The average quoted premium for a typical combined home buildings and contents policy has fallen by 1.1% or £1.75, over the three months ending 30 September, according to the latest AA British Insurance Premium Index.
However, the AA said this fall masks big differences in movement between standalone buildings and contents policies. And while the typical ‘Shoparound’ quote for a buildings policy has also fallen, by just 0.5% (or 62p), that for a contents policy has risen, by £3.51, or 4.8%.
Over 12 months, however, all three types of home policy have seen premium increases – for buildings, up 13.6% to £113.59; for contents up 8.4% to £64.22 and for a combined buildings and contents policy, up 6.1% to £158.49.
The AA said this suggests that those who buy a combined policy can often expect to save around £17 compared with buying two standalone policies from the same insurer. But by shopping around, it can be a cheaper option to buy buildings and contents policies from different providers.
Michael Lloyd, the AA’s director of insurance, thinks that although the third quarter’s results present a mixed result, the overall trend is upward.
He said: “Some commentators suggest that the home insurance sector is expected to begin showing losses as the year turns. Home insurance has become increasingly competitive as more customers shop around, particularly on price comparison sites.
“While this has tended to keep the lid on premiums, there is a cost in terms of commission paid by insurers whenever a policy is sold which may, paradoxically, lead to premium inflation. The Competition and Market Commission is currently consulting on comparison site pricing and the insurance industry, including the AA, is contributing to that process.”
Lloyd notes that claims costs – particularly contents claims – have been rising. The increase in insurance premium tax has in addition, fuelled premium increases this year.
“I strongly urge the Chancellor to avoid penalising responsible home owners for protecting their property during the Autumn statement,” he said.
The industry is also bearing the cost of developing Flood Re, not-for-profit fund owned and managed by the insurance industry. It’s designed to make home insurance available and affordable for those whose homes are in high flood-risk areas. Setting up Flood Re required government legislation and is the first scheme of its kind in the world and it is funded by a levy on the insurance industry.
Lloyd added: “Fortunately, there have been no serious weather events for some time but, as winter comes on, that possibility can’t be ruled out. Widespread flooding or storm damage claims before the end of the year that, say, exceed £1 billion would translate into sharp premium increases next year.”
He said that home insurance premiums have proven over the years to be resilient to the dramatic spikes that have affected motor premiums and it continues to represent remarkably good value for money: “Although premiums have been steadily rising over the past year they are still significantly lower than they were in 2012.”