Home insurance prices are set to rise by more than a third over the next two years as the industry raises premiums to keep up with the cost of claims, according to new research.
Insurers posted their worst net combined ratio – measuring claims and costs as a proportion of premiums – in three decades last year, with a loss ratio of 122 per cent, according to a report by consultancy EY seen by the Financial Times.
The firm predicted that home insurance prices would rise by 36 per cent this year and next. Prices have already risen by 10 per cent this year, according to the Association of British Insurers.
The sector’s net combined ratio is expected to remain in the red as inflation and a rise in claims pressure margins.
Rodney Bonnard, EY’s UK financial services leader, said insurers were raising prices in response to the rising costs of rebuilding, reinsurance and salaries.
“It really creates a very difficult environment for insurers where they have to recover all these costs,” he told the Financial Times. “The only place they can recover it from is ultimately the consumer.”
Home insurers paid out 11 per cent more in claims in the second quarter. The industry has been hit by losses from extreme heat, high inflation and supply chain problems over the past year.
The sector has also struggled with new rules from the Financial Conduct Authority, which abolished “price walking”, where insurers kept increasing prices for renewing customers.
Bonnard added that industry executives were “in the eye of the storm themselves in terms of managing this”.
“I think what they’re hoping is that the storm will die down as prices come through, their profitability will stabilise and we’ll get back to [prices] that are much more closely linked to inflation,” he said.
