Low premiums in UK household insurance mean insurers face their first underwriting loss since 2007, warns Deloitte.
It said increasing competition in the industry and benign weather conditions pushed prices down.
Deloitte said that in 2014, premiums were estimated at £6.6bn, resulting in a profit of £0.5bn. The figure was a drop of 4% from £6.8bn in 2013. The average price for a policy fell from £250 to £243 in 2014. The firm predicted premiums will further fall to £231 this year and to £224 in 2016.
James Rakow, insurance partner at Deloitte, said 2014 was a profitable year for insurers but there was a "minor deterioration at a market level" with net combined ratios of 92% in 2014, up from 91.8% in the previous year.
Combined ratio is a measurement of profitability by insurance companies. A ratio below 100% indicates profits, while a ratio above 100% indicates a loss.
Deloitte said total premiums would continue to fall by around 5% this year to £6.3bn and again in 2016 by 3% to £6.1bn. It also predicted net ratios would improve this year to 90.3%, but then deteriorate in 2016 to 98.3%.
Deloitte suggested "potentially tricky times ahead" with the figure coming close to 100% and said the industry should stop lowering premiums.
"With ratios so close to 100% in 2016, the risk of the home insurance industry reporting an underwriting loss - without a large weather event - is at its highest for the last decade," Rakow said.
"This should be a wake-up call for the industry to react and stop eroding the underlying profitability by cutting premiums."
