Profitability of UK property insurance market clouded by climate uncertainty

The expectation that heavy rain could swamp some homes and businesses, as winds up to 60mph are expected to hit parts of the UK this week, has prompted a data analytics specialist to issue a profits warning for property insurers.

“The UK is expected to experience severe flooding in February 2023, as predicted by the Met Office,” said Shabbir Ansari, senior insurance analyst at GlobalData.

“Extreme weather conditions have likely cost UK insurers around £1.5 billion in 2022. The country is experiencing more extreme weather every year, and this is expected to wipe out at least 1% of GDP growth every year.”

“In Q3 2022, claims related to retail property increased by 33% to £702 million. For commercial property, claims increased by 8% to £542 million compared to Q2 2022. The current flood alert is expected to further increase claims, which will have a negative impact on the profitability of insurers.”

“Subsidence is one of the major area of claims for retail property. Claims related to this category grew by 394.5% in Q3 2022 against the same period in 2021. Claims related to subsidence stood at £115 million in Q3 2022, which is the highest it’s been Q3 2006. This was followed by water escape, which increased by 24.3% for the same period.”

He added that the house rebuilding cost index registered a double digit increase and stood at 19.4% in December 2022. This, along with increased the frequency of weather-related incidents, will lead to an increase in property insurance premium rates and negatively impact the profitability of UK property insurers in 2023, according to Ansari.