By Daniel Hunter

Even with severe weather resulting in an unusually high volume of flood and storm claims in the first quarter alone, and insurers paying out £400m to UK claimants who have had their homes damaged, the industry should still end 2014 with a profitable NCR of 98.5%.

But, 2014 may be the last year of profit-making for the UK home insurance market, ending a seven-year consecutive run of strong performance since 2007, according to EY analysis of the half year results.

Without the high claims rate from the first quarter of the year, 2014 would likely have been able to achieve an NCR in the low 90s. But, as it stands the high level of flood claims is a further step towards unprofitability. The outlook is even less rosy for 2015, which is forecast to experience an NCR of 102% if the pattern of the last ten years of damaging weather continues.

Catherine Barton, Head of Retail Property & Casualty Actuarial, EMEIA at EY, comments: “The surge in claims, caused by very damaging weather in January and February and increasing pressure on premiums, may mean that the home insurance market moves off its seven year profit-track, and hits unprofitability in 2015.

“In 2012, we saw a good example of insurers paying out high volumes of flood and storm claims (£622m), but remaining money-making — this was due to higher premiums creating a buffer. Premiums are not currently at a sufficiently high level to continue covering the costs of very damaging weather events, and are forecast to fall a further 3% in 2015 on top of the 5% fall this year. Pressure on premiums has been continual since 2013 as competition continues to gradually squeeze profitability.”

Catherine comments: “At a time of squeezed margins, it is exceptionally important for insurers to innovate — firms which are looking to increase their digital offerings, using data analytics and communicating well with their customers have the front foot on this. But regardless of insurers’ innovation, the fundamentals behind the profitability of the market are shifting and we expect premiums start to fall at a slower rate in reaction.”

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