General insurance industry outlook for 2017

19 December 2016

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  • The general insurance market faces another challenging year ahead with relentless price competition in an already soft market
  • Penetration of the aggregator model to further exacerbate the situation
  • Home and motor markets are likely to end 2017 in the red

Tony Sault, UK General Insurance Leader for EY, comments: “The general insurance market faces another challenging year ahead. Relentless price competition, predominantly driven by the disruptive but now maturing aggregator channel, will mean insurers will really feel the pressure in an already soft market. The need to innovate to succeed has never been stronger, and we expect to see the emergence of new mobile technologies to further engage customers, as well as a rise in the use of alternative data and business models to better tailor products and services, or better still, transform the insurance proposition.”

Home and motor markets are likely to end 2017 in the red

“The home and motor markets specifically both look increasingly likely to end 2017 in the red, as insurers cannot keep propping up profits with high reserve releases. Over the coming year, maintaining low premiums for customers whilst achieving healthy earnings will be a struggle, and the penetration of the aggregator model into the household space will further exacerbate the situation. An interesting point of reference however will come in the second quarter of the year, when the requirement to disclose the previous year’s premiums to customers will come in. This will generate more customer churn by increasing the rate of shopping around, which could take premium out of the market and lead to more home insurers moving towards the one year pricing models that we see in the motor market.

“Looking in more detail, even without any major weather events, home insurers are likely to feel the pinch next year, with pressure coming from expected falling premiums and increased competition. For motor insurers, the pressure to lower premiums as the Insurance Premium tax (IPT) keeps rising is showing. It was also disappointing to hear that the benefits of whiplash reforms won’t come in until after 2017, which should help curb fraudulent claims. On top of this, both home and motor insurers are facing cost inflation challenges due to the weakened pound following the EU Referendum vote, and must face up to the increasingly unsustainable reliance on high reserve releases to prop up profits.”

  • According to EY’s most recent Home Insurance Results Report (October 2016), it is predicted that home insurers will fall into unprofitability in 2017 with a Net Combined Ratio (NCR) of 101%. Premiums are also forecast to drop a further 1.7% from 2015 levels.
  • EY’s latest Motor Insurance Results Report (November 2016) predicts the industry is to narrowly miss an underwriting profit for the second year running in 2016, and achieve a near break-even NCR of 100.2%, then an underwriting loss of 103% NCR in 2017. The price of motor insurance for consumers is predicted to rise for the third year running by a further 3% in 2017 equating to an average £46 hike since 2015.