Premiums for home insurance are still falling despite industry concern that claims costs will soon exceed premium income, according to the AA’s latest British Insurance Premium Index.
The average Shoparound quoted premiums for buildings, contents and combined policies all reduced over the three months ending 30 September 2015, continuing a fairly steady downward trend that began at the end of 2012.
The Shoparound calculation is an average of the five cheapest premiums from price comparison sites, direct insurers and brokers for each ‘customer’ in a nationwide basket of risks.
The Index shows that the average quote:
- for buildings policies fell by 1.4% to £107.39 (down 3.1% over the year)
- for contents policies fell by 2.1% to £60.00 (down 5.6% over the year)
- for combined buildings and contents policies fell by 2.4% to £149.30 (down 6.3% over the year)
Janet Connor, managing director of AA Insurance said that while this continues to be welcome news for customers, premiums are now artificially low.
“The past couple of years have seen very few serious weather claims – mild winters and little serious flooding or property-damaging storms. That has led to the continuing easing of premiums as competitive pressure builds,” she said.
“The UK has escaped serious and damaging weather unlike other parts of the world, including Europe, but that doesn’t mean there isn’t the potential to inflict serious damage to UK property.
“Even Mark Carney, Governor of the Bank of England has warned insurers and investors to wake up to the issues while the Prudential Regulation Authority has published a report identifying potential climate risks for the UK insurance industry.
“Some weather forecasters suggest that the coming winter could be particularly harsh which would bring the severe weather claims it would imply. If that happens, then equally sharp home premium increases can be expected.”
Connor suggested that prudent home owners should check that their home is well prepared for winter.
“Getting central heating systems serviced, checking that pipes are lagged, gutters are clean and secure and loft spaces are properly insulated are simple steps to take that could avoid the need for inconvenience and cost later on.”
Meanwhile, Flood Re – the government-supported scheme that will enable home owners in locations most at risk of flooding to obtain affordable cover – is expected to be launched in April 2016.
Connor said: “This has been a long time coming. Although there are industry concerns about how effective it will be and the impact it might have on premiums for everyone, it will be welcomed by those whose homes are difficult or costly to insure. The real test will be if there is widespread flooding similar to 2007, which cost insurers over £3bn in claims.”
The AA believes that premiums have fallen too far.
Connor said: “The cost of home insurance is now little more than that quoted when the AA’s Index started in 1994.
“There are deals to be done for those who shop around for their cover. But families must ensure that their policy meets their needs – because a cheap price doesn’t necessarily mean value for money.”