Home and motor profitability in question

The sector outlook for the UK home and motor insurance markets in 2020 is negative, reflecting high claims inflation and a weak pricing environment. This is according to research from Fitch Ratings, whichis warning that these factors could lead to a drop in insurers’ underwriting profitability.

The projected combined ratio for home insurance could near 100%, indicating underwriting results only around breakeven. Fitch expects pricing to stay weak, due to fierce competition driven by new entry market entrants and the increasing use of price comparison websites.

For motor insurance, the expected combined ratio could exceed 100%, indicating underwriting losses. Listed factors include high competition in the sector, increasing vehicle repair costs and a surge in car theft, linked to the hacking of keyless cars.

Regulatory measures to reform pricing practices could also weaken profitability and put significant strain on insurers' business models, the ratings agency said.

Last month, the Financial Conduct Authority published the interim report of its market study into the pricing of home and motor insurance, expressing its concern over the fairness of pricing practices.

The ban of autorenewals and dual pricing are believed to be some of the measures the FCA could introduce in the near future. Such actions could have a negative impact on profitability, as insurers update their premium rates for long-standing customers accordingly, yet the firm suggested they would seek to offset this by pushing up prices for newer customers.

Home insurers would be particularly affected, due to their reliance on auto-renewals for a large proportion of their profits.

Impact on motor insurers is likely to be less important given their lower reliance on auto-renewals. However, they could be affected if the FCA decides to limit the sale of add-ons which are an important component of their overall profitability.

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