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Current Issues in Household Insurance

Current Issues in Household Insurance. Rob Cowley Norwich Union April 2002. Themes. 1. Galloping Inflation. 2. Rampant Under-Insurance. 3. Impending Doom?. The surface is (relatively) calm. All Household Perils. Inflation 1996 - 2001 = 5% p.a. … but there are swirling sub-currents!.

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Current Issues in Household Insurance

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  1. Current Issues in Household Insurance Rob Cowley Norwich Union April 2002

  2. Themes... 1. Galloping Inflation 2. Rampant Under-Insurance 3. Impending Doom?

  3. The surface is (relatively) calm... All Household Perils Inflation 1996 - 2001 = 5% p.a.

  4. … but there are swirling sub-currents!

  5. 2001 Household Costs by Peril • Subsidence 5% • Weather 12% • Fire 14% • Theft 22% • Other 47%

  6. 1. Galloping Inflation

  7. Subsidence costs have fallen in recent years... Subsidence Inflation 1996 - 2001 = -3% p.a.

  8. … and Theft frequencies have declined steadily... Theft Inflation 1996 - 2001 = 1% p.a.

  9. … in line with falling unemployment.

  10. However, Damage costs have been rising… Fire Inflation 1992 - 2001 = 18% p.a.

  11. Accidental Damage Inflation 1992 - 2001 = 9% p.a.

  12. Escape of Water Inflation 1992 - 2001 = 13% p.a.

  13. Weather Inflation 1992 - 2001 = 10% p.a.

  14. Flood Inflation 1992 - 2001 = 17% p.a.

  15. 2. Rampant Under-Insurance

  16. Buildings SI typically linked to Rebuilding Costs Indices courtesy of RICS Building Cost Information Service Ltd.

  17. Contents SI often linked to RPI or similar Source: www.statistics.gov.uk

  18. We’re earning more and saving less. Source: www.statistics.gov.uk

  19. Theft revisited Theft Inflation 1996 - 2001 = 1% p.a.

  20. 3. Impending Doom

  21. Conclusions • A tight labour market and rising consumption are driving Household costs upwards • This has been offset in the past by falling Subsidence and Theft claims, but these are now stabilising • Sums Insured are not rising in line with underlying claims inflation

  22. What happens next? • Continuing Economic Growth • Tight labour market and rising consumption continue to drive costs upwards • Subsidence and Theft frequencies stop falling, the average costs of Theft claims starts to rise • Recession • Lower rates of consumption and slacker labour market reduce pressure on average costs • BUT rising unemployment leads to higher theft frequencies

  23. In short... • Significant increases to rates or to Sums Insured are going to be necessary to maintain levels of profitability in the UK Household market

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