London: Insurance is set to become unaffordable for people living in areas at risk of flooding, as insurers vie to compete on price, an industry survey shows.
Premiums for those in flood-prone areas could shoot up unless flood defence spending is increased, according to more than 90% of 200 British insurance professionals questioned.
The survey was conducted for the business and information technology firm Computer Sciences Corporation (CSC).
Up to 2.2 million properties in Britain are in flood-prone areas. Thousands of homeowners were hit this summer by the worst flooding in 60 years.
Of the insurers surveyed, 61% said price competition would drive the industry to end its current practice of subsidising homes on flood plains by charging higher premiums to everyone.
This reflects a growing trend towards more precise pricing for risk, with 88% of respondents saying the industry must start to segment and price risk based on increasingly detailed personal information to compete on price.
Fierce competition is viewed as the single greatest challenge facing the insurance industry over the next five years, driven by the rise of Internet aggregators, which allow consumers to compare prices easily.
John Maitz, vice president for CSC’s financial services arm in Europe, the Middle East and Africa, said the insurance industry is reaching a “tipping-point”.
“Price has always been the most important differentiator in the general insurance mass market, but the rise of aggregators has made comprehensive price comparison so easy,” he said.
“With margins under severe pressure, pricing more precisely for risk represents the principal strategy whereby they (insurers) can hold on to market share without seeing their profitability diminish to an unacceptably low level.
“For households on flood plains these developments augur very poorly indeed.” The research also shows insurers are looking to tighten pricing in areas other than home insurance.
For example, 72% respondents say car insurers could use traffic monitoring data to charge higher premiums to riskier drivers, if road charging is introduced in the UK.
Around 55% of those surveyed were insurers and 45% were brokers. The findings come less than a month after the industry trade body, the Association of British Insurers, said the government had let down millions of homeowners and businesses after failing to commit sufficient money to flood defences in its comprehensive spending review.