The hidden divide: How misaligned risk perception is shaping the future of property insurance

21 November 2024 / 4 min read

As UK property insurers confront a wave of emerging risks, research reveals a disconnect between their concerns and those of consumers, putting trust and profitability at stake.

As the UK property insurance market grapples with emerging, unprecedented risks, a significant challenge has surfaced: insurers and consumers rarely align in their understanding of the threats ahead.

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At the Verisk Insurance Conference 2024, this divide was revealed when the results of two surveys—one from Verisk focusing on insurers’ views and one from Consumer Intelligence focusing on those of customers—were presented side by side. The findings uncovered a clear gap between what insurers deem to be the most pressing risks and what’s on consumers’ radar.

This divergence is more than just philosophical; it has real implications for how insurers design their products, communicate with policyholders, and stay competitive in a rapidly evolving market. By not aligning their perspectives with consumers, property insurers risk missing opportunities to innovate, offer better coverage, and grow.

The collision of insights: What the surveys show

Long-term, emerging threats, including climate change, cyber risks, and social inflation, shape insurance industry’s perception of risk. According to Verisk’s UK Property Risk Outlook, 84% of insurers view climate change and weather events as very or somewhat important to their business, followed by 68% for cyber risks. More than half of respondents cited other risks such as urbanisation and aging infrastructure as key concerns.

From the consumer perspective, the focus is more immediate—rising energy costs and increased premiums top consumers’ list of worries. Both sides agreed on the importance of cyber risks and climate change, but there were clear differences in how each group ranked the urgency of these threats.

For insurers, emerging risks often mean more complex and frequent claims, making it harder to maintain profitability without raising premiums. For consumers, the immediate impact is largely financial, including rising costs and whether their policies will protect them at their most vulnerable. This gap in priorities suggests a misalignment in how policies are designed versus what consumers feel they need—but it also presents opportunities for insurers willing to adapt.

What the perception gap means in practice

This misalignment in views is not simply academic. It hinders a property insurer’s ability to retain customers, manage claims and costs, and maintain profitability. By understanding consumers' perspectives more clearly, insurers can better tailor their products to meet the market’s evolving needs.

For instance, if policyholders don’t feel adequately informed about why their premiums have increased or don’t see their concerns reflected in policy updates, they may be more likely to shop around or withhold information from insurers, resulting in higher churn and coverage gaps. On the other hand, with 52% of consumers fearing the consequences of frequent storms, insurers have a crucial opportunity to educate homeowners on mitigating the impacts of weather events, thus reducing claims and increasing trust.

Moreover, insurers that bridge the perception gap can position themselves as more customer-centric and trustworthy. Research shows that customers who feel positively about their insurer are less likely to commit minor fraud or exaggerate claims. This is especially important when 66% of insurers are concerned about social inflation, where societal factors such as legal trends and jury verdicts push up the costs of claims. Engaging customers and fostering trust could be a direct route to repairing the industry’s public image and thus bringing costs down over time.

Adaptation and opportunity

For insurers, this emerging risk landscape presents potential obstacles—and chances to improve. Adaptation is key, not just through updating exclusions or using more predictive data for dynamic pricing, but through greater collaboration with policyholders. By proactively helping customers reduce their exposure, whether through better home maintenance, advice on flood-proofing, or cyber-risk education, insurers can protect themselves while adding value for policyholders.

Verisk’s research suggests insurers are open to collaboration. Among the most popular adaptations to climate threats are products that incentivise risk prevention, such as offering lower premiums to policyholders who implement mitigation measures. Crucially, these innovations must work on a benefit-only basis—consumers should feel assured that sharing more information or taking preventive steps will only improve their coverage, not increase costs.

The risk landscape is constantly evolving, and today’s emerging risks are just the beginning. Insurers must be prepared to develop their products and strategies continually. Bridging the perception gap between insurers and consumers is an essential step in this process.

For a deeper dive into insurers’ view of risk and how they are adapting, stay tuned for Verisk’s UK Property Risk Outlook, Verisk’s forthcoming report on emerging risks in UK property insurance.

Discover Verisk’s UK property data and perils risk assessment and use the contact form to learn more.

How aligning risk perception builds trust in property insurance

The collision of insights: What the surveys show

What the perception gap means in practice

Adaptation and opportunity