Why are insurance costs so crazy?

If you own your own home or drive a car, chances are that you’ll have spotted just how ridiculous insurance costs are at the moment – why the rise? And what can we do about it? Read on…

Make no mistake: the cost of protecting your worldly goods or your motor has got seriously expensive.

Take home insurance – the cost of an average buildings and contents policy has gone up by more than a quarter over the past year. This is the highest rise reported by the firm behind that data – Consumer Intelligence – since it started tracking prices nearly a decade ago. Other data from a firm called Pearson Ham suggests home insurance has gone up a third compared to last year – whichever you slice it, we’re talking about a big rise here.

The average yearly cost of a policy is now £329, according to the Association of British Insurers, but some insurers are charging much more. I’ve come across examples of people being quoted many hundred pounds more than that.

Insurers are blaming more extreme weather events, the war in Ukraine which has pushed up energy costs, shortages in supply chains, higher bills for labour and materials and so on. But insurers do not have provide a detailed explanation as to why YOUR premium has gone up specifically.

Bear in mind that your premium is likely to go up the most if you’ve made a claim, particularly for so-called “escape of water” i.e. when there’s been a leak from the mains supply

And the more extreme cases of premiums going up by several hundred pounds could be down to specific local risks that the insurers are pricing in more, like flooding.

Home insurance is certainly a good idea, but it’s not compulsory – unlike car insurance. The cost of a typical car policy has gone up even more – by a whopping 46% over the past year, according to Pearson Ham.

Again, insurers are blaming the knock-on effects of inflation and shortages in the supply chain for materials needed for repairs, but also car crime is going up. The result? More claims, and therefore higher premiums.

Frustratingly, it seems that quotes can keep on rising despite rules designed to stop people being charged a so-called loyalty premium – the practice of bumping up renewal quotes after a year or two with the same insurer was banned by the Financial Conduct Authority, and that has even led to fines on insurers for failing to pass on that change, namely Direct Line which had to pay £30m this year.

So it looks like there’s still no substitute for shopping around – or at the very least, giving your insurer a big kick up the bum if they come to you with a quote that’s taking the mick. Here are my tips how to drive those costs down…

  1. The number one piece of advice is, as ever, shop around and compare prices as soon as you receive your renewal notice. Better still, dig out those documents and find out when the policy renews and call up your insurer four weeks before that, and ask: “what can you do for me?”
  2. Don’t rely solely on one comparison site because it’s probably not going to give you am exhaustive overview of the market. Different insurers appear on different comparison sites, and you may the find the same insurer pricing policies differently on various comparison sites, so make sure you look at all of them to ensure you get the best deal. Also, don’t forget about the insurers who aren’t on comparison sites like Direct Line and NFU Mutual.
  3. Even if you’ve found an attractive quote, just phone up that insurer and find out if they can do an even better price for you.
  4. With home insurance, check that you’re not doubling up on cover through a packaged or paid-for bank account – sometimes they offer policies as an add-on.
  5. For car insurance, you might want to add another responsible driver to your policy to make savings.
  6. A more drastic option would be to have a black box installed in your car – this is known as telematics insurance and essentially it allows to insurer to remotely track your driving and give you cheaper insurance if they can see that you’re driving safely.
  7. Think about when and how you use your car. If you’re not using it say every day, do you need to pay for more mileage than you intend to use? Are you only using it for social purposes and if so, could you get a cheaper policy to reflect that?
  8. When it comes to the voluntary excess, this is the amount that you pay if you make a claim, and the higher that amount is, the cheaper your premiums will be. But be careful – you need to make sure you can actually pay that amount in the event of a claim.
  9. And finally, look into whether you could pay for your policies once a year rather than monthly because that could save you money too.

The good news is that prices might stabilise over the next year. Pearson Ham reckons this could be the peak of the price rises that we’ve seen and if so, maybe the next renewal period will be less stressful and surprising for people – let’s hope so.

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