Buildings premiums up, but contents cheaper

Home buildings insurance premiums continue to rise, according to the latest quarterly AA British Insurance Premium Index. But the latest figures in the quarterly benchmark study of insurance premium trends shows that home contents premiums are falling.

The Index tracks the movement of premiums quoted from 79 insurers, brokers and schemes for a basket of 750 UK home insurance ‘customers’. It shows that the average quoted premium for an annual buildings insurance policy rose for the sixth successive quarter. It now stands at £223.92, a 2.5 per cent rise over the past quarter and 10.1 per cent over 12 months.

The rise is even more marked in the Shoparound Index, which is an average of the lowest three quotes for each customer and closer to the premium most people would pay, with a 4.2 per cent rise to £133.13.

Conversely, the average quote for a home contents insurance policy fell by 3.2 per cent to £122.34, which is just a few pence cheaper than when the Index was established in 1994 and is at its cheapest since 2001. The Shoparound price fell by an unprecedented 5 per cent to £66.87.

However, the cost of a combined buildings and contents policy rose by 2 per cent to £298.40 – which is more than the average quoted premium for separate buildings and contents policies added together. Simon Douglas, director of AA Insurance, says: “This underlines the fact that even if you get a great price on buildings, the same insurer won’t necessarily offer the best deal for contents (or vice versa).”

Commenting on the upward trend in the cost of buildings cover, Douglas says that insurers are beginning to reflect concern about climate change in their premiums. “The industry is expecting rising cost and frequency of claims for flooding, subsidence and storm damage.

“Such claims aren’t simply confined to areas prone to flooding – for example, compared to the first six months of 2008 there has been a 15 per cent rise in the number and cost of payments for buildings damaged by flash floods and storms in areas with little or no previous record of such claims.

“Meanwhile, tighter building regulations means that structural repairs must meet modern standards for such things as electrical wiring and insulation. As a result, the cost of meeting a claim – particularly for older properties – has been rising steadily.

Douglas says that that isn’t the case with contents where the cost of claims simply reflects the cost of replacing such things as carpets and furniture. And, despite the recession, the number of theft claims has fallen slightly although the average claim cost has increased. He adds that insurers are becoming better at pricing risk which is exaggerating the difference in premium between high and low crime areas.

“The number of fraudulent claims detected has also gone up by 30 per cent this year, suggesting that insurers are becoming more skilled at identifying and dealing with potential fraud. This is good news for honest customers because, as we are seeing, it contributes to falling premiums.”
Nevertheless, Douglas believes that contents premiums are unlikely to fall much further while buildings premiums will continue to rise. “Even so, home insurance is very good value and remains competitive. Homeowners can benefit by carefully choosing the cover they need – buying cheap doesn’t necessarily mean buying savvy. This is where brokers such as AA Insurance can play a vital part by identifying the best and cheapest buildings and contents cover.”