Understanding the Surge in Home Insurance Costs
by Adam Tovey – Director | Independent Mortgage & Protection Adviser @ Prism Mortgage & Protection Advice
In recent months, many homeowners have been startled by significant increases in their home insurance premiums, with reports indicating hikes far above the general inflation rate.
What exactly is driving these steep rises, and what can you do about it?
Why Are Home Insurance Costs Rising?
The Association of British Insurers (ABI), Insurers and other sources tell us the reasons are:
- Higher Repair Costs: The cost of labour and materials for home repairs has risen sharply, meaning it costs more to fix any damage that might occur.
- More Extreme Weather: Climate change has led to more frequent and severe weather events like floods and storms, increasing the number of claims filed.
- Increase in Claims Frequency: Homeowners are now more likely to file claims for smaller issues, possibly due to heightened awareness of their policy details or economic pressures that make them less inclined to pay out-of-pocket.
- Reduced Competition: Several insurers have exited the market, leaving fewer companies to offer policies.
- Changes in Consumer Behaviour: There is a trend towards filing more claims, and younger homeowners may lack the DIY skills that older generations used to avoid making small claims.
Are Home Insurance Policies All the Same?
The short answer is, absolutely not. It’s important to remember that policies can differ substantially in quality. If you see a price that appears ‘too good to be true’, there is usually a reason why. Consider:
What do people usually claim on their home insurance for?
It may or may not surprise you that in 20231:
- 35% of claims were because of accidental damage – like replacing a TV that’s fallen off a wall bracket or a mobile phone that was dropped in the bath!
- 22% of claims were related to some form of escape of water – like a leak in an upstairs bathroom which resulted in the ceiling below falling through!
- 12% of claims were related to storm damage – these type of claims have hugely increased over recent years
If a policy is not robust in these areas, it goes without saying, it may not be fit for purpose.
Quality
At Prism, we only recommend policies that are robust in the above areas and rated 5* by the independent quality assessment firm, Defaqto.
Defaqto offer the following simple 1-5 star rating based on the features of each product, not opinions:
| Star Rating | What does it mean? |
|---|---|
| ★ | A basic product offering only a few features and benefits |
| ★★ | A product offering fewer than average features and benefits |
| ★★★ | A standard product providing an average level of features and benefits |
| ★★★★ | A product with a good level of features and benefits |
| ★★★★★ | An excellent product with a comprehensive range of features and benefits |
Trace & Access
As mentioned above, escape of water is the second largest reason for claims and can, of course, lead to further damage if it is not identified and rectified.
Finding the source of a leak can be an expensive and disruptive process. Think, a pipe in or beneath your home freezes and bursts – it can take time to realise there’s a problem and, thereafter, it can be hard to find where the water’s coming from.
‘Trace and access’ is the part of a home insurance policy that covers the cost of finding the source of a water leak.
We would be forgiven for thinking this would be included in all policies without any limit on the claim amount.
Unfortunately, this is not the case. Many policies do not include Trace and Access at all, or include it with a low limit which often renders it largely useless.
It’s worth noting too that policies can differ greatly around what the insurer would pay for after a leak is identified and rectified. There are horror stories where the significant damage caused by the leak are left for the customer to cover and make good.
Main point – these policies are not all made equal.
What Can You Do?
1) Impartial Advice
We always compare prices from multiple insurers. As premiums rise, the differences in rates between providers can be substantial.
Home Insurance premiums are renewed each year so review your options each year!
2) Consider Bundling Policies
Some insurers offer discounts if you bundle multiple policies, such as home and vehicle insurance. Check if this option can provide savings but remember the above, do not compromise on quality!
3) Increase Your Excess or Remove Additional Benefits
Opting for a higher excess – the amount you pay out of your pocket when you make a claim – can lower your premium. However, make sure it’s an amount you can afford to pay if the need arises.
Opting to remove an optional, additional benefit – like Legal Cover – is sometimes possible and could lower your premium. However, make sure you understand what you are giving up!
4) Invest in Home Security
Enhancing your home’s security with approved locks, alarm systems, or smoke detectors can reduce your risk profile and potentially lower your premiums with some providers.
5) Avoid Underinsurance
While it might be tempting to lower your coverage to cut costs, underinsuring your home and contents can be financially disastrous if you need to claim. Ensure your insurance coverage accurately reflects the value of your home and its contents.
Conclusion
The rising cost of home insurance is a complex issue influenced by several factors, including increased repair costs, more extreme weather, and changes in the insurance market itself. By understanding these factors and exploring ways to mitigate the impact on your wallet, you can manage your home insurance more effectively.
Remember, the goal is to balance affordable premiums with adequate protection, ensuring that you’re covered when it counts the most.
For expert advice on your home insurance, get in touch with us today.
- Paymentshield data May 22 -April 23 ↩︎