The economic fallout of COVID-19 is expected to cause disposable income to fall, leaving consumers to mitigate costs and look for ways to cut spending. One area at risk as a result is home insurance, which has remained stagnant since 2017 due to an increased cost of premiums. Connected home insurance is very much at risk after COVID-19.
COVID-19 and the connected home
According to GlobalData’s 2019 UK Insurance Consumer Survey, there has been an increase in the number of consumers shopping around before renewing their home insurance (now 41.8%), while more than a quarter of policyholders (27.9%) will switch provider at renewal.
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The increased proportion of consumers changing their purchasing behaviour is due to an increased cost of premiums, a common trend over the last few years. This is driven by higher costs of claim payouts due to weather-related events, as well as an increased uptake in technologies that make policies overall more expensive in the short term. These changes in the market, combined with a greater number of budget-conscious consumers being in a better position to mitigate household risk while working from home, will lead to a decrease in the uptake of household insurance.
As a result of COVID-19, the UK’s home insurance market is forecast to contract. GlobalData is forecasting that gross written premiums will fall from £6,369 in 2019 to £5,935 by 2024, representing a CAGR of -1.4%. The fall in the market is expected to come from consumers taking out fewer policies and choosing less expensive cover options such as combined policies or reducing the extent of optional extras in their coverage.
This, in turn, will also have an impact on the rate of technological penetration within the household insurance sector. Consumers will be less keen to invest in technologies that will warn them of potential risks to their homes, as they are better placed to detect leaks or theft with COVID-19 squeezing the disposable incomes of many households.
In the long term, the lockdown will have greater implications for the household industry, as customer behaviour and willingness to adapt technologies to their home insurance policies will change. This will make insurers less willing to further invest and integrate home sensor technologies or other technologies as part of their policies. This will make it harder for the home insurance industry to avoid paying out expensive claims and also trickier for insurers to reduce premiums.
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