The UK home insurance market experienced its worst performing year on record¹ in 2022, according to EY’s latest UK Home Results Analysis. A loss-making Net Combined Ratio (NCR) of 122% was recorded for 2022, with further losses forecast across 2023 and 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.
UK home insurers’ 2022 balance sheets were heavily impacted by major weather events, sustained high inflation, supply chain pressures, and an increased claims frequency. In addition, the FCA’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.
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.
Richard Reed, Head of UK General Insurance at EY, comments: “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.”
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).
Rodney Bonnard, UK Financial Services Markets Leader at EY, concludes: “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.”
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