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It’s fair to say that the last 24 months have seen a significant increase in the cost of purchasing Home Insurance and although those increases have slowed down, we are yet to have ‘turned the corner’.
Before the global pandemic, home insurance premiums were notably low and the market considered ‘soft’, as competitive pressures continuing to drive premiums down. Regardless of your view, it was clear that one implication of Brexit would be the increase in cost of consumables and commodities.
For home insurance this would particularly include the cost of building materials, with the majority being imported from overseas. At the same time, labour costs began to rise alongside a shortage in skilled labour across the UK. Finding a builder, plumber or electrician became increasingly challenging.
Home Insurance Premiums and the Pandemic
During the pandemic, household insurance claims decreased as people spent more time at home, enabling them to intervene with potential claim scenarios like a pesky escape of water! This trend extended across the insurance industry with some motor insurers even rebating customers due to fewer claims.
People were simply spending less and saving more, which fuelled the desire to improve living spaces, invest in larger outdoor areas and alter their work life balance. Exiting the COVID period, consumers had more money in their pockets and a renewed willingness to spend on the things that mattered most.
Then came Russia’s ongoing invasion of Ukraine, which drove fuel and energy costs higher. Combined with increased consumer demand, a desire to travel again and a persistent labour shortage, inflation surged.
Post-pandemic and Claims Rises
Post-pandemic, household insurance claims began to rise again, exacerbated by a series of severe weather events. With an increased demand for an already stretched labour force and reduced availability of materials for repairs, insurers began to experience significant underwriting losses.
Subsequently, last few years has seen the exit of some well-known insurers from the HH insurance market including the likes of RSA and L&G, whilst others have consolidated or withdrawn from certain markets and / or territories. This reduction in capacity and footprint, aligned with the challenges outlined, above lead to a simple and inevitable consequence – increasing premiums.
A number of these factors have still not entirely run their course, so further rate increases, or inflationary pressure are likely, just (hopefully) not at a scale we have seen to date. I expect this to be the norm for a couple fo years until capacity in the market adjusts and regional and global factors influencing pricing stabilise, so don’t expect these to reduce overnight!
In the meantime, let’s hope for some good weather – but not too good, as we don’t want to see an increase in subsidence claims!
Home Insurance Premiums Affecting Customers
As we navigate these changes, we need to consider the impact on customers. There is a real danger many become disenfranchised or forced to reduce cover levels below their needs. More than ever, customers need guidance to make informed decisions. Without it, consumers could fall back on purchasing their insurance through aggregators, leaving themselves, their families and their homes at risk.
In the advice sector, it’s also important to reconsider the impact of remuneration. Given the significant premium increases seen across the market, there is a clear case for reduced remuneration percentages. There can be an acceptable balance between fair pricing and fair remuneration that improves advised sales conversion and customer outcomes.
Source Insurance have taken steps to enhance our proposition to enable advisers and partners to offer quality products though improved digitisation, integration and flexibility in remuneration and distribution models like Source Go.
Opportunity remains and these flexible solutions, combined with fair pricing, can help both customers and sellers alike. You can view our home insurance quoting platform, The Source, here.
Want to find out more about how to combat rising home insurance premiums? View our article from Finance Director, Jonathan Pinkerton here.
