Pas Trustednews – Home insurance premiums rise 10% in a year to £329

  • Cost of buildings and contents cover is rising as insurers pay more claims
  • Average household now pays 10% more for cover than they did last year 

Homeowners are weathering a 10 per cent hike to their home insurance premiums – with further increases likely.

The average buildings and contents insurance premium rose 10 per cent in a year to £329 for the second quarter of 2023, according to the Association of British Insurers  trade body.

This is because insurers are passing on steep rises in claims costs, the ABI said.

The trade body said home insurers are now paying out around £8.6million every day in claims. The typical claim was £4,300 in the period, a rise of 24 per cent.

Cracking up: Insurers said a spike in subsidence claims was a key reason for premium rises

The increase has been partly driven by a rise in subsidence claims following last summer’s record-breaking heatwave, which have taken time to investigate and settle.

Subsidence payouts were £54million for the period, up 21 per cent on the £45million paid in Q2 2022.

Around £782million was paid out in fire, theft, weather, escape of water, subsidence and accidental damage claims.

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ABI director of general insurance policy Mervyn Skeet said: ‘Home insurance continues to do what it says on the tin – support customers when the worst happens.

‘Not only being the roof over their heads and the family home, for most people their house is their most valuable asset which, without the protection of home insurance, could be at risk.

‘These latest figures show that despite rising claims costs, insurers continue doing all they can to offer competitively priced cover to UK households.’

Will home insurance premiums rise further?

Home insurers overall are paying out more in claims than they rake in with premiums – and this has been the case for the three years to 2022.

Even between April and June this year, premiums rose by 10 per cent while claims payouts are up by 21 per cent.

So the obvious question is: will insurance costs have to rise further to cover this apparent black hole in insurers’ finances?

At first glance, this does seem likely, although the ABI will not speculate.

An ABI spokesman said: ‘Individual insurers will make their own commercial decisions on prices and is not something we can speculate on.’

However, individual insurers may be able to keep premium hikes down, as their finances are in better shape.

What is combined operating ratio?

COR is how insurers judge underwriting profitability, and it is worked out by taking claims costs and expenses then dividing by premiums.

Any COR above 100 means an insurer is losing money, while a COR of less than 100 means it is profitable.

A COR in the 90s is great, while a COR in the 80s or below is fantastic.

Firstly, most insurers are actually still making money from underwriting – the careful balance between the premiums they charge and the claims they pay out.

For example, the largest home insurer, Aviva, made a healthy profit from underwriting last year, according to its 2022 accounts.

The insurer’s general insurance combined operating ratio (COR) was 94.6 per cent in 2022, meaning it made money.

However, the 2022 COR of the second-largest home insurer, LV, was 110.3 per cent, meaning it lost money.

However, both insurers’ COR does also include areas of insurance such as car and travel, not just home insurance.

COR does also not include other ways insurers make money, such as investments and fees.

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