Christian Wright, Head of Market Development, SSP Broker looks at what the market is doing to manage home insurance risks and premium prices
With the price of home insurance premiums and payouts increasing in the past year, it’s easy to see why many believe the market has reached a pressure point. To relieve this, we need to see an improvement in market efficiency through sophisticated software platforms, further collaboration between the industry and government and, crucially, a considered recruitment drive.
The Association of British Insurers (ABI) has reported a new record in property insurance payouts. Insurers paid out £1.4 billion in claims during the second quarter of the year to help homeowners recover from events like fires and floods. This record-breaking figure is the highest quarterly total since the ABI started collecting this data in 2017 and represents a 5% increase year-on-year.
And while data on premium prices from Consumer Intelligence shows the costs are starting to fall, the numbers are still high. The average quoted home insurance price rose by 27.5% in the 12 months leading to August.
Insurance companies, supporting regulatory and industry bodies and local and national government entities are already doing a significant amount to change the dynamics. This includes recent work on the UK’s waterways, to change the path and speed over rivers and brooks.
Through the years, the UK’s rivers have been straightened to facilitate transport and shipping, as water moves fastest in a straight line. This was also done in the belief it would decrease flood risk by disconnecting rivers from floodplains. This simply moves the flooding downstream. Counteracting these efforts is a clever approach and reveals the need for different thinking from different agencies.
There is the fantastic Build Back Better initiative, coordinated by Flood RE and BIBA, which offers repairs after an incident to reduce the risk of recurrence. Homeowners are given the opportunity to install up to £10,000 worth of flood resilience measures after a flood. The goal is to better prepare properties by keeping water out and having a plan for when it does enter, making it quicker and safer for families to move back in.
We are also seeing a huge amount of work happening in the technology space to support accurate underwriting and efficient claims handling. Providing accurate premiums is one of the first steps in improving efficiency, but it becomes a difficult battle against a steep incline if this is not done correctly.
These are all good moves but it’s not currently enough. As a market, we need more insurers covering complex home risks; more automation and self-service for claims and policy management; more sophisticated software house platforms; and an influx of new talent into the industry, at every level, to help combat the labour shortages in insurance and to bring new ideas. For us that means educating young people about the world of work, telling them what it’s like working in insurance and busting some of those common myths that can lead people to committing fraud unwittingly.
Over the next five years, it is entirely possible that home premiums will double from their current level. This figure could rise or fall dependent on environmental, governmental and technological factors. But we must be patient, COVID, for example, is still causing headaches to supply chains around the world.
Globalised systems which had been in place for decades all saw labour shortages, yield shortages and price rises. Inevitably, these systems have not seen prices fall to pre-pandemic levels, nor has productivity across the board returned, which has caused slow down issues for home insurance as it can be harder to secure materials (wood, paint, bricks, tiles) and more costly to secure them if available. These both add delays and cost to claims cycles. Similarly, armed conflicts in Europe and the Middle East have direct and indirect impacts on UK supply chains.
We can’t completely predict how these factors will develop, or if new ones will emerge, in the years to come. But by throwing our efforts behind improved efficiency, industry-wide collaboration, education and recruitment, the market will put itself in the best possible position to improve premium prices and cut the cost of claims.
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