That, says EY’s Ben Wilson, is already having an impact on prices.

Share prices in listed insurance companies have already started reacting to the gloomy outlook. Since January, shares in Admiral, Direct Line and Hastings have all underperformed the FTSE All-Share.

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