The Shoparound quoted premium (average of the five cheapest quotes for each in a nationwide ‘basket’ of customers) for Buildings cover rose by 7.6% over the year, and up by 1.1% over the last quarter of the year to £114.43 while the cost of Contents rose by just 3.5% over the year, but down 5.7% over the quarter to £60.69.
Michael Lloyd, the AA’s insurance director, says: “2016 has been a year when home insurance has not been far from the headlines. It began with more than 16,000 homes flooded while in April, Flood Re, the government supported, industry-led and financed scheme to deliver affordable home insurance for households at flood risk, was launched.
Insurance Premium Tax (IPT) also increased to 10% from October and will rise again to 12% in June 2017. Yet despite these pressures, competition has kept premiums down and but, in my view, this cannot last much longer.
Lloyd believes that the rise in the cost of buildings cover – albeit little more than a £1 added to the average Shoparound quoted premium – and of combined policies, suggests that premiums are unlikely to fall much further.
He continued: "Home insurance isn’t subject to the same kind of pressures faced by motor insurance – such as whiplash injury claims. A report by analysts Ernst & Young (E&Y)** last year suggested that 2017 will see home insurers making underwriting losses as costs of claims including managing fraud overtakes premium income. Insurers have been using their reserves to help stay competitive which is unsustainable in the longer term.”
He also points to uncertainty about the longer-term impact of Brexit, including a weaker pound and poorer insurer investment returns as interest rates remain at a record low. “All this points to the likelihood of premium increases,” Lloyd says.
“I also believe in a culture where many hard-pressed families simply buy on price, it is important that they make sure the cover they buy meets their needs. Families must also make sure they properly calculate the value of their contents to avoid under-insurance.
Informal industry estimates suggest that up to a third of those who have insurance are under-insured. This means that in the event of a large claim, they are likely to find the pay-out is reduced by the percentage shortfall of cover.”
Premiums by region
Regionally, Scotland has benefited most over the last quarter of 2016 with the average quoted premium falling by 1.1% to £150.40. However, the cheapest region to insure a property remains the West and West Country, despite a rise in premium of 0.3% to £146.58. The most expensive region to insure a property is London and the South-East, which saw quoted premiums rise by 0.5% to £165.93.
Premiums by age of insured
The biggest fall in in the typical quote for a Buildings & Contents policy this quarter was for those aged 17-22, who saw a drop of 0.4% to £168.47. The biggest rise was at the opposite end of the age scale: quoted premiums for those aged 70 and above jumped by 1.4% - nevertheless, this age group still pays the lowest premiums, typically £135.07.
