Buildings Insurance went up again last year, costing homeowners another 1% a year, taking the average to just over ?205 for a year's insurance. Contents insurance also went up, this time by 2% - now it costs the average homeowner ?151 a year. However, some lenders are hiking prices even higher than that ? Norwich Union for example, raised its prices by a whopping 6% last year.
The question is - why? There's so much competition out there, you'd expect prices to be falling, not increasing ? but there are other forces at work, as we go on to discuss.
No 1 ? the cost of having a house repaired or rebuilt
Labour and building materials are getting more costly, so when the insurance company calculates how much it would cost to rebuild your house, prices are higher. This is due to inflation, and the same thing affects the insurance company and its own operating costs. Wages, bills, office rental ? all these costs are increasing year on year ? so of course insurers have to factor these in.
No 2 ? the weather
The British weather is getting more and more tempestuous, whether it's due to global warming we are not qualified to say, but it's a fact that we have been experiencing a lot of extreme weather in the past few years. The 1987 hurricane was a freak occurrence, but flash floods such as the incident in Boscastle, Cornwall, Helmsley in North Yorkshire, and Carlisle are making the headlines on a regular basis. The Association of British Insurers has stated that the average insurance claim due to flood damage could be anything from ?15,000 to ?30,000, making huge dents into the insurance industry's profits. In fact, floods cost insurance companies millions every year.
No 3 - Burglary
Claims due to burglary have been going up, now average at around ?1,400. The 2 main causes are:
? From digital cameras to laptops, game consoles to ipods ? our houses are full of electronic gadgets with a high value bought new, and a high value resold. Burglars are after these items and it's hitting the insurance industry where it hurts ? their pocket.
? Burglars pick posh neighbourhoods to ensure they get away with the best items - with expensive items like jewellery for the taking, the value of these kind of claims is increasing.
Insurance companies use statistics relating to a postcode area to calculate premiums for everyone in that area. If your neighbours have suffered subsidence, or your area is near a river which has been known to flood ? you will have to pay higher premiums. Similarly, if people in your area have been broken into, then it will be assumed that you are at a higher risk of making a burglary claim too.
Having a no-claims discount is a help when it comes to offsetting the annual rise in premiums, but insurance companies cap these discounts once you have 5 years no claims, so you will not get any further discounts.
So is there any way to avoid the rising cost of home and contents insurance?
The first thing you can do is look around for the best deal. Try the Internet for the best deals, because most insurance companies offer a discount, often 10%, for customers that buy online. You will also save if you pay by direct debit. It's tempting to accept your current insurer's renewal quote but don't be fooled ? the small amount of effort it will take to shop around will pay good dividends. One of the reasons for this is because insurers always offer their best deals to new customers, existing customers are virtually penalised for showing loyalty!
Improving your home security is another good way to reduce premiums ? while giving you essential peace of mind. Neighbourhood watch schemes, external security lighting, a burglar alarm, security locks on windows, and industry-recognised locks on external doors will make a difference. Obviously these things cost money to install, but they pay for themselves in the long run.
Play the insurance company game and you will always win ? shop around, be prepared to move insurance company every year, and don't accept any high prices. There's always a better deal out there!
If global warming continues, by the year 2030, the 1.5 million homes already at risk, could mushroom to 3.5 million.
The Royal Institution of Chartered Surveyors warns that if you can't get insurance for your house, it's value will fall as mortgage lenders will not lend on homes deemed uninsurable.
According to a survey, 6.5 million homes are already at risk from flooding, 1.5 million of which are in 'high' risk areas.
Meanwhile, the government has completed flood defenses in many such areas and protection for a further 80, 000 homes is due this year. However, concerns have now been expressed about a further 120, 000 new homes in the 'high risk' zone of the Thames Gateway.
In 2003, the Association of British Insurers (ABI) agreed principles which committed UK insurers to offering home and contents insurance for properties in areas which are assessed to be at a flooding risk once in every 75 years or more.
However, the principles were that the flood defenses had to be already in place or were to be completed by 2007.
The Department for Environment, Food and Rural Affairs (DEFRA) has the responsibility of developing and maintaining these flood defenses. But, due to insufficient progress on the defenses the insurance industry has raised widespread concern and warned the government of a withdrawal on the commitment if progress should remain slow.
In the meantime, those with homes in areas threatened by floodwater could find their insurance premiums soaring. Whilst the insurance industry agreed to provide insurance cover, their commitment was simply to maintain premiums at a 'reasonable' level.
However, there was never any indication of what 'reasonable' defined and as a result, premium increases of 60 per cent have been common with increases of up to 400 per cent in risky areas. In country areas where DEFRA considers the cost of defending a cluster of a few homes to be uneconomic, some cover has been withdrawn completely.
Environmentalists are now warning that unless DEFRA acts now, the UK's current bill for flood damage could rise from ?950 million a year to up to ?3.2 billion. Presently, the average insurance claim for household flood damage is even higher than that of fire damage at a staggering ?30, 000. To put that into prospective, localised events such as the 2004 flood at Boscastle, Cornwall, can cost the insurers over ?15 million.
If you are in any doubt whether your home or proposed home is in a flood risk area, visit the DEFRA website at . The website can tell you whether or not your home is at risk of flooding by assessing maps originally designed for planning purposes although, information is only provided on a post-code basis.
While many insurers use the DEFRA information, others, such as More Than, use their own maps to assess homes individually rather than by post-code areas. This means that if your existing insurer increases your premium for flood risk and uses the DEFRA information, you may still be able to get a cheaper rate using an insurer who assesses it's own flood data.
With pressure now mounting and concerns over the effects of global warming increasing everyday, unless the government acts and increases its spending on flood defenses soon, the insurance industry will very likely discontinue their commitment to the 2003 principles. That could be very bad news for many homeowners across the UK and could quiet literally cost billions of pounds in the not too distant future.
Both Michael Challiner & are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Michael Challiner has sinced written about articles on various topics from Finances, Advertising Guide and Quit Smoking. Michael Challiner has 15 years experience in financial services marketing at senior level. Michael now works as the editor of Lloyds Insurance underwriting who offer. Michael Challiner's top article generates over 165000 views. to your Favourites.
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