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UK homeowners insurance market may see its profitability streak end in 2015

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Natural disasters are taking a heavy toll on homeowners insurance companies in the United Kingdom

The cost of homeowners insurance may be falling in the United Kingdom, and this could be bad news for insurance companies. Insurers in the UK have been profitable since 2007, but increasingly frequent natural disasters, particularly floods, are beginning to place insurance companies under significant financial pressure. In 2007, floods alone cost the insurance industry more than $1.5 billion in losses. By next year, the costs that insurance companies see are expected to surpass the amount of money that consumers are paying for their coverage.

Cost of claims may exceed the amount of money that insurance companies collect from premiums in 2015

According to accountancy group EY, insurance companies expected to pay more than $400 million on claims generated by natural disasters in 2014. This represents 98% of the payments they have collected through premiums during that year. By the end of 2015, EY estimates that insurance companies will be spending 102% of the money they collect from premiums on claims.

Insurers have been feeling pressure to reduce premiums over the past few years

UK Flood homeowners insurance programHomeowners insurance companies are not only having to deal with the damage caused by natural disasters, of course. Insurers have been feeling pressure to reduce premiums on the coverage they provide for some time. As insurers reduced their rates, they began seeing natural disasters become more frequent. This created a problematic scenario in which insurers had to find a way to juggle relatively low insurance premiums with the growing costs of insurance claims.

Insurance companies may need to raise rates on the coverage they provide in order to remain sustainable

In the coming years, homeowners insurance companies may need to take steps to ensure their continued profitability and sustainability. This will likely be accomplished through raising insurance rates on various types of policies. Some insurance companies may opt to limit their exposure to certain natural disasters, removing themselves from certain market sectors and putting an end to some of the coverage options they had provided to homeowners in the past.

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