Buildings insurance went up again last year by 1 percent, bringing the average cost of a year's insurance to just over GBP205. The average homeowner now pays GBP151 a year for contents insurance, which went up by 2%. But some lenders are raising prices even more than that. For example, Norwich Union raised its rates by a huge 6 percent last year.
Why? That's the question. Since there is so much competition out there, you might think that prices would go down instead of up. However, there are other forces at work, which we will talk about next.
No. 1: How much it costs to fix or rebuild a house.
Since labour and building materials are getting more expensive, the insurance company will charge you more when they figure out how much it would cost to rebuild your house. This is because of inflation, which also affects the operating costs of the insurance company. Wages, bills, and office rental are all costs that go up every year, so insurers have to take that into account.
Number 2: the weather
The weather in Britain is getting more and more stormy. We don't know if this is because of global warming, but we do know that we've had a lot of extreme weather in the past few years. The hurricane in 1987 was an unusual event, but flash floods like the ones in Boscastle, Cornwall, Helmsley, North Yorkshire, and Carlisle happen all the time and are often in the news. The Association of British Insurers says that the average flood insurance claim could be anywhere from GBP15,000 to GBP30,000, which would make a huge dent in the profits of the insurance industry. Every year, floods actually cost insurance companies a lot of money.
No. 3: Break-in
The average claim because of a break-in is now around GBP1,400. There are two main reasons:
- From digital cameras to laptops, game consoles to ipods, our homes are full of high-priced electronics that can be sold again. Burglars want these things, which hurts the insurance industry right where it hurts: in their pockets.
Burglars choose nice neighbourhoods to make sure they get away with the best things. Since they can take expensive things like jewellery, the value of these kinds of claims is going up.
Statistics about a postcode area are used by insurance companies to figure out the premiums for everyone in that area. If your neighbours' homes have sunk or if you live near a river that has flooded in the past, you will have to pay more for your insurance. In the same way, if other people in your area have had their homes broken into, it will be thought that you are more likely to make a burglary claim as well.
Having a no-claims discount helps offset the rise in premiums that happens every year, but insurance companies put a limit on these discounts after 5 years, so you won't get any more discounts after that.
So, is there any way to stop home and contents insurance from getting more expensive?
First, you can shop around to find the best deal. Try the Internet to find the best deals. Most insurance companies give customers who buy online a discount, often 10 percent. If you pay by direct debit, you will also save money. It's tempting to take the renewal quote from your current insurer, but don't be fooled. The small amount of work it takes to shop around will pay off in the long run. One reason for this is that insurance companies always give their best deals to new customers. This means that loyal customers are almost punished for being loyal.
Improving the safety of your home is another good way to lower your premiums and give you the peace of mind you need. There will be a difference if you have a neighbourhood watch, security lighting outside, a burglar alarm, security locks on your windows, and locks on your outside doors that are recognised by the industry. Putting these things in costs money, but in the long run, they pay for themselves.
You will always win if you play the insurance company game: compare prices, be ready to switch companies every year, and don't pay too much. You can always find a better deal.
