Press release

2 Dec 2019

Bad weather meant UK home insurers’ profitability in 2018 was the worst for eight years, but upturn expected in 2019 despite the recent floods

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EY UK

Multidisciplinary professional services organisation

Related topics Insurance
  • 2018 Net Combined Ratio hit 100%; the worst result since 2010
  • EY predicts a profitable NCR of 96.3% for 2019 despite the recent flooding, but then a dip back into the red in 2020 (NCR of 102.4%) as written premiums struggle to keep pace with claims inflation and a return to the long term trend on catastrophe losses
  • FCA Market Study into pricing as well as intense market competition likely to keep premiums down over the next 12-18 months at least

UK home insurance¹ profitability is forecast to rise in 2019 despite the recent bad floods, according to the latest EY analysis, with the Net Combined Ratio (NCR) predicted to be 96.3%, as long as the UK avoids any further weather/wind catastrophes.

The predicted rise in 2019 follows 2018’s results which were the worst for eight years due to severe weather events including the Beast from the East and Storm Eleanor.

Profitability is, however, predicted to slip back into the red in 2020, with written premiums expected to struggle to keep pace with claims inflation. NCR in 2020 is forecast to be 102.4%, as claims inflation is predicted to be 2.9% in both 2019 and 2020.

Tony Sault, UK General Insurance Leader at EY, comments: “2018 was a very challenging year for insurers with a high volume of weather-related claims. 2019 is expected to fare better, despite the recent flooding which is still causing huge problems to people’s lives, homes and businesses. Insurers are now better prepared than ever to help affected policyholders deal with flood impact as quickly as possible. 2020 is expected to be tough again as written premiums struggle to keep pace with claims inflation.

“Insurers will also face other crucial challenges over the next year. The FCA Market Study into fair pricing will have a huge impact on the industry. That, coupled with intense competition in the market, will likely serve to keep premiums low over the next 12-18 months at least. Climate change and the PRA’s scrutiny into how firms consider the impact of climate change on their businesses will be an increasing focus, and moving forward insurers will need to ensure they’re accurately assessing the cost of climate change. Insurers will also need to decide how they’re going to differentiate their propositions in such a competitive arena. How well they respond to all of these issues will determine their future success.”

 

¹ The results analysis is based on data collated by the ABI.