Commercial Property Insurance in the UK – Key Trends and Opportunities to 2017

Date: 2015-09

“Gross written premiums in the commercial property insurance category recorded sustained growth throughout the review period (2008–2012), rising at a compound annual growth rate (CAGR) of 6.79%. Premiums increased at an annual rate of 6.8% in 2012, reaching a total of GBP6.72 billion; the highest level in five years.

Commercial property insurance claims paid declined by 5.5% in 2012, but this belies the rapid growth recorded since 2008. Payouts rose at a CAGR of 57.29% over the five years to 2012, while claims incurred increased at a CAGR of 28.61% during the same period. The UK has experienced frequent flooding since 2000, including two of the wettest years on record since 2008.

Despite weakness in the commercial construction market and flagging business sentiment due to poor economic conditions, the rise in premiums was driven by high claims related to severe weather and instances of civil unrest. Tentative economic recovery and improving business conditions drove growth towards the end of the review period.

A large claims burden, limited investment returns due to the UK’s low interest rate environment, and rising expenses have hindered the profitability of insurers in the category. A combined operating ratio of 111.8% was registered in 2012. Although it exceeds the 100% breakeven threshold, it marks an improvement on profitability levels recorded during 2008−2010.

Following the expiry of the Statement of Principles in June 2013, Flood Re was established by the government and the insurance industry. Unlike its predecessor, Flood Re excludes small businesses from guaranteed flood insurance at affordable prices, and will result in upward pressure on costs and premiums for insurers and their commercial customers.

Despite downside forces, growth in commercial property gross written premiums will prevail over the forecast period (2013–2017) as the economic recovery gains traction, business confidence improves and commercial construction activity increases. Premiums are expected to rise to GBP8.22 billion in 2017, representative of a CAGR of 4.34% over the five years from 2013.”

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