Home insurance premiums dry up

There’s been little to celebrate for homeowners since the turn of 2008 with the aftermath of the credit crunch forcing up mortgage rates and household bills on the rise due to an increase in wholesale gas prices. That’s why any time premiums settle instead of increasing it can seem like good news. In the case of the home insurance sector, premiums have indeed shown little movement since the turn of 2008. In fact, the average quoted buildings insurance premium fell by 0.2 per cent to £208.51 – that’s down from £208.93 in the previous quarter. By contrast, contents insurance premiums rose slightly by one per cent from £127.24 to £128.57. The average premium for combined home insurance policies, that’s buildings and contents taken out together, has fallen from £297.19 to £293.11 – representing a 1.4 per cent decrease. Clearly the movements are so minuscule that they hardly indicate any dramatic changes one way or the other. However, there are warning signs that this is just the calm before the storm.

Why home insurance premiums are likely to rise

Speculation that home insurance premiums would rocket on the back of last year’s floods was clearly wrong. However, with home insurance companies forced to splash out more than £3million in claims last year and further storms already hitting the UK in 2008, it may be possible that home insurance will eventually rise steeply across the board. Already some home insurers have acted to effectively price out the areas most at danger of being hit with a flood. If you live in a flood-risk area, as indicated by the Environmental Agency website, premiums may have already risen by as much as 40 per cent – forcing some homeowners to abandon their policies altogether.

In fact, Andrew Strong, CEO of AA Insurance, speculates that the slight drop in the average buildings cover premium may be explained by the rise in the number of risks not being covered by insurers. In other words, some home insurance companies will now not cover flooding at all in high-risk areas meaning their premiums have dropped accordingly. This does not necessarily mean that homes will become uninsurable – instead it indicates that insurers will want to know more about your home and your circumstances. For example, an insurer may wish to know what flood protection provisions are in place in your area before offering a quote. Those in high-risk areas with few provisions are likely to face a steep rise, while some may simply opt to remove flood provisions from their cover altogether.

Is now a good time to search for home insurance?

Buildings insurance reached its highest point on record last year, but generally home insurance premiums remain remarkably stagnant. Since records began in 1994, the average premium has only risen by 4.5 per cent suggesting that home insurance still offers incredible value for money. With more bad weather predicted and therefore a further rise in claims it seems highly unlikely that premiums can continue to remain at such comparatively low levels. Consequently now is a good time to secure a cheap home insurance deal. The key however, is how you go about finding this deal. If you are an existing home insurance customer it can seem easy to simply accept a renewal quote. However, it’s unlikely that your existing insurer’s deal will be as competitive as when you first took it out – introductory offers made available to new customers make shopping around the best way to save.

For example, AA home insurance offers a 30 per cent discount that is available to customers in their first year only. Barclays has a £50 cash back deal for new customers and Birmingham Mid shires offers a £75 cash back deal. Churchill guarantees to beat renewal quotes by £30 no matter who you are insured with and Halifax will give you a 35 per cent discount if you buy buildings and contents together online. With so many attractive deals to choose from, the best move is to compare them all with one search – by using a home insurance comparison website. However, don’t let your savings end there. If you live in a flood-risk area stock up on sandbags and fit door and window barriers – informing your insurer of these actions could slash your premiums. Look at the security of your home too – fitting a house alarm or time-sensitive light switches could save you money.

Finally, think about how you pay your home insurance. Though monthly direct debit can be convenient it will add interest to your payments. If you can afford to, pay annually to cut out interest charges so you can enjoy cheap home insurance.