Severe flooding saw home insurers suffer losses of more than 300 million pounds last year, but fierce competition in the market is expected to prevent them hitting consumers with huge price hikes, according to a report.

Independent market analyst Datamonitor said that, while a proportion of the cost of the severe floods that ravaged parts of the country last summer would be passed onto the reinsurance industry, 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 June and July floods — the worst in Britain for 60 years — are estimated to have cost insurers around 3 billion pounds.

When added to the other claims made throughout the year for theft, fire and subsidence, Datamonitor estimates that gross household insurance claims costs were in excess of 4 billion pounds.

However, it expects the market to return to profitability this year, provided that claims levels return to normal.

"While the market suffered heavy losses in 2007, premium income actually held up pretty well, and as long as premium rates don’t decline in 2008 we are forecasting a return to profit for the household insurance market," said financial services analyst Mahreen Hussein.

Some of Britain’s biggest companies hiked their premiums following the flooding, which mainly hit Yorkshire, Humberside, Gloucestershire and Worcestershire. Trade body the Association of British Insurers has warned that many homes might become uninsurable unless the government puts more money into flood defences and introduces stricter planning controls.

Datamonitor added, though, that an increase in consumers using Internet price comparison services to buy home insurance had led to the commoditisation of the sector, with people selecting cover purely on the basis of cost. 

"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," said Hussein.

"These sustained competitive elements in the market may, therefore, hinder the ability of insurers to bring in very strong rate increases, leading to only smaller levels of profit for 2008."

Aricle From http://uk.reuters.com

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