A look at UK home insurance in 2022 and beyond — Part 1
A recent white paper released by Bdeo explores changes and challenges in the U.K. home insurance market.
Editor’s note: This article is part one of a two-part series on home insurance trends in the U.K.. Part two will publish on PropertyCasualty360.com Wednesday, January 26, 2022.
A plethora of emerging risks, including climate change, social discontent and cybersecurity risks have challenged the U.K. insurance market, says a recent white paper from Europe-based property insurance tech startup Bdeo.
This has led to many issues, including a lack of consumer trust. The white paper, which was authored by Sabine VanderLinden, specifically cites a September 2019 survey by Eptica in which only 3% of U.K. consumers said insurance was the sector they trusted most.
Property claim costs for home insurers have also increased. Bdeo attributes this to several factors, including the historical underpricing of premiums, extreme weather, the increased risk of modern construction, expensive water claims and high repair costs.
In 2021, the FCA published its General Insurance Pricing Practices Markey Study, which inspired new market rules after revealing loyal customers were unfairly penalized by price walking. The enactment of these laws in 2022, the white paper states, will most likely mean new customers will shoulder the burden of rising premiums.
“The FCA pricing remedies should accelerate several trends within the insurance industry, from focusing on business transformation and branding to fostering an innovative, creative culture and sourcing more diverse talent, particularly from other sectors such as banking, tech and consulting,” Ben Johnson, managing director and global head of insurance & insurtech, Sheffield Haworth, said in the white paper. “Those insurers who move first will have their pick of the talent. Those that leave it too late may struggle or find themselves having to pay over the odds for skills they could acquire now at a lower cost.”
Unsurprisingly, the pandemic and lockdowns have also impacted home insurance in the U.K.. According to the U.K. Home Insurance Market Report 2021, the number of people working from home changed the nature of reported claims, with burglary and water damage complaints decreasing, but fire and accidental damage claims increasing. While UK home insurance didn’t experience much financial disruption, the white paper says, the industry is still struggling with other long-term market issues, like the fact that many premiums are too low compared to claims costs for insurance companies to make a decent profit. This means companies will either have to raise premiums or find other ways to offset rising claims costs.
Insurtech has picked up momentum throughout the pandemic and, according to the white paper, this could encourage the rise of more disruptive models that challenge business as usual and lead to a more streamlined claims process, better customer service and more attention paid to previously underserved customers.
“There’s considerable focus on innovation tying to home insurance currently. Whilst we’re seeing ever more money being invested into the space, we also see strong adoption and validation of those insurtechs already in-market and a very active open innovation scene — the partnering of incumbents with insurtechs. The expectation is for this trend to continue,” Matt Connolly, CEO of Sønr, said in the whitepaper. “What we’re starting to see is select insurers already providing significantly improved end-to-end customer experiences. As this experience becomes table stakes for customers, the watch out is for those incumbents who are yet to incorporate these new technologies or ways of doing business. Failure to do so will result in the divergence of performance lines between those scouting and partnering with InsurTechs and those that don’t.”
Part two of this story will explore automated underwriting, embedded insurance and other topics within the U.K. insurance market.