Home buildings and contents cover rise sharply

Despite continuing premium rises for buildings cover, and a reverse in the falling trend in the cost of contents cover, home insurance continues to represent exceptional value for money and has not been as volatile as the motor market, according to AA Insurance.

However, the cost of buildings insurance has seen a steady increase throughout 2009, amounting to 10.5 percent over the year for the average quoted premium.

Simon Douglas, director of AA Insurance, says: "This steady rise reflects both the rising cost of repairing buildings and the increasing frequency of claims.

"2009 saw a number of extraordinary, although often localised, severe weather claims which has included surface water flooding, often in places with no history of flooding, as well as flooding from swollen rivers.

"The year began with heavy snowfalls.  Later there were storms producing property-damaging hailstones the size of golf balls; high winds and even tornadoes which have been ripping off roof tiles, demolishing chimneys and bringing trees down on buildings.  The year closed with the Carlisle flooding disaster and heavy snow again - all of which ultimately feeds in to premiums.

"The industry is acutely aware of the risk associated with climate change and needs to build reserves to meet the seemingly increasing frequency of extreme weather events."

Douglas point out, however, that the cost of buildings cover is still only 24.3 per cent higher than when the Index was first launched in 1994 although most of that gain has happened over the past 18 months.

Contents insurance, however, has until the last quarter of 2009 bucked the premium trend, falling to below its 1994 value.  But following a slight increase over the third quarter, the last three months of 2009 saw the sharpest rise in average quoted premiums since the Index began, wiping out the falls of the previous 18 months.  Part of this increase is due to a 50% discount offer from one insurer that was available in September but has since been withdrawn.

"We have yet to see whether this is the start of an upward trend," Douglas says.  "Average premiums for contents cover have remained low thanks to heavy discounting, despite increasing cost and frequency of claims during the recession.  I think we are seeing the industry correcting this anomaly."

Combined buildings and contents cover showed a steeper increase than either buildings or contents, with a quarterly rise of 8.0 per cent.  "This suggests that it is sometimes more cost effective for buyers to source their home and contents cover from different providers," Douglas suggests.

The Shoparound increases have been less than the market average, which indicates that there are still deals to be had for those prepared to shop around for their cover, or use a broker such as the AA to find their cover for them.