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Cost of home insurance rises for first time in five years

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Premiums for home cover have been falling for three years, but they could be on their way back up
Cost of home insurance rises for first time in five years

Home insurance premiums could have hit the floor and be rising once again, according to the latest benchmark AA British Insurance Premium Index. It reports that three years of falling premiums came to an end in the fourth quarter of 2015, when they rose for the first time since 2011.

The index showed a small increase of £2 (1.7%) in the average quoted Shoparound premium for home buildings, contents and combined policies – the first since 2011. This puts the average policy cost at £108.59, which is still 1.4% less than 12 months ago.

Flooded with claims

Claims for homes ruined by the recent devastating floods are now expected to reach an estimated £1.3bn, of which about half is for domestic properties, while disruptive weather including sub-zero temperatures, snow and further wind and rain, are expected to add to claims over coming weeks.

But this isn’t the main reason for rising premiums according to the AA. It says that the increase in Insurance Premium Tax (IPT) – introduced from 1st November – can be blamed for the hike, not flood damage.

Mike Lloyd, director of AA Home insurance explained: “Home insurance premiums have been falling fairly steadily for four years. The trend appears to be continuing, albeit at a slower rate, if you take out the effect of the IPT increase.

“Nevertheless, the recent flood claims appear to have slowed the fall in premiums and could lead to modest premium increases over the rest of 2016.

“Past experience suggests that claims in excess of £1bn in a single event would trigger a premium increase and for domestic property they currently fall short of that. And, competitive pressure remains tough.”

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