Home cover insurance premiums set to rise

The cost of taking out home buildings and contents insurances saw small rises over the last three months of 2012, but the signs are that premiums will rise, according to the latest AA British Insurance Premium Index. The Shoparound summary, an average of the cheapest five quotes for an annual home insurance policy in the Index basket of risks, shows that the cost of both buildings and contents insurance rose by 0.2% to £176 and 0.5% to £90 respectively. The average quote for a combined buildings and contents policy fell by 0.6% to £230. However, the market average of all quotes for each ‘customer’ in the nationwide basket of risks points to an underlying upward trend. For buildings cover, this shows a 1.7% increase to£232; for contents 1.4% to £117 and for a combined policy 1.3% to£304. Simon Douglas, director of AA Insurance, says that flooding during 2012, which is estimated to be costing the insurance industry around £1bn, has yet to be reflected in premiums. “The year ended with widespread floods and there are diverse views in the market on how much effect they will have on premiums. “Home insurance has certainly performed better than the car insurance sector. And, while the number and severity of weather-related claims has been increasing, events during 2012 have not been on the scale of the 2007 floods,” he said. However, many insurers believe rates need to increase. That’s because the trends point to climate change that is expected to bring a greater likelihood of damaging weather. “Some insurers are pointing to a need to build reserves further to meet potentially significant claims. Others believe that rates already take this into account,” Mr Douglas points out. “As recent severe weather claims come in, coupled with the January snowfalls, I believe premiums are likely to rise in the early part of the year.” And, while he says that the competitive nature of the market is likely to keep premium increases to a minimum, uncertainty still surrounds any discussions between the insurance industry and the Government on a replacement of the current ‘statement of principles’. The current agreement helps to ensure that homes in flood-prone areas can continue to obtain cover but it expires in less than six months time on 30 June. “Any flood cover agreement is likely to have an impact on premiums – some estimates suggest around £8 per policy – for all homeowners, not just those in flood risk areas,” he points out.”

Article courtesy of Property Investor Today
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