General Insurance Article - Home Insurance premiums fall but claims cost cloud outlook

The average of the five most competitive quoted premiums for combined buildings and contents insurance is now -16.9% below its level two years ago. Although reductions have been less consistent and less pronounced over the latest year, the market has continued to soften.

 

Prices fell by -2.4% during the third quarter, with reductions in each month - -1.0% in July, -0.9% in August and -0.4% in September. June’s increase did not develop into a sustained upward trend. However, the smaller monthly reductions towards September suggest that prices could be approaching a more stable position.

 

Stephen Kennedy, Director at Defaqto, said: “Competitive home insurance premiums are almost 17% below their level two years ago and are still falling. That creates a difficult balance for insurers when inflationary pressures and uncertainty over claims costs remain.

 

“Weather-related claims are a particular concern for home insurers. Subsidence following dry, hot summers can take time to emerge, while flooding and storms add further uncertainty. Pricing decisions need to account for claims that may develop over time, as well as those already being reported.

 

“There is an argument for premium increases to reflect those pressures. Continued market reductions should prompt insurers to examine whether their pricing adequately reflects the claims costs they expect to incur.”

 

The annual competitive average masks substantial differences between individual insurers. Over the 12 months to September, price movements examined by Defaqto ranged from a reduction of -20.2% to an increase of +12.1%.

 

Quarterly movements also varied widely with providers reducing prices by between -0.1% and -15.7%, and others increasing prices by between +1.8% and +3.5%.

 

Francis Luery, Product Manager at Defaqto, said: “The 4.4% annual fall is a useful measure of competitive market pricing, but individual providers have taken very different paths. Some have made substantial reductions, while others are quoting above their levels a year ago.

 

“For customers, the variation reinforces the value of shopping around at renewal and comparing the cover, limits and excesses alongside the premium. For providers, it creates opportunities to attract business while increasing the importance of understanding their competitive position.”

 

Defaqto believes home insurance prices could level out or begin to rise towards the end of 2026, although the latest data does not establish a sustained change in direction.

 

Stephen Kennedy added: “The monthly reductions became smaller during Q3, so we could see prices flatten out or some increases emerge towards the end of the year. I would not expect a major movement over the next few months.

 

“That said, the outlook for 2027 depends heavily on claims experience. If weather-related losses and wider cost pressures build, more substantial pricing adjustments may become necessary. Insurers will need to monitor how those claims develop rather than assume that the conditions supporting continued premium reductions will persist.”