Competition keeps home insurance profit low
Predictions of a rise in home insurance premiums in the wake of last summer’s flooding are challenged by new research from Datamonitor, the independent market analyst.
Last year, home insurers paid out over £300 million in flood claims but fierce competition in the market is expected to prevent insurers recouping losses by increasing the cost of cover.
According to Datamonitor, a proportion of the cost of the 2007 floods will be passed on to the reinsurance industry.
However, the analyst estimates that last year gross household insurance claims costs over £4 billion, and the liabilities of primary insurers could reduce the profit generated by the market from £167 million in 2006, to a loss of over £300 million in 2007.
Mahreen Hussein, financial services analyst at Datamonitor, comments: “While the market suffered heavy losses in 2007, premium income actually held up pretty well, and as long as premium rates don’t decline in 2008 we are forecasting a return to profit for the household insurance market.”
Turning to premiums, Datamonitor has observed that an increase in consumers using Internet price comparison services to buy home insurance had led to customers selecting cover purely on the basis of cost.
The analyst warns that “insurers may fall into a trap of continuing to compete aggressively in 2008 in a bid to retain their market share” and this will “hinder the ability of insurers to bring in very strong rate increases, leading to only smaller levels of profit for 2008.”
Category: Home Insurance News, Insurance News
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