Home Insurance Prices Limited Due To Competition
2007 saw devastating floods hit certain parts of the UK. Thousands of people were affected emotionally and financially as floodwaters seeped through and damaged their homes and property. Particularly hit were people who were unable to protect themselves or their belongings.
As a result, home insurance companies' profits suffered losses of over £300m. According to Reuters, "the bill for primary insurers would be enough to drag the market from profits of 167 million pounds in 2006 to losses of over 300 million pounds in 2007."
The floods alone, during the months of June and July last year, cost insurers approximately £3 billion, not including other claims throughout the year. Independent market analyst Datamonitor estimates that gross household insurance claims in 2007, including flood claims, cost the industry over £4bn.
Some of the UK's largest insurance companies raised their premiums after the flooding. Industry trade organisation, the Association of British Insurers (ABI), warned the government they must spend more on flood defences and planning regulation or many UK homes will become uninsurable.
In order to avoid higher premium costs, consumers flocked to the internet to compare insurance products for a better deal.
Financial services analyst Mahreen Hussein said, "As more consumers use the Internet to purchase their insurance, and with these online consumers more likely to switch their household insurance exclusively on the basis of price, insurers may fall into a trap of continuing to compete aggressively in 2008 in a bid to retain their market share."
Since more and more people use the internet to compare home insurance deals, this has prevented insurers from hitting their customers with major price hikes. Hussein continues by saying that the competitive nature of comparing products may "hinder the ability of insurers to bring in very strong rate increases, leading to only smaller levels of profit for 2008."
Published on February 25, 2008
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