UK Household Insurance: Market Dynamics and Opportunities

Publisher Name :
Date: 30-Sep-2016
No. of pages: 51


Soft market conditions endure in a UK household insurance market with high levels of competition and capacity, and a continuing shift in customer buying habits. Despite this, the market continues along a profitable path for as long as it can rely on relatively benign weather conditions.

Key Findings

  • UK household insurance gross written premium (GWP) fell by 3.8% in 2015, hampered by tough underwriting conditions in a competitive market. Home insurance premium rates are currently reported to be largely flat to slightly negative across the UK as a whole.

  • In spite of winter 2015 storms, home insurance remains profitable, with a 94.6% combined operating ratio (COR) in 2015, compared to 93.4% in 2014. The sector has been propped up by several benign weather years and has benefited from reserve releases. However, concerns remain over pricing for severe weather events.

  • The home insurance expense ratio fell in 2015 (-1.6 percentage points [pp]) as a result of a drop in commission ratio and efficiency improvements. However, at 40.6% it remains relatively high compared to motor, and has been adversely impacted in H1 2016 by the introduction of Flood Re.

  • The rise of 'Generation Rent' presents a shifting landscape that is dampening overall market growth, and is presenting home insurers with a customer demographic that has different needs and preferences not necessarily catered to effectively by current services. Private renters now account for around 20% of dwellings, up from just over 10% a decade ago.


Verdict Financial's "UK Household Insurance: Market Dynamics and Opportunities" report provides an in-depth analysis of the UK household insurance market. It looks at market size and performance ratios as well as changes in premiums, claims, contextual and economic factors, regulations, and opportunities. It provides a thorough overview of the market along with future forecasts and analysis of emerging technologies and products.

Reasons To Buy

  • Benchmark yourself against the rest of the market. Ensure you remain competitive as new innovations and insurance models begin to enter the market.

  • Be prepared for how regulation will impact the household insurance market over the next few years.

Companies Mentioned

  • Lloyds Banking Group

  • Direct Line Group

  • Aviva

  • RSA

  • AXA

  • Ageas

  • Legal and General

  • NFU Mutual

  • Allianz

  • LV=

UK Household Insurance: Market Dynamics and Opportunities

Table of Contents

Executive Summary
The UK household insurance market remains highly competitive
Key findings
Critical success factors
Market Context
A soft market and changing customer behavior led to a fall in GWP in 2015
Home insurance GWP fell by 3.8% in 2015
Premium rates return to flat or slightly negative following the Insurance Premium tax hike
Changing customer behaviors are compounding the competitive nature of the market
Competition remains fierce in the home insurance sector, preventing rate increases
Combined policies continue to dominate, but home ownership trends are impacting GWP
Home insurance remains profitable due to relatively benign weather
The loss ratio rose in 2015 as a result of the soft market, but the COR remained below 100%
The expense ratio fell in 2015 as a result of a lower commission ratio and a focus on efficiency
Claims costs fell in 2015, although the average claims cost increased
Gross incurred claims fell across all categories, except fire and escape of water
Average claims cost increased, with the average winter storm claim significantly higher in 2015
Escape of water claims were the costliest peril in 2015, although technology may ultimately assist
Flood Re affected H1 2016 results, but overall the impact is expected to be small
Flood Re launched in April 2016 and is expected to benefit around 350,000 homes "over time"
Flood Re costs have increased expense ratios for insurers in H1 2016
Overall, Flood Re impacts are expected to be relatively small
Home insurance demand remained strong, but underlying dynamics are shifting
New home registrations and completions increased, although numbers remain well below historic levels and requirements
Mortgage approval rates rose by 4% in 2015, but have fallen in 2016
The rise of 'Generation Rent' presents a shifting landscape
Penetration rates are high among owner-occupiers, but lower for tenants
2016 and Beyond
Household insurance GWP is forecast to stabilize up to 2018
Premium rates are unlikely to increase in the short term
A significant weather event will be required to shift rates
Demand and profitability will be impacted by the slowdown in the economy
Household GWP is expected to stabilize from 2016 to 2018
The negative economic consequences of Brexit could have an adverse effect
Brexit will not result in substantial changes to the market's structure
The economic consequences of Brexit will have the greatest impact
FCA regulation on renewal transparency will impact the market in H2 2017
FCA regulation will increase renewal transparency and promote shopping around
Between 11% and 18% more home insurance customers could shop around
The impact will largely be evident from H2 2017
A major weather event will reveal Flood Re's market impact
A significant weather event will reveal the extent to which Flood Re can plug the pricing gap
Stakeholders need to remain aware of the ultimate aim for premiums to fully reflect flood risks
The growth of 'Generation Rent' will impact product development
Renting will remain the fastest growing type of tenure
Home insurers need to build propositions targeted to the needs and behaviors of this customer segment
Technology-enabled product and service offerings have the potential to transform home insurance in the longer term
Consumer appetite for smart home technology is increasing in the wake of a growing number of products
There have been two significant developments in UK-connected home insurance in 2016
In spite of benefits, connected home insurance will not take off in the short term
Insurers will continue to seek opportunities to develop and test connected home use
There is growing interest in pay-as-you-go, highly tailored micro-insurance policies

Abbreviations and acronyms
Supplementary data
Combined operating ratio
Compound annual growth rate
Gross written premium
Primary and secondary research
Verdict Financial's 2015 UK General Insurance Consumer Survey
Further reading
About Verdict Financial

List of Tables

Table 1: Household insurance GWP and annual growth rate, 2011-15
Table 2: Quarterly average household insurance premium rate movements, 2012-16
Table 3: AA Shop around average home insurance premiums, Q1 2015-Q2 2016
Table 4: Top 10 household insurers' market shares, 2014-15
Table 5: UK household insurance GWP split by type of policy, 2012-15
Table 6: Household insurance performance ratios, 2011-15
Table 7: Household insurance underwriting result, 2004-14
Table 8: Household insurance expense ratio breakdown, 2011-15
Table 9: Gross incurred and number of household insurance claims by peril, 2011-15
Table 10: Average household insurance claims cost by peril, 2014-15
Table 11: New home registrations and completions, 2011-15
Table 12: UK household insurance GWP and growth rate, 2011-20f
Table 13: UK dwelling stock by tenure, 2004-14

List of Figures

Figure 1: Household insurance GWP continues to fall
Figure 2: Premium rates have been on a general decline since 2012
Figure 3: IPT and Flood Re have led to premium increases in an otherwise soft market
Figure 4: Combined insurance accounts for almost 75% of GWP
Figure 5: A relatively high loss ratio pushed up the household insurance COR in 2015
Figure 6: Household insurance has been profitable since 2004, with the exception of major weather events in 2007 and 2010
Figure 7: A fall in commission ratio was behind the reduced home insurance expense ratio in 2015
Figure 8: Gross incurred claims continued to fall, with relatively benign weather largely behind the drop in 2015
Figure 9: New home registrations and completions are increasing
Figure 10: Monthly mortgage approvals generally rose in 2015, but declined in H1 2016
Figure 11: Private tenants form the fastest growing type of tenure, while home ownership has stagnated
Figure 12: Almost one third of private tenants have no form of home insurance
Figure 13: Home insurance GWP will recover slightly to 2020
Figure 14: Recent examples of home insurance innovation
Figure 15: Some of the obstacles to more widespread implementation of connected home insurance

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