Intense price competition weighs on UK non-life company market

Intense price competition is weighing on underwriting results UK non-life company market insurance sector, according to Fitch Ratings.

The ratings agency set the outlook for the sector on “negative” reflecting its expectation that intense competition and increasing use of price comparison websites will continue to pressure insurers’ earnings in motor and household insurance.

Recently introduced renewal transparency rules could add further pressure on margins as retention rates will fall if customers opt to shop around for cheaper coverage. Low-interest rates will continue to suppress investment income.

Fitch expects motor insurance pricing to be broadly flat in 2018 in the absence of regulatory changes, such as the implementation of the whiplash reforms and the proposed new methodology for setting the Ogden discount rate. The UK government published draft legislation on the discount rate in September 2017, but the timing of the implementation is unclear. Fitch expects insurers to remain cautious about pricing in any positive developments until they have a high degree of certainty.

The ratings agency expects household insurance premiums to remain broadly flat in 2018 in the absence of large weather events. It expects pricing to stay weak, driven by intense price competition in the household market, due in part to the rising use of aggregators. Household insurance premiums have fallen each year since 2012.

The market’s inability to increase premiums comes at a time when it faces rising inflation on escape of water claims costs in particular. Fitch expects investment income, which has accounted for the largest part of the company market insurers’ earnings, to remain low.

Because of prolonged low-interest rates, insurers have had to focus on achieving underwriting profitability to sustain earnings levels, which in itself is positive for the sector.

In 2016, the underwriting result accounted for the largest part of the overall trading result for the first time in 10 years.

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