The UK home insurance market will scrape a profit in 2020 before falling into unprofitable territory in 2021, according to analysis from EY.
The professional services firm’s analysis of Solvency II returns and Association of British Insurers data found that home insurers’ net combined ratio (NCR) for 2020 is predicted to be 99.2%.
This is flat year on year, and remains significantly better than 2018’s 106.1% NCR, EY found.
This profitability is forecast to be short-lived, propped up by a fall in claims due to Covid-19, and home insurers are expected to fall back into the red in 2021 with an NCR of 102%.
Despite the adverse weather at the start of the year, including the wettest month on record in February, claims inflation across all home insurance lines in 2020 is expected to turn negative, falling 2.7% due to households spending increased amounts of time at home during lockdowns.
Claims volumes have continued their downward trend across all home insurance lines in 2020, falling further than expected due to Covid-19 lockdowns.
While the claims driven by fire-related accidents has risen, theft from home break-ins and water damage due to broken pipes or malfunctioning home appliances has reduced significantly this year.
In Q2 2020, claims relating to theft were down 68% year on year, and household water damage claims were down 30% for the same time period year on year.
Excluding weather claims, the home insurance market saw a 17% year on year drop in total claims in Q2 2020. This is expected to be a one-year blip, trending back up in 2021, although future lockdowns could affect this further.
Claims inflation is forecast to pick up dramatically in 2021, according to EY, rising 4.4% from the 2020 low, although this could change depending on possible future lockdowns. Premiums overall are predicted to remain flat throughout 2020 and 2021.
Another event that could affect home insurers’ bottom line is the Financial Conduct Authority (FCA) market review on pricing.
The FCA’s final report into the general insurance pricing market was published in September, representing a major regulatory intervention in the market.