FTSE350: Competition and regulatory worries prevail for non-life insurers

But 2018 was the fourth most costly year ever for catastrophe-related claims, following on from a chunky $150bn (£118bn) claims bill in 2017. Not surprisingly, reinsurer appetite for some asset classes was subdued where sizeable losses were incurred, while premiums started to tighten with insurers staring at increased loss ratios.

Investor appetite has been on the decline as lower-than-expected returns follow the heavy claims made in 2017. The year ahead will be governed by the number of catastrophe claims, although the reinsurance sector remains well capitalised. But investor appetite will almost certainly decline if another year of once-in-a-lifetime claims materialises.

Car and home insurance, as always, attracts a lot of competition, and the temptation is to chase business, substituting volume for margin. Inevitably, underwriting discipline that eschews such practices tends to be the sensible path to follow.

Right now, though, insurers have other things to worry about. In October last year, the Financial Conduct Authority (FCA) launched an investigation into the so-called dual pricing. This is a widely used practice whereby discounted premiums offered to new customers are subsidised by increasing premiums on existing customers renewing.

The FCA has already revealed that generating new business by offering new customers discounts of up to 30 per cent means that policyholders sticking with the same insurer for five years could be paying up to 70 per cent more than a new customer for the same policy. Furthermore, there is also evidence that insurers break even on new business after two or three years by sharp premium increases in years two and three.

To its credit, Aviva has announced a subscription-based range of car and home insurance products where renewing customers pay no more than new customers. The potential end to dual pricing is generally bad news for new customers as home insurance premiums, in particular, have been rising because of higher damage claims in the wake of the very hot weather last summer. But there are other implications for the industry.

With the passing of dual pricing – already banned in some US states – it will be harder to attract new business because it will have to be profitable from the start, and therefore more expensive. Price optimisation is also likely to come under scrutiny.

This is where insurers use personal information not provided by customers, but obtained through social media to assess risk profiles. As this could result in widely varying premiums, the FCA could take a keen interest. And the implications are likely to spread to cover home as well as car insurance.