Why your clients could expect price reductions in home insurance

If insurers can achieve combined ratios of less than 80% in personal property, homeowners should expect to see lower prices and possibly even rebates, the CEO of LowestRates.ca suggests.

“For consumers, if insurance companies are making money, then it means it is a competitive marketplace, it’s a healthy marketplace and it is a marketplace where insurers will compete for consumers’ business,” LowestRates.ca CEO Justin Thouin said in a recent interview. “Therefore, consumers can expect prices not to increase or potentially to go down.”

LowestRates.ca generates leads from prospective home and auto insurance clients for brokers and direct writers.

Intact Financial Corp. reported May 11 its combined ratio in home insurance was 77.4% during the three months ending March 31. Intact’s Q1 combined ratios in home insurance were 81.8% in 2020, 99.8% in 2019, 88.3% in 2018 and 92.8% in 2017.

“A combined operating ratio of 77.4% is exceptional,” said Thouin. “If combined operating ratios are at this level for other insurance companies, we expect to see reduced prices or potentially even one-off rebates due to COVID-related circumstances in a similar manner to what we have seen in the car insurance space.”

Typically a combined ratio of 95% is considered very good, added Thouin.

For its part, The Co-operators General Insurance Company reported April 29 its loss ratio in home insurance was 42% in Q1 2019, down from 46.5% in 2020 and 58.4% in 2019.

The industry-wide claims ratio was better in the latest quarter than in the previous four years, according to data from the federal Office of the Superintendent of Financial Institutions. In personal property, the claims ratio — for Canadian P&C insurers reporting their results to OSFI — was 46.03% in Q1 2021. For the same period in 2017, 2018, 2019 and 2020, the claims ratios in personal property were 59.01%, 57.91%, 62.62% and 49.74% respectively. That data is for 9.79 million policies in force, with net premiums written of $1.95 billion and 204,708 claims with total claims incurred (including adjustment expenses) of $1.253 billion.

“COVID is definitely having an impact on this,” Thouin said of the improvement in home insurance claims numbers in the latest quarter.

“We received a lot of questions during COVID [about whether] home insurance prices would increase significantly because people were spending so much more time at home and therefore there is more opportunity for things to go wrong. But actually, what happens with home insurance is that prices tend to go up and claims typically happen more when people are not at home.”

Fires, burst pipes and water damage “tend to be more catastrophic when someone is not at home frequently to catch it early, to make sure it does not happen in the first place,” Thouin told Canadain Underwriter.

Consumers can expect insurers to compete for their business not only on price but also on convenience, online service and innovation, Thouin predicts.

“Any time insurance companies can make money they are going to look not only to sharpen their pencil on price but also to improve product.”

Feature image via iStock.com/wwing